Analysis Grains
Egypt seems like a wild dog in the grain market
The rally on the wheat market did not continue in the last trading session. Egypt plays a somewhat special role in this. After the news about a mega-order for wheat from the Black Sea region, it is now known that Egypt is taking measures to become less dependent on wheat imports. For corn and soybeans, the focus is on the American continent. In Brazil and Argentina, rain is finally expected, and the seeding machines can be put into operation.
Wheat took a small step back on the Matif in the last trading session, down €1.50 to €232.25 per ton. Wheat on the Chicago exchange experienced a slightly harder hit. The December contract closed 1.9% lower at $6.03½ per bushel. Corn, as almost usual this week, followed the trend in wheat in a weakened form. Corn closed 1% lower at $4.28¼ per bushel. Like the grains, soybeans also closed in the red, losing 1% to $10.46 per bushel.
Earlier this week, Egypt, which was one of the driving forces behind the rally on the wheat market with a deal for over 3 million tons of wheat, provided price-depressing news yesterday. According to Reuters, based on sources in the Egyptian grain sector, the country is going to attempt to reduce wheat imports.
Bread Subsidy
Bread is subsidized in Egypt, which is becoming too costly for the government. Rising national debt, a shortage of foreign currency, and persistent high inflation require the government to make drastic choices. Egypt ultimately wants to eliminate bread subsidies entirely because it is becoming too burdensome on state finances. Complete abolition is not yet on the agenda in the short term, but to reduce costs and decrease dependence on wheat imports, the government wants to require mills and bakers to add cheaper corn and possibly sorghum flour to the subsidized bread. According to Reuters, a 1 to 4 ratio is being considered starting from April 2025. This would save roughly 1 million tons of wheat out of a total wheat import of 4.75 million tons for the subsidized bread program that Egypt is planning for 2024/25. 3.5 million tons of wheat come from domestic production.
In the past, Egypt has added corn to the bread mix. Under pressure from the industry, bread is now made only from wheat again. The new plans are also currently not receiving much support from mills and bakers. Bakers fear that they will have more work with a mix of corn and wheat flour and that the baking time of the bread will increase. Mills are paid based on the wheat they process and logically do not want alternative products. Whether the Egyptian consumer is interested in bread with a different taste is also a risk for the Egyptian government.
Unleashing
Corn and soybeans are an American affair. Conditions for the harvest of these crops in North America are reasonably good. However, the trade seems to attach more value to the weather forecasts for Brazil and Argentina.
Some rain has already fallen in the past day, and more is expected in the coming week. Looking further ahead is difficult, but it seems that the rain is not yet done even in the longer term. In the largest soy state of Brazil, hardly any planting has been done yet. According to estimates earlier this week, about 0.5% of the planned area has been planted. However, as the weather changes and conditions improve, the seeding machines are being taken out of the shed.
Jurphaas Lugtenburg
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