Drought Forces Top Wheat Buyer Egypt to Pay Most Since 2015

(Bloomberg) -- A drought that’s hit wheat crops across the Black Sea region and Europe has forced Egypt, the world’s largest importer, to pay the highest price in more than three years.

Egypt’s state-run buyer General Authority for Supply Commodities paid an average $235.65 a metric ton in a tender closed Tuesday, according to traders familiar with the process and data compiled by Bloomberg. GASC purchased 420,000 tons of wheat for Sept. 1-10 delivery.

Benchmark futures traded in Chicago surged 21 percent this year and Paris wheat for December delivery hit a record for the contract. Dry weather means Russian production will fall for the first time in six years, while crops in France, Germany and the Baltic countries are also expected to be smaller.

"The major weather issues are actually in Europe and the Black Sea, and those are the major suppliers of wheat to Egypt," Michael McDougall, senior vice president at ED&F Man Capital Markets in New York, said by phone Tuesday.

GASC bought 240,000 tons of wheat from Russia, 120,000 tons from Romania and 60,000 tons from Ukraine, the state-run buyer said in a statement. The price paid was the highest since February 2015.

Paris wheat for December rallied as much as 1.7 percent to 198 euros ($231) a ton Tuesday and hit 200 euros a ton Wednesday, the highest since the contract started trading in 2015. In Chicago, futures for September slipped 0.7 percent to $5.1025 a bushel Tuesday and rebounded 1.7 percent Wednesday.

Egypt, which relies on subsidized bread to feed its almost 100 million people, received offers from six companies. That’s the fewest in tenders for delivery this season, data compiled by Bloomberg showed.

Dubai-based AOS Trading DMCC and its Egyptian sister company Al Wehda, which supplied 18 percent of GASC purchases last season, were last week removed from the list of approved companies to participate in tenders after repeated delays in delivering cargoes.

Payment disputes involving AOS, a client of ING Groep NV, added to Egyptian delays in processing deals in recent years. Those holdups contributed to the Dutch lender’s decision to suspend financing for wheat shipments sold to GASC.

"You not only have production issues, but you have financial issues as well," McDougall said, citing the loss of a trading house as a supplier due to payment concerns and ING pulling out of financing deals.

(A previous version of this story corrected the fifth paragraph to show price was highest since February 2015.)

©2018 Bloomberg L.P.