Egypt’s Political Turmoil Unlikely to Derail Vital Wheat Buy

Egypt’s first deal on the international wheat market after a long absence is expected to complete even after the army ousted the country’s first democratically elected president earlier this week, traders said on Thursday.

Egypt’s armed forces overthrew Islamist President Mohamed Morsi on Wednesday, after the armed forces chief General Abdel Fattah al-Sisi said Morsi had failed to meet protesters demands for national unity.

Only a day earlier the government had announced its first purchase on the world wheat market since February, its longest absence from the international market in years.

The supply of subsidized bread to the Egyptian population is seen as vital to keeping the peace. No Egyptian leader can afford to disrupt the nation’s bakeries which churn out the subsidized saucer-sized flat loaves which are a staple for many Egyptian families struggling to make ends meet.

“I don’t believe traders are afraid of the political situation because Egypt needs wheat more than ever before,” said a grain trader who supplies Egypt’s government.

In recent months Egypt has relied on drawing down stocks of international wheat and maximizing local wheat usage for the flour needed for its bread program – which needs a blend due to the low gluten content of Egyptian wheat – as a currency crisis has hindered its ability to buy on the world market.

Ahead of the dramatic political events, Egypt’s state grain buying agency, the General Authority for Supply Commodities (GASC), purchased 180,000 tonnes of Romanian and Ukrainian wheat for August shipment.

“There’s no risk that the Egyptian government won’t find GASC the money, won’t open letters of credit on time,” said a trader.

“Can you imagine if they don’t buy wheat in August, there will be no wheat left.”

Millers and bakers in the world’s largest wheat importing nation say stocks of imported international wheat have sunk to levels that could reduce the availability of the flour they need to produce bread of an acceptable quality.

Last week the government said it has 3.613 million tonnes of stockpiled wheat, enough to last until Nov. 17, but it declined to give a breakdown on how much international wheat was left in government stocks.

POLITICAL UPHEAVAL

Egypt has suffered from political turmoil since the Arab Spring revolutions saw the military-backed regime led by Hosni Mubarak toppled in 2011.

The dramatic removal of Egypt’s first elected leader Mohamed Morsi marked another twist in the upheaval that has gripped the Arab world’s most populous country in the last two years.

Egypt typically imports around 10 million tonnes of wheat a year, split roughly equally between government and private purchases, but in 2012/13 imports fell to around 8.5 million tonnes according to U.S. Department of Agriculture data.

The USDA forecasts imports to rise slightly to 9 million tonnes in 2013/14.

Andrei Sizov Jr., managing director of the SovEcon consultancy, told Reuters: “As per volumes, guess they (Egypt) remain around 9 million tonnes no matter who runs the cabinet, there is no other way to feed the population.”

Supplies to Egypt account for about 25-35 percent of Russia’s annual wheat exports, he added.

Major suppliers of wheat to Egypt include Russia, Ukraine, Romania, France, Kazakhstan, the U.S. and Canada.

Earlier this year Morsi failed to secure grain and a loan from Russia to help ease a deepening economic crisis, while France said it had also received a formal request from Egypt for free grain storage and far easier payment terms for imports.

“Whether it’s being led by Mubarak, Morsi or the military, Egypt will do everything to secure the wheat supply for their people, they cannot gamble it,” said a trader.

Source: Reuters