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GASC keeps market guessing

ABDALLA F. HASSAN | Business Monthly | December 2002

Grain prices always seem to go a little crazy when Egypt enters the market for wheat. Following Egypt’s surprise purchase of 420,000 tons of US wheat on October 15, prices on international grain exchanges—fueled by supply-shortage worries—rose rapidly. 


The General Authority for Supply Commodities (GASC), Egypt’s official wheat buyer, bought soft red winter wheat at a price roughly $30 a ton higher than that of available French wheat, and in the couple of days that followed, prices on the Chicago Board of Trade jumped from $150 a ton for soft red winter to nearly $170.


“A lot of the traders did not foresee that coming. I am sure there was a lot more loss than there was gain,” said Dick Prior, regional vice president for US Wheat Associates, a non-profit promotional company funded by US wheat farmers. “The price went jumping sky high, then it started to come back down again,” he said. 


Traders were not sure of Egypt’s access to hard currency, and speculation was rampant that the government had used a USAID cash transfer to finance the US wheat buy. 
Before October ended, another GASC purchase of US wheat looked likely to push market prices even higher. “When Egypt tendered again, offers came in at $10 over the market price for soft red winter,” Prior said.


But then, on October 29, GASC turned around and bought 360,000 tons of French wheat at $119.63 to $129.47 a ton, taking the pressure off the soft red winter produced in the United States. Offers tendered for soft red winter ranged from $179.89 to $194.67 a ton, a roughly $60 price differential. “If Egypt did buy US wheat again, it would have driven the prices up another $10,” Prior said.


GASC has an interest in keeping the market guessing. The United States is the world’s largest wheat seller, and Egypt is one of the world’s largest wheat buyers. The government buyer accounts for roughly 60 percent of Egypt’s total wheat imports. 


But with this year’s short crops in the United States, Australia and Canada, wheat traders agree that prices will continue moving up until the spring, after new wheat crops have weathered the winter and production estimates for the northern hemisphere’s harvest season are tabulated. “I see higher plantings and higher productions, and that will start bringing prices down a little bit,” said Prior. “We may see prices moving gradually upward until April and May. When we see news of new crops, we will see prices coming back down.”


GASC not only has to consider price trends, but also handling and inventory costs, which would also appear to favor France—just across the Mediterranean—as a source of supply. 


Still, buttressed by strong marketing and brand promotion, US wheat commands a premium in the Egyptian market. US Wheat Associates has been running attractive new prime-time television commercials during Ramadan, promoting the American quality wheat seal. (A second television spot, scheduled to debut in the fall, uses British music star Sting’s “Fields of Gold.”) Wheat and flour products brandishing the seal must contain wheat or wheat blends of at least 70 percent US origin. “This logo is clearly an American symbol,” said Prior, “but the products are made in Egypt by Egyptians.”


Egypt makes unexpected wheat purchase

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