Egypt: France Wheat is Too Wet – WSJ

French wheat might be good enough for a baguette in Paris, but it no longer passes muster with the baladi-bread bakers of Cairo.

In a decision that has affronted the fraternité of French farmers, Egypt’s state grain agency has quietly changed the permissible amount of moisture in wheat that it imports. That means France’s stuff is too damp.

According to the Wall Street Journal, the Egyptian agency—known as the General Authority for Supply Commodities, or GASC—made no public announcement of the change, but traders familiar with the agency’s tender process say it now will accept no more than 13% average moisture. French wheat has an average moisture content of 13.5%.

A hint of the change came Tuesday, when GASC released the results of its latest tender: It bought 240,000 metric tons of wheat, 180,000 tons from Russia and 60,000 tons of soft red winter wheat from the U.S. It bought nothing from France. A GASC spokesman couldn’t be reached for comment Thursday.

Primarily through GASC, Egypt is the world’s largest importer of wheat, and the government-subsidized bread it is fashioned into is a vital food for a population of more than 80 million.

For France, the decision threatens to stymie an industry that is a source of national pride, and of exports. French farmers sent Egypt an average of 1 million tons of wheat a year over the past five years. France is one of Europe’s major agricultural powers and a fierce guardian of its agrarian heritage.

A spokeswoman for Copa-Cogeca, the European farmers’ union, said Egypt’s change is “detrimental to the livelihood of French farmers.” News of the change pushed Paris milling wheat futures to their lowest level in 4½ months Thursday, to €186 ($254) a metric ton intraday.

But Egypt’s move reflects another reality about global wheat markets: There is such a glut of wheat that even cash-strapped Egypt can afford to be choosy.

High moisture in wheat reduces the amount of flour that can be milled from it. France has had trouble keeping its wheat dry. “We had a lot of problems with rainfall earlier in the year,” says Virginie Nicolet, a spokeswoman for FranceAgrimer, the governmental farming body.

Wheat prices sank 22% in 2013, making the grain one of the year’s worst-performing commodities. Expectations for bumper harvests out of big producers Australia, Canada and countries of the former Soviet Union were the main drivers of the selloff. Egypt also bought less than usual.

France has struggled with wheat quality in the past growing season, and it has seen stiff competition from Russia, Ukraine and Romania for the lucrative Middle East and North Africa region—the site of 70% of France’s exports, according to French grain lobby France Export Cereales. Some dealers now predict that France’s exports for the remainder of the season may be choked off entirely should other big regional importers of French wheat follow Egypt’s lead.

Agricultural income per French farmer slumped by 16.4% in 2013, according to the European Commission. In 2012, the most recent year for which data is available, French farmers sent €3.1 billion of wheat overseas.

France Export Cereales said it intends to officially address the Egyptian decision and is drafting a document outlining the importance of French wheat supplies to Egypt’s sourcing of global wheat.

Traders said Egypt’s move will provide an opening for U.S. wheat at a time when Egypt typically has fewer sources for the grain. Some Black Sea ports freeze up during the winter, requiring buyers like Egypt to secure supplies from France, Australia and the U.S. American wheat typically exhibits a 12% or lower moisture content.

“The French usually at this time of year would be the most competitive, but Egypt’s just knocked them off the roster,” said Louise Gartner, owner of Spectrum Commodities, a brokerage firm based in Beavercreek, Ohio. “This certainly pushes a bit more demand potential our way.”

Egypt’s change had little impact on the U.S. wheat futures market on Thursday, however. Wheat for March delivery at the Chicago Board of Trade edged up 2 cents, or 0.4%, to $5.53½ a bushel, helped by strong export sales in a weekly government report and sentiment that the grain had become cheap after falling to a 3½-year low Wednesday.