Egypt may suffer a lasting hangover from its ergot rumpus, despite ditching a controversial zero tolerance policy on the fungus, as traders demand a premium on deals with country even as it tries to catch up on imports.
Gasc - the grain authority for Egypt, the world's top wheat-importer – late on Thursday revealed it had bought 240,000 tonnes of the grain at tender, the first purchase in nearly a month.
The purchase followed announcements that Egypt had axed a 0% allowance on ergot, a common fungus which can cause hallucinations of consumed in sufficient quantities, but which is deemed harmless in small concentrations, and typically permitted by importers up to levels of 0.05%.
The zero tolerance rule, which had been imposed late last month, meant Egypt being blacklisted by merchants worried they would be unable to source ergot-free wheat supplies, putting them at risk of having cargos rejected, a costly affair for traders.
Gasc cancelled its three previous tenders, which received an offer of just one cargo between them, from Egypt-based merchant Venus.
However, the ditching of the ergot-free restriction, and Gasc's return to purchases, does not mean an end to the affair, traders said.
Gasc wheat purchases at tender, September 22
180,000 tonnes of Russian wheat from Union at $187.11 per tonne, cost and freight
60,000 tonnes of Russian wheat from Aston at $186.80 a tonne, coast and freight
"However, given recent behaviour, it takes a brave man to accept this as the final word from the Egyptians re ergot."
Egypt had already announced a series of reversals on ergot policy so far this year, with different government departments sometimes issuing conflicting advice.
A UK grain trader told Agrimoney.com: "It is not a matter of forgive and forget, as people are not sure that the ergot issue won't rear its ugly head again – potentially to huge expense for traders."
Egyptian officials two weeks ago, citing ergot contamination, rejected a Romanian cargo purchased earlier when the zero tolerance rules were not in operation.
"You can see the residual fear in the offers to this week's tender," the trader added.
Gasc received offers from only four merchants – Aston, Louis Dreyfus, Olam and Union – compared with seven at its August 26 tender, the last before the latest ergot furore, and from 17 trading houses at a late-September tender a year ago.
Furthermore, the authority appeared to pay a premium for its wheat this week, buying at an average of a little under $179 a tonne, excluding freight, according to traders, a small increase, of some 1%, on prices paid at its August 23 tender.
Over the same period, Chicago futures. the world benchmark, have fallen more than 3% on a spot contract basis, while Black Sea prices are down some 2% in dollar terms, according to data from Moscow-based Ikar.
Looking longer term, since before ergot rumblings began, Gasc has seen a 2.5% drop in prices paid over the past year, compared with an 8% drop in Black Seak prices and a 10% fall in Chicago futures.
The dynamics appear to leave Gasc vulnerable to paying up for its wheat as it tries to catch up on orders which, at 1.08m tonnes so far in 2016-17, are running well behind the 1.46m tonnes purchased over the same period of last season.
And this at a time when the country is suffering from a dearth of foreign currency to pay for its imports.
"The entire issue likely speaks to the Egyptian government's lack of foreign exchange reserves which is a product of increased terrorism in the region and the sharp drop in tourism," said Tregg Cronin at US-based broker Halo Commodity Company.
By Mike Verdin