Opium Seeds Spook Wheat Traders as Egypt Holds Back Cargoes

(Bloomberg) -- The world’s biggest wheat buyer Egypt risks facing tender boycotts for a second season after it stopped another vessel from unloading on concern it may contain poppy seeds that are banned in the country.

The quarantine office halted a 59,000-metric-ton cargo of French wheat sold by Casillo Commodities at Safaga over the weekend, and the case will be referred to prosecution, said Naglaa Balabel, head of the agency. The move came even as the French embassy in Cairo said inspections at the loading port showed the cargo met Egyptian specifications. Grain shipped by Romania’s CerealCom Dolj was also held back last month at the same port for that reason.

This isn’t the first time Egypt has stopped wheat cargoes for quality issues. Last season, the nation turned back several shipments purchased by state-run buyer, the General Authority for Supply Commodities, due to the presence of a common wheat fungus called ergot. That resulted in traders withdrawing offers or raising prices in tenders until the issue was resolved.

“The first Romanian cargo stopped was a surprise,” said Charles Clack, an analyst at Rabobank International in London. “A second delay could start to dent trader confidence and threatens reducing offers in the short-term, at least until GASC puts out a clearer stance on poppy seed contamination.”

Inspection Concerns

The new holdups are reviving concerns over which government body is responsible for inspecting cargoes in Egypt. The nation in November issued a decree transferring inspections to a trade ministry body instead of quarantine officials, and bans poppy seeds as they can be used to make opium.

Read more: Egypt’s wheat trade hangs in balance on Romanian cargo

The vessel Hercules, loaded at the French port of La Pallice, was inspected by Intertek, which confirmed the cargo met GASC specifications, according to a letter from the French embassy in Egypt obtained by Bloomberg. The inspection firm declined to comment when contacted by Bloomberg on Monday.

The sale was on a free-on-board basis and the seller “can’t be responsible for any problem at destination,” said Jean-Philippe Everling, chief executive officer of TransGrain, the French unit of Casillo that shipped the grain.

“We don’t know what the consequences will be yet, but one thing is sure, it will limit the number of offers” in tenders, said Pierre Tronc, a broker at BGC Partners in Geneva. “It’s like the ergot saga.”

There may be confusion over the type of seeds found. Those identified are probably from the poppy flower papaver rhoeas, which isn’t toxic, according to the French embassy’s letter sent to Ismail Gaber at Egypt’s import and export authority. While the flower is from the same family as papaveraceae, used to make opium, it doesn’t have any narcotic properties, the letter showed.

France grows papaver rhoeas, which aren’t toxic but are classified as impurities, Everling said.

Other Cargoes

Traders have also encountered problems at origin ports. Vessel Wadi Sudr carrying grain from Archer-Daniels-Midland Co. was held back at Constanta due to concerns over poppy seeds, according to a person familiar with the matter, who asked not to be identified.

CerealCom also had a vessel held back in the Romanian port. The trader put 20,000 tons of wheat on the bulk carrier Edfu and has now been asked to unload due to concerns about poppy seeds, said Mihai Andrei Anghel, responsible for international trading at the Romanian firm. The inspection company found empty poppy seed pods, he said.

"I have no problem to discharge the load, but the cost has to be assured by GASC," he said, adding the company met its contractual obligations. "The cargo without poppy seeds will have a different price. We are talking about a totally different contract, a totally different understanding."

Casillo sold French wheat to Egypt for $220.85 a ton in July. Prices have tumbled since then, with GASC paying almost $20 a ton less in its latest tender at the end of August, data compiled by Bloomberg show. So far, only Romanian and French cargoes sold to GASC have been stopped.

“Whatever the outcome of this poppy seed episode, uncertainty over the GASC deliverables and risk of rejection will make tendering less appealing for non-Russian origins,” said Kieran Walsh, a broker at ICAP Plc in London. We “expect Russian GASC market share to remain dominant for the couple of months at least,” he said.

Russian exporters should also be concerned, according to SovEcon. Even though poppy seeds aren’t usually present in Russian supplies, the holdups of French and Romanian cargoes signal the potential for imported grain to run into quality problems in Egypt, said Andrey Sizov Jr., managing director at the SovEcon in Moscow.

“Any country is in question,” Sizov Jr. said by phone. “There’s always a risk that quarantine officials will find something inappropriate in this or that cargo.”

--With assistance from Anatoly Medetsky and Abdel Latif Wahba

To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net, Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin