US wheat back in vogue
ABDALLA F. HASSAN | Business Monthly | June 2003
In a reversal of recent purchasing tactics, Cairo last month bought 120,000 tons of US wheat, sending wheat futures to two-month highs on the Chicago Board of Trade. On May 7, Egypt’s official wheat buyer, the General Authority for Supply Commodities (GASC), purchased 60,000 tons of American soft white wheat at $131 a ton and another 60,000 tons of American soft red at $118 a ton.
The move was a surprise, as GASC’s recent preferences have been for French rather than US or Australian wheat, with over 60 percent of Cairo’s wheat purchases this year coming from France. The US market share of Egypt’s wheat imports for the same period, meanwhile, is at about 20 percent, down from the 60 to 70 percent it typically enjoys.
The United States has long been used to dominating the region’s wheat markets, even supplying the demands of some so-called “rogue states.” Prior to the recent war in Iraq, US wheat comprised a third of Iraq’s grain imports, amounting to more than a million tons a year.
According to Dick Prior, regional vice president for US Wheat Associates, a non-profit organization funded by US wheat farmers, GASC’s decision was based solely on financial considerations. “Any changes in wheat-buying have been a function of price, completely,” he said. “And price has been driven by supply.”
Last year, he explained, France had an unusually large crop, as did Russia and Ukraine. Top wheat producers Australia, the United States and Canada, meanwhile, have all suffered reductions of their respective harvests, driving up their prices. French wheat prices, by contrast, have remained relatively low, seldom rising above $120 per ton.
The coming season, however, is expected to see a 40 million-ton increase in the combined US, Canadian and Australian harvests, according to Prior. “The US typically produces 58 million tons, whereas last year we only had 44 million. Canada is usually around 25 million, but they had only 15 million last year.” This season, he said, “they are all expected to be back up again to higher levels,” adding that Australia too is expected to field a hefty surplus of 24 million tons in the coming season.
The larger supplies from these countries, therefore, will probably bring their respective prices down, making them better able to compete with French wheat.
GASC, for its part, has also shown a recent interest in cutting barter deals with Russia, in which Egypt would get Russian wheat in exchange for certain commodities. Many details still need to be worked out, however, before such an arrangement can be implemented.
While Egypt has stated that it wouldn’t pay more than the equivalent of $85 a ton for Russian wheat, this, according to Prior, is unrealistic. “If Russia has a short crop, and the quality is decent, and the market happens to be strong, they can get a lot more than $85 [a ton]. Russia is not going to be inclined to give away good wheat at $85 when the world market is above $105,” observed Prior.