Egypt, the world’s top wheat importer, suffered a double mark-up on its latest wheat tender as it paid a premium for uncertainty over its customs policy, besides higher shipping costs, which are soaring worldwide.
Gasc, the Egyptian grain authority, bought 175,000 tonnes of wheat from Russia on Tuesday, taking the total it has bought at tender for delivery in 2017-18 above 3.0m tonnes, with the season less than three months old.
However, the price paid for the latest order, at an average of nearly $212 a tonne including freight, was markedly above the little-over $201 a tonne Gasc paid in its last purchase, in late August.
The extent of the increase, at 5.2%, was markedly above the extent that prices have recovered in futures markets, with Chicago prices up 1.6%, and Paris values up 2.6% in dollar terms over the same period.
In cash markets, wheat delivered to Rouen has appreciated by 2.0% over the same period in dollar terms, on Agritel data, to reach the equivalent of $183 a tonnes, while Russian prices of 12.5% wheat for export on an FOB basis are up about 1.6% to some $185 a tonne, on SovEcon estimates.
Rising freight costs
The extra price that Gasc paid reflected in part higher freight charges, with the authority paying up to $16.25 a tonne for shipping from Russia – the highest it has paid on that route since early 2014, according to records kept by Agrimoney.com.
Shipping costs have recovered markedly this year thanks to a slowdown in building encouraged by the drop in rates to record lows last year, with global production of new vessels falling from 2,047 in 2013 to 217 last year, according to Clarksons.
The benchmark Baltic Dry index touched 1,398 on Monday, its highest since November 2014, and taking gains for this year so far to 45%.
Poppy seed rumpus
However, traders said that Gasc had also paid an extra premium for the uncertainty prompted by its latest import fuss, over claims of infestation with poppy seeds, which has prompted quarantine officials at the Egyptian port of Safaga to block one French and one Romanian wheat cargo.
While it looks like the cargos will be able to be disembarked, after sieving to remove the poppy seeds, the delays will mean heavy demurrage, and other costs, for exporters involved.
And they have stoked concerns among merchants over dealing with Egypt, which last year rejected cargos containing ergot, a widespread fungal residue which can cause hallucinations if consumed in large enough concentrations.
The country, temporarily, took a zero tolerance approach to ergot, rather than imposing maximum contamination thresholds as used by other major importers.
‘First ergot, then poppy seeds…’
“First ergot, then poppy seeds – you wonder what else Egypt have got up their sleeve,” one European trader told Agrimoney.com, questioning whether such moves might in fact inspired by a desire by the cash-strapped nation to delay payment.
However, the country appeared to be paying dear, in terms of wheat prices, for its reputation, said the trader, estimating the $195-198 a tonne paid for Russian wheat at the latest tender as including a premium of some $5-10 a tonne.
“People are not competing hard for this business, if they are competing at all,” the trader said.
‘Turning into a circus’
At US broker Halo Commodity Company, Tregg Cronin said that “if Egypt is running into financing issues, it would be easier to deal with than this uncertainty.
“The way in which they are going about acquiring wheat is turning into a circus and will ultimately pull wheat off the table.”
The range of offers to Gasc, at 10 cargos from six merchants, was also well below that of the late-August tender, at 16 cargos from 11 merchants.
In the previous tender, on August 16, the authority received offers of 22 cargos from 15 merchants.
(Source – http://www.agrimoney.com/news/egypt-pays-premium-for-wheat-amid-talk-of-tenders-turning-into-a-circus–11030.html)