Egypt to pay $80 million above the market for wheat in 2018: USDA

A convoluted import policy and a risk premium to compensate for the cost of doing business means Egypt can expect to pay as much as $80 million above the wheat market price in 2018, according to a report published Monday by the USDA’s local office in Cairo.

As the world’s biggest wheat buyer, Egypt buys as much as 12 million mt of the grain each year, but often pays more than other importers due to the restrictions it places on sellers, including a hefty performance bond, high demurrage costs, and frequent sieving of cargoes.

In its report, the USDA explained a 63,000 mt wheat shipment to Egypt could expect to pay $332,270 in expenses – equivalent to $5.29/mt – all of which would subsequently be passed on to the importer.

“GASC could buy better (cheaper) if they did not insist that sellers' finance their credit by paying the costs of the 180-day deferred LC,” Swithun Still, director at Solaris Commodities, told Agricensus.

“GASC could also buy better if they were to only charge demurrage at the load port (it is a FOB contract after all) and did not always charge for sieving, when often none is needed. These costs are added to the price from suppliers,” Still said.

The spread between the FOB price GASC paid and the Agricensus spot assessment of Russian 12.5% protein milling wheat shows the premium paid since the start of October has ranged from as little as 90 cents to as much as $12.39/mt, with an average of $5.55/mt more paid.

In February, GASC lowered its minimum protein requirements for various origins in a bid to encourage more participants in its tenders.

 “Traders remain sceptical that the increased competition will transmit to lower purchase prices,” the USDA said, and evidence to date would indicate this is the case.

The average FOB premium GASC has paid over the wider market since the protein amendment has spiked to $8.33/mt from $4.15/mt before.

On the delivered market, one trader who declined to be named, estimated the premium GASC must pay over the wider market to be closer to $14-$15/mt.