Wheat, grain prices rise again this week as release of imports slows down, market anticipates pound devaluation

After a dip in prices last week due to the state’s efforts to secure greater supplies for the market, the price of wheat and other basic commodities rose again this week. 

Facing a chronic shortage in dollar liquidity in Egypt’s banking system over the course of 2022, banks were unable to finance import deals under the February import regulations. The government rolled back those regulations last week, seemingly paving the way for the roughly $9.5 billion worth of goods held up in Egypt’s ports as of last week, including vital food staples which Egypt depends on international markets to provide, to be released.

While goods have begun to be released, according to four industry sources, the ongoing dollar shortage crisis has led to clearances slowing down, a scarcity that is only exacerbated by the fact that wheat traders have also slowed down the process of putting released quantities of wheat and gain on the markets, for fear of losing value on their goods when the Central Bank of Egypt makes an anticipated move to devalue the Egyptian pound. 

Egypt, the world’s biggest wheat importer, has struggled to cover its essential needs for the grain since imports were disrupted last February by Russia’s invasion of Ukraine — the two being Egypt’s biggest suppliers — and by its indirect impact on the country’s economy.

A source from a major grain import company who spoke on condition of anonymity told Mada Masr that last week saw a breakthrough in the release of wheat shipments from ports. This breakthrough coincided with the government announcing the release of LE5 billion worth of goods in the first three weeks of December and promising to clear the rest of the goods in short order, which has yet to happen.

December 27 witnessed the largest amount of wheat released since the crisis started early last year, the source noted. Ten importers were able to clear 19,500 tons of wheat. At the time, wheat prices per ton dropped from LE13,700 to LE12,200, while the price of consumer flour went down from LE16,500 to LE15,000 per ton.

The releases slowed down this week, however, as banks continue to struggle to provide dollar liquidity to importers, decreasing the amount of wheat offered in the market once more and bringing the prices back to previous levels, the source added.

The source estimated that there are about 600,000 tons of wheat procured by the private sector still stuck at ports, down from about 900,000 tons two months ago. “This drop does not indicate the severity of the crisis has diminished or that releases are in a good condition,” as much as it indicates that private sector importers are making fewer new deals until foreign currency is more available, the source said.

Following a drop in the pound’s value on Wednesday, Banque Misr and the National Bank of Egypt, the two largest government banks, began providing the necessary dollars to importers, Bloomberg Asharq reported on Thursday, the first time that banks have done so in about a month, in a sign that the government will try to quicken the pace of clearances. 

Away from the port bottleneck, however, the dollar crisis is affecting another aspect of the supply chain and thus causing prices to stay high. 

Another source at a major grain importer told Mada Masr that the grain and wheat that have been released are not being put on the market right away, as traders are looking to ensure they recoup fair value for their product in the face of the central bank’s anticipated move to devalue the official exchange rate to stamp out the parallel exchange market.

The pound’s value began dropping to unprecedented lows on Wednesday morning, reaching a selling price of LE27 and purchase price of LE26.95 at the state-owned National Bank of Egypt by Thursday afternoon.

The industry sources expect the banks to devalue the pound against the dollar twice more in the short term, dropping the value of the pound to LE28 during next week.

“We hope that the releases will continue in the coming weeks at a better pace than this week, especially since prices have rebounded and are increasing again. Price instability is harmful to all stages of production,” Walid Diab, a member of the Federation of Egyptian Industries grain industry chamber, told Mada Masr.

Diab explained that the amount of wheat the Supply Ministry is offering through the recently-established commodity exchange is not sufficient. The ministry puts out two bids a week of 10,000–15,000 tons each, but these quantities are only enough to meet the actual market needs for just one day, he noted.

An increase in the wheat offerings on the exchange, facilitated by increasing the pace of releases at ports, would bring the prices down, according to Diab, but the amounts put on the market have to be no less than 70,000 tons per day.

According to another source at the grain chamber, about 300 tons each per day is being divided among 20 to 30 mills,, which has driven prices up significantly, especially since lower production capacity means lower sales.

The confusion in the markets also extended from wheat to bran. Marketing agents for bran at mills explained to Mada Masr that the factory price of wheat bran increased this week to over LE9,000 per ton at several mills after it had fallen last week to LE7,500 per ton on average.

The agents, who spoke to Mada Masr on condition of anonymity, confirmed separately that the rise in bran prices disrupted the market. After witnessing increased sales last week due to reduced prices, the situation was reversed this week, they explained, noting that they are still unable to measure the impact on the livestock industry — a major consumer of bran in Egypt — since this is not the only industry input to witness price hikes.

Soybeans, also used in feeding livestock, are similarly witnessing market confusion, one of the grain import sources said, as multiple prices per ton hit the market this week with differences of up to LE3,000 between them and the highest price reaching LE29,000.

The slowdown in the release of commodities also affected yellow maize, the price of which had dropped last week from LE16,000 to LE10,000 per ton, only to rise again this week by LE3,000 within eight hours due to the decline in supply.

*Writing by Ahmed Bakr