Egypt wheat spend spree is likely blip in bloated market

The world’s biggest buyer of wheat is on a spending spree that helped send prices to their biggest monthly gain in more than a year. But some analysts are warning the frenzy is about to end.
While Egypt has recently accelerated purchases, the country will likely slow buying in April and May as the local harvest gets underway. Plus, there’s still too much supply with mega harvests coming from Russia, Argentina and Australia, and stockpiles are set for reach another record.
“We’re certainly not expecting prices to rally rapidly, since global stocks remain burdensome,” said Charles Clack, an analyst at Rabobank International in London. He forecasts Chicago futures to end the year at $4.85 a bushel, about 7% above current levels.
Wheat futures in Chicago have jumped 18% from a decade low in August, helped by a broader rebound in commodities and data showing that US farmers planted the least winter wheat in a century. But there’s still a big overhang on the market, with stockpiles estimated to reach a record 236mn metric tons in the 2016-17 season, according to the International Grains Council.
“I would be hesitant to say that this is turning around the dominant tendencies of oversupply,” said Wibke Baars, a consultant at Paris-based Agritel. “Supply is too comfortable now and it will take a weather disruption to make the rally sustain, which we are not seeing so far.”
The US weather outlook isn’t ideal. As the winter crop emerges from dormancy, a warm, dry spell in the next two weeks will reduce soil moisture and increase stress on wheat across the Great Plains, according to Drew Lerner, president of World Weather in Overland Park, Kansas.
Export prices for Russia, the biggest supplier to Egypt, have climbed to a nine- month high.
Egypt’s state-run buyer bought 5.1mn tonnes this season, the most for this time of year since at least 2012-13, according to data compiled by Bloomberg.
Still, it’s unclear whether the tenders reflect additional wheat demand. It may be that the government is buying to offset lower imports from private companies, who have less purchasing power after the collapse of the Egyptian pound.
On the other hand, Egypt’s Agriculture Ministry has said the area planted to wheat is 7% less than a year ago. That suggest the country may buy more to meet food demands.
Russian prices may stall as more competition comes from France, which sold wheat in Egypt’s latest tender for the first time since April. Russia has dominated this season, accounting for about 70% of purchases.
“Hopes for further strengthening of export prices for Russian wheat are becoming rather feeble, given the cooling effect from the French wheat offer,” wrote analysts at SovEcon, a Moscow-based farm consultant.
There may be more Egyptian tenders to come. Purchases for calendar year 2017 will be 6mn tonnes, according to an official at the Supply Ministry, who asked not to be identified because he’s not authorised to speak to media. That represents a 27% increase from 2016.
“Egypt’s high-powered purchases are possibly the last loud pitch before their substantial reduction during spring, which will cause tighter competition for the market,’’ SovEcon wrote in a report posted online.