Egypt announces another ergot U-turn, but market wary

After almost two years of uncertainty, Egypt’s Ministry of Agriculture and Land Reclamation has announced it is to end its zero-tolerance policy on ergot in grain shipments, although some traders are wary about whether it will improve trade.

The ruling, which came into effect December 12, will allow up to 0.05% of the fungus ergot to be present in grain cargoes shipped to Egypt, reneging on a previous ruling which enforced a zero-tolerance policy.

The trade was mixed in its reaction, initially optimistic at what is seen as a step in the right direction but wary about whether the new rule will be implemented.

“They sound confident about it, so hopefully they are all agreed on this announcement,” one trader told Census.

Ancient History

Egypt, the world’s largest wheat buyer, rattled markets two years ago when it rejected a cargo of French wheat sold by Bunge in December 2015 due to the presence of ergot.

A series of cargoes from Romania, Russia, and the US were subsequently held up for inspection, causing costly delays to the trade and sparking speculation of cash flow worries.

State grain buyer GASC, an offshoot of the Ministry of Supply, subsequently found itself in a position where it received no interest in its wheat tenders. It had typically received more than 20 offers from the trade in the year before the ergot became an issue.

When sellers eventually returned to the market, a hefty risk premium was applied to compensate traders for potential losses caused by demurrage or rejected cargoes.

While this premium has since largely subsided, a drawn-out back-and-forth between various branches of the government ensued over the next two years, with little clarity on the legal status of cargoes coming into the country.

The length and complexity of the situation left at least one broker unimpressed by the latest developments, saying “I don’t think we’ll see an end to this for a long time.”