Egypt Fungus Flipflop Has Wheat Market Saying ‘You Go First’

  • Chicago wheat prices boosted by Egypt easing import rules
  • Government plans to hire outside firm to examine grain quality

For the second time this year, Egypt changed and then quickly reversed its import standards for wheat, leaving traders skeptical about doing business with the world’s largest buyer.

Egypt canceled its zero-tolerance policy on a common type of fungus known as ergot on Wednesday, less than a month after reinstating the ban and rejecting cargoes from Romania to Russia. Traders had revolted against the policy by refusing to offer wheat, forcing Egypt to cancel the past three tenders. Within hours of the latest U-turn, the nation told traders it will seek to buy wheat on Thursday.

“Confidence has been badly hurt,” Vincent Jeannin, a trader at Al Ghurair Resources in Dubai, said by e-mail. “Traders might be in a kind of ‘you go first’ mood.”

The country, which relies on regular wheat purchases to provide subsidized bread for its citizens, has been a headache for traders this year because of the frequent rule changes. Unnecessary and burdensome regulations will leave Egypt with more than $860 million in direct costs and lost export earnings this year while its citizens pay more for their food, according to a U.S. Department of Agriculture report in June.

The first ban came earlier this year amid a public health scare and media reports that ergot may cause kidney failure or cancer. Traders withdrew offers and in early July, officials agreed to return to international standards for ergot. It wasn’t long before shipments were being rejected again.

FAO Report

A report from the United Nations’ Food & Agriculture Organization said international ergot standards of as much as 0.05 percent in a cargo don’t pose a threat. The fungus is considered toxic in high amounts.

Egypt turned away at least two vessels in the past month, including ones from Romania and Russia. About 540,000 metric tons of wheat were halted due to the ban, according to the Supply Ministry. The country’s current grain stockpiles will last about five months.

Now with the restrictions eased, the General Authority for Supply Commodities, or GASC, needs to buy wheat, according to Andrey Sizov Jr., managing director at SovEcon, a Moscow-based agriculture consultant. There may be fewer offers at first and traders will ask for a premium of $10 to $15 a ton, he said.

GASC is seeking to buy wheat in a tender Thursday, for shipment on Oct. 21 to Oct. 31, according to its website.

Remaining Skeptical

“We will now see another tender from GASC and this should garner a few offers," Swithun Still, director of Solaris Commodities in Morges, Switzerland, said by e-mail before the details of the next tender were announced. "Maybe not as many as before as some will remain skeptical that this is a permanent change.”

Egypt’s likely return to the market boosted prices on Wednesday, lifting futures in Chicago as much as 0.7 percent to $4.09 a bushel. They were at $4.0725 today. The slowdown in trade had depressed the market, with wheat for loading at Black Sea ports dropping to a one-month low of $167 a ton on Friday, according to the Institute for Agricultural Market Studies in Moscow.

The government will hire an international company to inspect imported wheat, Essam Fayed, Egypt’s minister of agriculture, said without naming the firm. The current system involves sending a government committee overseas.

"GASC needs wheat to get in, as I understood their stock is getting fairly low,” Jerome Sorrel, a ship broker at Pelagos in Croissy-Sur-Seine, France, said by e-mail. “Russians also need to get stock out from their ports. The wheat market needs GASC to get back into the game.”

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