July 21, 2010

Russia maintains wheat trade with Egypt despite drought

Russia has kept its grip on wheat trade with Egypt, the world's biggest buyer, despite the drought devastating this year's harvest, winning yet another tender-albeit at a higher price.

Cairo's General Authority for Supply Commodities (GASC) filled all 120,000 tonnes of its latest order with Russian grain, the country's third successive clean sweep in an Egyptian tender.

However, the average price of US$211.73 a tonne for cargoes from Cargill and Louis Dreyfus was 15.4% more than Egypt paid for its last order of Russian wheat, two weeks ago, as reports of drought damage were inflating wheat prices worldwide.

On June 26, the GASC, Egypt's state grain buyer, paid only US$165 a tonne, excluding freight. Tuesday's result surprised some investors, given the drought which some had believed would have inflated Russian prices above those in other exporting countries.

In fact, the best price offered from French wheat, which also has higher shipping costs to Egypt, was US$216 a tonne by Cargill.

The deal, however, offered merchants who were sitting on stocks to make a large turn, or offer growers with inventories potentially US$180 a tonne, much higher than has been the norm of late.

Russian observers have forecast that a slowdown in wheat exports is more likely later in the season, with supplies for now held up by the strong harvest in the northern Caucasus.