EGYPT’S state grains buyer, the General Authority for Supply Commodities was active in the global wheat market again last week, snapping up two parcels of Black Sea wheat totalling 600,000 tonnes by international tender, with payment on a 270-day letter of credit (LC).
Last Tuesday, GASC announced it had purchased three 60,000t cargoes for shipment between January 26 and February 4 after offers were received from Bulgarian, French, Romanian, Russian and Ukrainian exporters. The purchase included two Russian cargoes at US$255/t free on board plus freight of $23.25/t for a landed cost and freight price of $278.25/t. The third cargo was Ukrainian origin at $249.90/t FOB plus freight of $19.10/t for a C&F price of $269/t.
The tender received a total offer volume of more than 2 million tonnes (Mt) across three shipment periods, with prices sought from each participant for payment by both sight LC and 270-day LC. The January 5-15 slot attracted nine offers totalling 515,000t, the cheapest being Russian origin at $250/t and $263/t for the respective payment options. The second tender period was January 16-25, with ten offers totalling 580,000t submitted with the lowest sight LC price of $250/t and the best 270-day LC price of $260/t. GASC only made purchases in the final period, which attracted 17 offers totalling 1Mt with the sight LC price at a discount of around $5/t to accepted offers.
No sooner had the ink dried on Tuesday’s purchases, and GASC announced another tender with offers invited by noon December 7 for two shipping periods and the same two payment options. The first shipping period was January 10-20 with six offers received, five Russian and one French amounting to 345,000t. A total of 210,000t was booked from Russian exporter Grain Flower in four bottoms at $265/t FOB for payment on 270-day LC. Freight was reported at an average of $21.80/t for an average C&F price of $286.80/t.
The second shipping window of January 21-31 attracted seven offers, four Russian, two French and one Romanian, for a total of 415,000t. GASC went for more of the same, booking another 210,000t of Russian wheat in four cargoes from Grain Flower at the same value as the earlier shipment period. The most intriguing thing about last week’s second tender is the Russian prices were up $10/t on an FOB basis in just three days.
Return to tender
Last week’s international wheat tender activity was the first in some time for GASC after it had resorted to direct purchases via private negotiations over the past three months, with Russia dominating the dialogue. In early September GASC reportedly purchased 480,000t Russian wheat from trading firm Solaris at around $270/t C&F plus one cargo from Bulgaria at the same price. In the second week of October, GASC booked another eight 60,000t cargoes from OZK, also known as United Grain Co, a Russian state-backed trader at $265/t FOB. Then, late last month, another 480,000t parcel was purchased, again from Russian exporters.
Egyptian wheat production in the 2023-24 marketing year (Jly-Jun) is forecast at 8.87Mt, down 6.63pc from 9.5Mt in 2022-23 after the planted area dropped by 100,000 hectares to 1.35 million ha. The fall in the planted area is reportedly being driven by an increase in the area allocated to Egyptian clover and sugar beets.
Wheat in Egypt is generally planted in November and harvested in April of the following year. The government’s wheat-procurement season traditionally commences in mid-April and continues to mid-July. However, this year, it was extended to mid-August to give farmers more time to deliver their crop to government collection centres. In the current calendar year, the government purchased almost 3.8Mt from farmers, down from around 4.2Mt in 2022.
Local price lifts
In April this year, the government increased the domestic procurement price from 885 Egyptian pounds (EGP) per ardeb to a maximum of 1500 EGP/ardeb, depending on purity and quality. With one ardeb equivalent to 150kg, this equates to around $324/t (A$492/t). On November 2, just as this year’s planting window opened, the government announced next year’s procurement price, increasing it to a maximum of 1600 EGP/ardeb, or $345/t (A$524/t), in a bid to arrest the wheat area decline.
Wheat consumption in the current marketing year is expected to be 20.6Mt, fractionally higher than 20.55Mt in 2022-23. With stockfeed and residual use unchanged at 1.3MT, the increase is totally attributable to a rise in food seed and industrial use to 19.3Mt. The demand is being driven by a combination of domestic population growth, currently around 105 million, and migrant/refugee growth, with Egypt believed to be hosting at least nine million foreign nationals, predominantly from Iraq, Libya, Sudan, Syria and Yemen.
According to the USDA’s Foreign Agricultural Service, Egyptian wheat imports are forecast at 12Mt in the 2023-24 marketing year, up 6.9 percent from 11.22Mt last season. The largest suppliers in 2022-23 were Russia with 8.1Mt, the European Union with 1.8 Mt, Ukraine with 856,377t, and Australia with 172,015t.
In the eight months to the end of August this year, imports by GASC accounted for 50.5pc of total wheat imports, with the private sector accounting for the balance. The private industry has increased its market share of wheat imports over the past five years, in line with an increase in the flour they distribute to private bakeries, cafés and patisseries producing high-quality, non-subsidised flour products.
In 2022-23, GASC imported 5.8Mt of wheat to support the government’s bread-subsidy program. Approximately two-thirds of the Egyptian population are eligible for bread subsidies with beneficiaries allocated 150 loaves of bread per month. They purchase each loaf for 0.05 EGP/loaf, around half of the actual cost of production. The government has been trying to reduce the subsidy reliance but rising inflation and cost-of-living pressures have stymied the plan.