Drought In Europe Driving Up Wheat Prices

25.07.2018

A drought that's hit wheat crops across the Black Sea region and Europe will force top buyer Egypt to pay more for supplies.

The cheapest offer in Tuesday's tender was more than $14 a metric ton higher than what Egypt's state-run buyer paid in its last purchase, according to traders familiar with the process and data compiled by Bloomberg. The General Authority for Supply Commodities is seeking wheat for Sept. 1-10 delivery.

Benchmark futures trading in Chicago have surged almost 20% this year, and Paris wheat for December is trading near a record for the contract. Dry weather means Russian production will fall for the first time in six years. Output in Ukraine will be lower than expected. Crops in France, Germany and the Baltic countries are also expected to decline from a year earlier.

"Egypt will have to pay more," said Pierre Tronc, a broker at BGC Partners, speaking before offers were made. "It is just a question of price. I don't see supply being a problem."

GTCS made the lowest offer at $234.26 a ton including freight for Russian wheat, the traders said. Egypt paid an average $220.25 a ton for 175,000 tons of Russian wheat in the last tender on July 10. The second-lowest offer was from Daewoo at $235.66 a ton, also for Russian grain. Six companies offered.

Paris wheat for December dropped 0.5% to 193.75 euros ($226.75) a ton, after Monday reaching the highest since the contract started in December 2015. In Chicago, futures for September slipped 1.1% to $5.08 a bushel.
Russian Domination

Russia will probably continue to dominate Egypt's wheat tenders, Tronc said. Egypt also received offers of Ukrainian and Romanian wheat in Tuesday's tender.

"France is too expensive right now," he said. Traders may also be reluctant to offer French wheat due to cargo delays and rejections last season, he said.

Egypt relies on subsidized bread to feed its nearly 100 million people, many of whom live on or near the poverty line.


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