EgyptianWheatPerspectives4/18/2013

SincetheArabSpring,Egypthasbeeninanincreasinglydangerouspositioninthewheatmarket.They arethelargestglobalimporterofwheatbutarefacingsubstantialheadwinds. Onthefinancialsidetheirforeigncurrencyreserveshavefallenwhilethecurrencyhasfallen dramaticallyagainstthedollar.Bothofthesefactorsmakeitmoredifficulttosourceforeignwheat. FromTheEconomist

Asinglebillofaround$20billionaccountsforthebulkofthatshortfall:subsidies.Afraidof ignitingpopularunrest,Egyptiangovernmentshaveshiedformorethanadecadefromtacklinga systemthatprovidesungratefulconsumerswithsuchitemsasbreadattheequivalentofless thananAmericancentaloaf,petrolatlessthan20centsalitre(barelyatenthofitspriceat pumpsinEurope)andcookinggasat7%ofitsactualcost. Dieselfuelalonemakesupnearlyhalfthesubsidybill.Itpowersnotonlythecountrys commercialtransportfleetbutalsotheirrigationpumpsusedbymillionsofpoorfarmers; withoutitEgyptspreciousfarmlandwouldwither.Yetthegovernmenthashadtoimporta growingproportionofEgyptsdieselatworldprices,inpartbecausethestateoilmonopolyhas hadtoexportmorecrudeoiltopayoffpressingdebts. Subsidisedbreadisstillplentiful.Thatisagoodthing,sinceCreditSuisse,aSwissbank,reckons thattheaveragefamilyspendsnearlyhalfitsincomeonfood.WiththeproportionofEgyptians undertheofficialpovertylinehavingrisenfrom21%in2009to25%lastyear,nutritionistsnote withalarmthatEgyptianshavegrowndangerouslyreliantonbreadtofeedtheirchildren.The localwheatharvestaccountsforbarelyhalfofconsumption,whichiswhyEgyptistheworlds largestimporterofwheat.Evenasgovernmentstockshavefallentoanunusuallylowlevel,the statecommoditysupplyboardhascutbackonimportsandissuedwhatsomeexpertssayare unrealisticallyoptimisticforecastsforEgyptsownspringcrop.Weexpectasqueezebyearly summer,saysaprivatetrader.

EgyptseconomyGoingtothedogsTheEconomistMarch30th2013

BecauseofthisEgyptisnowstartingtouseUSbackedloanstosourcegrain
Feb28(Reuters)EgyptrecentlyusedU.S.exportcreditstopayforaU.S.wheat purchase,itsfirstuseoftheguaranteesforthefoodgrainthisyear,theU.S.Agriculture DepartmentsaidonThursdayThecreditsweretappedasconcernswererisingamong bankersabouttheabilityofEgypt,theworld'slargestwheatimporter,tomeetits needsthroughitstraditionalmethodsofpublictendersandlettersofcreditCreated tofacilitateU.S.farmexports,USDA'sexportcreditguaranteeprogram,knownasGSM 102,assureslenderstheywillgetpaidevenifaborrowerdefaults.Theshorttermcredits coverupto98percentoftheprincipalandaportionoftheinterest. EgyptrecentlytappedU.S.creditguaranteestobuywheatUSDAReutersFeb28, 20135:48pmEST

USDAofficeinCairo:EventransportingwheattomillswithinEgyptrequires subsidizeddieselwhichisincreasinglyscarce.
Higherprocurementpricesarealsointendedtohelpoffsetfarmersproductioninput costs.Seed,fertilizer,andpesticidecostshaveinchedupwardssincethe25thofJanuary Revolution(2011).Importedchemicalfertilizersandpesticides,aswellastheirraw materialcomponentsareincreasinglyexpensive.Importcostshavebecomenoticeably greaterastheEgyptianpoundhasdepreciatedagainsttheU.S.dollar.Theofficial exchangeratehasalreadyslipped12percentsinceDecember2012,whiletheblack marketrateisdown25%.Therearereportsofoccasionalfertilizershortages. TheFoodandAgriculturalOrganization(FAO)estimatesthatEgypthas1.75millionHAof landideallysuitedforwheatcultivation.Thecountryhasanadditional900,000HAof mediumqualitysoil(i.e.,rocky,withlessthanidealpHlevels)suitableforwheat cultivation.However,othercroprequirementslimitwheatcultivationtothe1.31.4 millionHArange.Waterconstraints,alongwitharapidlygrowingpopulationandurban encroachmentonagriculturallands,contributetofurtherlimittheexpansionofwheat production. Upwardsof150millionlitersofdieselfuelwillberequiredtooperatecombines,bagging equipment,andtrucksforhaulingwheatfromfieldstostorageareas.Egyptiandieselfuel consumersarealreadyexperiencinghourslongwaittimesatfuelstations.Withtempers short,therehasbeenanincreaseinreportedaltercations,includingsomedeaths,atfuel stations.Embassypersonnelreportthatgridlockresultingfromrefuelingwaittimesinthe Deltaregionisslowingtravelspeedsinplacesto20kilometersperhour. AmajorneartermunknownishowEgyptwillmovethe600700TMTofwheatthatit requireseverymonthforthebaladibreadprogramduringtheMay/June/Julyperiodfrom thecountrysidetomajorurbancenterswhereitismilled.Inthepast,Egyptonlyhadto move200250TMT/monthofitslocalwheatprocurementtourbanareasbecauseof blendingwithimportedwheat. Postisconcernedthatdieselfuelslackofavailabilitypotentiallymaycause bottlenecks/shortagesinJune/July2013whenstockswillbeverylow.Withnoimports foreseenuntilBlackSeaoriginwheatcomesontothemarketlaterinAugust,Egyptwill havetorelyonefficientlymovingalargerthannormalvolumeoflocallyprocuredcrop fromthecountrysidetourbanflourmills. Wehaveheardthataddingtotheincreasinglycombativeatmospherebetweenthe countrysprivatesectorbakersandtheGOEisthearrearsinpaymentofthelatter.Over LE400million($59million)iscurrentlyowedbytheMOSITtobakers.Thepayment backlog,alongwiththenewrequirementtopaythefullpriceforflourisunderminingthe profitabilityofbakeryoperations. USDAFASGAINReport4413Egypt:GrainandFeedannual:Forexavailabilityimpacts

grainimports
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BottomLine:Egyptisthelargestglobalimporterofwheat.Theyarerunningoutoffundstobuy wheatfromoverseas,andalsodieselwhichisneededfortheiragindustry.Thiscouldcause majorimpactsintheBlackSeawheatmarket.