In a world awash with wheat, the biggest importing nation is struggling to buy the grain.
Egypt canceled its second tender for shipments in a week on Friday as the country that spends billions on wheat each year to provide subsidized bread for its 88 million people stumbled into a standoff with international traders.
Stakes are high on both sides. Egypt’s government was among those overthrown in 2011 in the so-called Arab Spring as high food prices fired up unrest. On the flip side, producers need to offload unsold grain that the U.S. Department of Agriculture sees jumping 9 percent to 232 million metric tons this season after bumper harvests around the world.
“Trade must go on,” said Caroline Bitton, an analyst at Paris-based farm adviser Agritel. “On the one hand, there is high production to export all over the world. On the other hand, Egypt is the first wheat importer, with needs that can’t wait too long.”
The standoff began after authorities rejected a French cargo, saying levels of the toxic ergot fungus in the wheat were too high. Then last month the Agriculture Ministry said it would have zero-tolerance for ergot in the future, sending shockwaves through world markets as exporters complained it was impractical to stop the naturally occurring fungus entirely.
Prices of French grain have tumbled in recent weeks amid concerns over Egyptian demand, with futures in Paris on Tuesday falling for a 10th day to the lowest since July 2010. While prices declined overseas, Egypt found itself unable to buy at any price, winning no offers to sell from traders at a Feb. 2 wheat tender.
Even after a ministry U-turn Wednesday, returning Egypt to the international standard of accepting 0.05 percent ergot in shipments, traders remain wary. The second tender was canceled by Egypt on Friday after sellers sought high prices to compensate for the risk that the country would turn cargoes away.
“Not everybody wants to take the risk on Egypt,” said Paul Gaffet, an Offre & Demande Agricole analyst. “There are a lot of people waiting to see if the boats will be accepted.”
Egypt is forecast to import 11.5 million tons of wheat this season, or 7.1 percent of global trade, based on USDA data. The country spends billions of dollars of its dwindling currency reserves for bread subsidies, purchases that help keep a lid on unrest and are closely followed by grain markets.
“Egypt is forced to import or they’re taking an enormous risk,” said Guillaume Lallemant, who runs French trader Grainitrade. “Not importing is not possible, they risk food riots.”
One thing in the country’s favor is this year’s bumper global harvest. Farmers across the world will bring in a record 735.4 million tons of wheat this season, outpacing demand, according to the USDA. With the surplus swelling, Chicago prices are down 13 percent over the past 12 months.
Even so, Egypt doesn’t grow enough to feed its people, relying on imports and stored wheat to meet their needs. The nation has about 4.1 million tons of stockpiles, sufficient to last to the second week of May, Supply Minister Khaled Hanafy said on Jan. 27.
Egypt last week twice tendered for wheat for March 2-11 shipment, whereas it had waited longer after previous cancellations before returning to the market, according to Gaffet.
“Egypt has two, three months of stocks, so they can delay the tender; they’re not living hand to mouth” he said. Yet the latest schedule may indicate it has “a real need.”