Issues emerging for Egypt’s Black Sea wheat supply…

Written by Peter McMeekin for Grain Brokers Australia on October 28, 2024.

After Egypt’s General Authority for Supply Commodities (GASC) reportedly inked one of its biggest-ever deals regarding the supply of wheat from Russia over a six-month period commencing in November this year, shipment of a prior purchase planned for October loading and delivery no later than the first week of November has been delayed, raising questions over future transactions between two of the market’s largest players.

The private purchase of 430,000 metric tonne of Russian wheat was announced by the state buyer GASC in September and was reportedly secured from Russian grain trader United Grain Company via an intermediary firm. However, as month end fast approaches, progress of the transaction has stagnated, with reports that no vessel nominations have been forthcoming and some of the required export paperwork has been slowed.

GASC has reportedly declined to comment on the cause and extent of the shipping delays, but back in September, the Russian Union of Grain Exporters indicated that there had been some internal disagreement around exactly which counterparties Russian exporters should be dealing with in Egypt.

In a concerted bid to gain more control of the export trade flows of grain and oilseeds and tighten its grip on the incoming revenue, Moscow has been pushing out any foreign-owned merchants on the export side and discouraging the use of intermediaries at the customer end.

In early October, the world's biggest wheat importer announced that Cairo and Moscow had formalised an agreement regarding wheat supply until April 2025. This strategic partnership comes at a time when global food security remains a pressing concern, exacerbated by geopolitical tensions and supply chain disruptions. Interestingly, the deal is being referred to as a joint venture, with the same counterparties believed to be involved in the delayed October shipments.

Under the terms of the 3.12 million metric tonne agreement, Russia will continue to supply wheat to Egypt at a competitive price, ensuring that the North African nation has access to a consistent and reliable source of the diet staple. Around 500,000 metric tonne is expected to be loaded each month at Russia's Black Sea terminals and shipped to Egypt’s Mediterranean Sea and Gulf of Suez ports. The price of wheat will supposedly be agreed upon each month based on prevailing market prices.

Egypt has been grappling with rising food prices and inflation, prompting the government to take proactive measures to secure its food supply. GASC attempted to complete a similar deal back in August when it tendered for 3.8 million tonnes of wheat, but it could only secure 280,000 tonnes from Ukraine and Bulgaria at that time. Egyptian President Abdel Fattah al-Sisi personally ordered the tender after an intelligence briefing sparked food security concerns.

The state buyer has traditionally purchased its wheat requirements through transparent international tenders that can directly and significantly influence global values. But in recent years, it has opted to buy wheat privately through direct deals to garner more competitive prices, with this recent transaction its biggest-ever single wheat purchase.                                                                                               

The deal comes when Russian wheat exports in the first four months of the 2024/25 marketing year (July to June) have been running at near record pace, yet the nation’s exportable surplus has decreased on the back of a smaller harvest earlier this year.

On October 11, Russia’s Agriculture Ministry raised the wheat export tax by 41 per cent to US$19.51/MT and asked exporters at a closed-door meeting not to sell wheat under tender conditions to international buyers below a minimum price in an attempt to slow the export flow. The recommended floor price was initially quoted at US$250 per metric tonne free on board, and exporters were given one week to implement the advice. However, it later emerged that a step up to that number was accepted, starting at US$240/MT FOB for October shipment, US$245/MT FOB for November and US$250/MT FOB for December and beyond.

In a statement following the meeting, the Russian Union of Grain Exporters said the ministry told domestic marketers to only engage in direct deals with export customers and exclude third parties, and to also refrain from supplying Russian grain to foreign merchants that won international tenders lower than the new price floor.

A couple of days later, the Egyptian government reacted to Moscow’s move, announcing a ceiling price for future wheat purchases at US$240/MT FOB. According to a government official, the country has a strategic wheat reserve that can last 5.2 months and does not need to purchase new wheat at the moment due to rising global wheat prices. It is unclear whether “new wheat” includes or excludes commitments under the recent six-month deal.

With a harvest of 9.2MMT and domestic consumption of 20.65MMT, 94 per cent of which is for human consumption, the USDA’s Cairo-based Foreign Agricultural Service team is forecasting Egyptian wheat imports of 12.5MMT in 2024/25. This is on par with the 2023/24 program when GASC accounted for 48.4 per cent of the imports, and the biggest suppliers were Russia with 8.47MMT, Ukraine with 2.14MMT and Romania with 1.23MMT. Egypt's wheat imports increased by 30 per cent to 10.8MMT in the first nine months of the 2024 calendar year, compared to 8.3MMT in the same period in 2023.

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