CAIRO: US grain suppliers are likely to start winning tenders to sell wheat to Egypt in February, when Russian wheat loses its competitive edge and Argentina retreats from the market, an official with a US industry group said on Thursday.
Egypt, the world’s largest wheat importer, has relied heavily on wheat from the Black Sea since the start of the fiscal year on July 1.
US soft white wheat prices offered in the latest tender to Egypt’s main buyer, the General Authority for Supply Commodities (GASC), on Dec. 13 were cheaper on a free on board basis (FOB) than Argentine wheat. The offer for soft white wheat stood at $225.64 a ton, while GASC purchased Argentine wheat at $226 per ton FOB.
"US wheat prices are going to be more competitive … We are sitting on a lot of wheat, and come February, that’s when I see our sales picking up," Richard Prior, US Wheat Associates regional vice president for the Middle East and North Africa, told Reuters.
GASC has bought around 3.36 million tons of Black Sea origin wheat since July 1 and has started buying Argentine wheat this month, purchasing up to 240,000 tons.
"Argentina is buying itself into the market now. Russia was buying itself into the market from August until around November, but now they are starting to be a bit more conservative," Prior said.
"Our wheat was just around a dollar more expensive when you added freight," Prior said. "We knew we were getting competitive on price, and we could see we might be in the ball game."
The United States, once a major supplier of wheat to Egypt, has taken a back seat in recent years to Black Sea wheat, which has been priced more competitively and costs less to ship given its vicinity to North Africa.
Egypt spends billions of dollars on wheat purchases every year, so price is a major factor in GASC tenders.
In the fiscal year that ended on June 30, Egypt spent around $5.5 billion on food subsidies, the bulk of which were on wheat. The most populous Arab country consumes around 14 million tons of wheat annually and imports half of its needs.
Subsidies crucial to government
Even as the economy falters and foreign reserves tumble after the uprising that toppled president Hosni Mubarak in February, Egypt’s wheat purchases are expected to remain steady.
"I don’t see GASC doing anything different, and I don’t see suppliers being impacted at all," Prior said.
GASC’s wheat purchases are crucial to Egypt’s more than 80 million people. Wheat is used to make subsidized bread that allows millions to survive on low pay. Egyptians pay as little as 5 piasters (less than one US cent) to buy saucer-sized flat loaves of 130 grams each.
Any shortages in the supply of subsidized bread would easily lead to political instability. In 1977, president Anwar Sadat’s bid to raise bread prices led to riots. Mubarak also faced protests in 2008 over shortages.
"Wheat is important to the government no matter who is running it," Prior said.
The US Department of Agriculture runs several export credit programs, such as the GSM 102, which GASC could use should the need for financing arise, but Prior said he did not expect that to happen given the importance of wheat in any budget.
"GASC hasn’t used any credit programs since the Gulf War of the 1990s," he said, adding that the Egyptian government would always make it a priority to supply GASC with whatever money it needed to fund its purchases.
Should GASC opt to use a US credit program, it would still buy its wheat through tenders to get the cheapest price and then apply for the program.
"They’re not going to go out and just have a GSM tender, as that would mean that US suppliers would raise the price of their wheat," Prior said.