Egypt’s huge wheat deal derailed by payment terms

–Egypt’s push for delayed payment terms backfired in its bid to secure huge wheat supplies at favourable prices, resulting in a purchase far smaller and more costly than anticipated, traders said.

The General Authority for Supply Commodities (GASC), Egypt’s state grain buyer, sought to lock in nearly four-year low wheat prices by issuing its largest-ever single tender, aiming to purchase 3.8 million metric tons for future delivery. However, GASC’s requirement for 270-day letters of credit led to higher than expected offers and a diminished purchase, traders said.

“GASC tried to be clever, but they weren’t the only ones playing the game,” said Hesham Soliman, president of Egyptian merchant Mediterranean Star.

Typically, GASC issues tenders periodically, but on Monday, it aimed to cover Egypt’s wheat needs from October 2024 to April 2025 in one go. The tender attracted more than 100 offers, but they came at a premium, with free-on-board prices ranging from $244 to $350 per ton, well above market rates, according to traders.

“The seller has to pay for the grain, shipping, and other expenses while waiting nearly a year to get paid,” said a European trader.

This financial burden was factored into the offers, negating the benefits of buying at low market prices and in large quantities, according to the trader.

As a result, despite hours of negotiations to bring down the price, suppliers only cut their prices marginally, traders said.

GASC secured only 7% of its target, contracting only five shipments totalling 280,000 tonnes at free-on-board prices between $241 and $242.25 per ton higher than the prices in its previous tender in July in which GASC paid a free-on-board price of $221 per tonne for 770,000 tonnes of mostly Russian wheat, despite current market prices being lower.

None of the wheat purchased on Monday was sourced from Russia, which traditionally supplies a significant portion of Egypt’s imports.

In 2023, Russia accounted for 70% of Egypt’s wheat imports, supplementing domestic production to provide subsidized bread for tens of millions of Egyptians. On Monday, Black Sea wheat dominated the offers, reflecting the region’s competitive pricing.

“EU, U.S., and South American suppliers were out of the game, with Russia, Ukraine, Romania, and Bulgaria offering unbeatable prices,” said a second European trader.

“So much wheat is being shipped out of Ukraine, despite a lack of Russian safety guarantees for the vessels, that importers are willing to take a greater chance on purchasing large volumes of Ukrainian war-zone wheat,” he added.

GASC’s tender strategy, intended to capitalize on low prices, ended up costing more and fulfilling less of Egypt’s wheat needs. This failure may force GASC to return to the market soon, according to Soliman.

“The new strategy was doomed from the start. The tender appeared desperate. And without offering a premium, there was no incentive for companies to provide discounts,” Soliman said.

Economist Medhat Nafei, a former adviser to Egypt’s supply minister, suggested that GASC should focus on hedging to protect against market volatility.

“Hedging should be GASC’s main priority. While insurance costs money, not having it could be far more expensive,” Nafei said.

Tags: Egypt, tender