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You Are Here: Home » Africa/International » Egypt cuts US wheat purchases
High shipping costs and inflated prices are smothering U.S. wheat sales to Egypt, the world’s top importer which just two years ago was the No. 2 buyer of U.S.-grown wheat.
Egypt’s increasingly stringent quality specifications for imported wheat have thrown up additional hurdles for exporters, prompting some U.S. suppliers to forego offering wheat altogether in recent tenders.
Sales to Egypt from the United States, the world’s top wheat exporter, are down 70 percent from a year ago in the current marketing year, which began on June 1.
Suppliers are being cautious after Egyptian quarantine authorities delayed or refused entry to several wheat shipments this year from Russia, France, and most recently the United States, citing subpar quality.
“Ever since that (U.S.) vessel got rejected in Egypt, there are some people really worried about Egypt holding vessels, taking five or 10 days discharging them,” said one U.S. trader.
Delayed shipments can cost suppliers tens of thousands of dollars in unexpected freight charges.
Last week, Egypt said it will start sending agricultural quarantine officials to inspect wheat at ports of origin.
Some U.S. traders said this could disrupt their streamlined loading operations.
However, trade sources said it would be premature to say the United States was permanently losing Egypt as a top customer.
“We’re losing market share right now because there is cheaper wheat available overseas that can be delivered to that Egyptian market for less,” said Shawn McCambridge, analyst with Prudential Bache Commodities.
“If we ran into a year when maybe we see the EU or the Black Sea region suffer significant losses because of drought, for example, then we’d see that market shift.”
BUYER’S MARKET
Egypt, which imports large amounts of wheat for its subsidized bread program, can afford to be selective at the moment amid abundant global wheat stocks.
“Unfortunately for wheat, it’s become a buyer’s market. Egypt is taking full advantage of that,” said Dan Manternach, analyst with Doane Advisory Services.
Less expensive wheat from the Black Sea region, which includes Russia and Ukraine, and from Europe has largely undercut U.S. sales to Egypt recently.
U.S. soft red winter wheat shipped from the Gulf of Mexico is currently more expensive than French wheat by at least $25 per tonne. It costs $35 to $40 more than Russian wheat, on a free-on-board basis, traders said.
It also costs $10 to $20 per tonne more to ship wheat from the United States to Egypt at the moment than it does from countries that are closer to the Mideast, they said.
U.S. wheat sales to Egypt may still rebound in the second half of the marketing year if the supply of high-quality wheat from other origins runs low.
“U.S. sales typically don’t pick up until our competitors hang out the ‘sold out’ sign. I still think that will happen in the last half of the marketing year,” Manternach said.
But some frustrated U.S. wheat exporters were more skeptical because U.S. prices keep climbing despite bearish fundamentals.
Wheat futures on the Chicago Board of Trade have soared nearly 15 percent from early-month lows on buying by investment funds.
“(Index traders) are about 40 percent of the open interest on the long side and it never changes. If they held 20 percent of the open interest instead of 40, I think we’d probably be closer to competitive again,” one wheat exporter said.
Source: Reuters