Egypt ‘playing with fire’ as wheat disputes risk supply

07.06.2018

Egypt may have to import more wheat - and at higher prices - as problems from payment disputes to a fungus-tainted cargo disrupt supplies to one of the world’s top importers.

The North African country last week said it rejected a cargo of Russian wheat due to higher-than-allowed levels of the common ergot fungus, which is only harmful in large amounts. That follows two shipments of Russian grain that were held back amid payment disputes, while another won’t be shipped due to a missed delivery time.

Delivery disruptions could leave Egypt’s state-run buyer in a difficult position, having to buy at much higher prices than in previous tenders. Benchmark futures in Chicago surged 23% this year amid dryness from the US to the Black Sea region that hurt crops. Any purchases would also come at a time when the General Authority for Supply Commodities typically slows imports toward the end of the season.

“Egypt is playing with fire,” said Pierre Tronc, a broker at BGC Partners in Geneva. “The market now is very high compared to what they bought.”

Egypt’s Agriculture Ministry said it turned away a 63,000-ton cargo of Russian wheat at the Red Sea port of Safaga because its ergot levels slightly exceeded international standards of 0.05%.

The rejection comes after payment disputes held back a Russian wheat cargo in Egypt and another one at the Black Sea port of Novorossiysk, people familiar with the matter have said. The vessels were withheld because suppliers didn’t receive payment from AOS Trading DMCC, which then sold the wheat to Egypt in tenders, the people said. A third cargo sold by AOS won’t be shipped as the trader missed the agreed delivery period, one person said.

Egypt’s supply minister on May 31 said the country is considering bypassing AOS to buy the cargo stuck at one of the country’s port directly from the original supplier, and that a decision will be made this week.

The latest issues could mean Egypt has to pay a premium when it next taps international markets, BGC’s Tronc said. The number of tender participants could also fall, as has happened in recent years when Egypt turned away cargoes amid a dispute over how much ergot was allowed.


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