PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 10:33 UK, 18th May 2017, by Mike Verdin
Ag bulls 'should curtail joy' at rare sale of US wheat to Egypt

Chicago wheat bulls should curtail their celebrations at the first victory by US supplies in two years at a tender by Egypt's Gasc, despite the event revealing a sharp discount compared with Black Sea supplies.

Gasc, grain authority for the world's top wheat-importing country, late on Wednesday revealed the purchase of 295,000 tonnes of the grain at tender at an average of a little over $208 a tonne, including freight, equating to an outlay of more than $61m.

The order included 115,000 tonnes of US hard red winter wheat Gasc's first purchases from the US at tender since February 2015, according to records.

Indeed, details of the offers to the tender highlighted the competitiveness of US wheat, which was offered as low as $185.40 a tonne, excluding freight, equivalent to about $5.05 a bushel.

This far undercut offers from other origins - including from the likes of Russia and Ukraine which are famed for competitive pricing so enabling US wheat to win custom despite the extra costs of shipping from Gulf of Mexico ports across the Atlantic to Egypt.

Russian export slowdown

Indeed, French wheat was the next most competitive to US, excluding shipping, offered by merchant Casillo at $196.95 a tonne, but overlooked by Gasc again thanks to relatively high shipping costs compared with cargos from the Black Sea.

The cheapest offer of Russian wheat was made by Midgulf at $198 a tonne excluding freight, a reflection of the boost from revived oil prices on the rouble, whose strength in turn boosts the value, in dollar terms, of domestic assets.

Indeed, Agritel, flagging "the sharp slowdown" of Russian wheat shipments, said it was now forecasting the country's 2016-17 exports at 26.5m tonnes - 1.5m tonnes below the estimate by the US Department of Agriculture, whose data set global benchmarks.

"That could lead to a rise of ending stocks to 13m tonnes, versus 10.6m tonnes seen by the USDA," Agritel said.

'Pricing is about right'

However, analysts cautioned investors against taking the extent of the price competitiveness of US wheat as an invitation to inflate values.

"Nowadays US wheat going to Egypt has generally been as a sign that US pricing is about right," said Tobin Gorey at Commonwealth Bank of Australia.

US-based Benson Quinn Commodities termed the Egyptian order "good business", which "reflects the competitive nature of the US wheat offer".

But the broker noted that Gasc "also bought cargos from Russia, Ukraine and Romania, so it doesn't actually indicate that the US has a competitive edge".

The order "certainly doesn't indicate that US values needs to run away from business" by running higher.

Regional appetite

US wheat faces a geographical disadvantage in trade with many key importing countries, a number of which are in North Africa and the Middle East, given the extra freight costs.

The region's appetite for wheat imports was underlined by separate tenders on Wednesday from Tunisia for 92,000 tonnes of soft milling wheat, while Jordan issued a tender for 100,000 tonnes of hard milling wheat.

Separately, on Thursday Jordan retendered for 100,000 tonnes of feed barley, for which Saudi Arabia tendered for 1.5m tonnes.

The requests come in the face of declining world barley production, which will see world inventories of the grain end 2017-18 at a 34-year low, on USDA forecasts.

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