“Egypt is world’s biggest buyer of wheat.”
That was a sub-headline at CNBC last week. The financial channel covered the country’s recent customs challenges that have dominated headlines.
It’s a simple little reminder to an audience in an article about the complexities of trading regulations when shipping wheat to Egypt.
But in the world of business journalism, it’s an important reminder to tell readers why they should care about a story right up front. Whether you’re a grain trader in Chicago or a wheat farmer in North Dakota, Egypt’s role in the global grain markets is very important.
When it comes to global wheat prices, Egypt plays a critical role in global demand.
For the 2017/18 calendar, the FAO projects that Egypt will import 11.7 million to 12 million tonnes of wheat, a figure that is about 9% higher than its five-year import average.
No other country will likely break the 10-million tonne mark this year.
So yes… Egypt matters.
But there is far more to this story.
This is where we get to the point about why you should care.
Egyptian Wheat Buying On the Rise
Roughly 95 million people live in Egypt.
One would think that with the Nile and cradle of civilization in their midst, the country would engage in the production of its key agricultural staple.
The country is set to produce 8.1 million metric tonnes of wheat in 2017/2018, according to the USDA.  The International Grains Council has pegged this figure slightly higher at 8.6 million tonnes. 
Unfortunately, the nation does not have enough fertile land to become self-sufficient in wheat production at a time that its population is growing, and its economy is stuck in neutral.
Egypt’s economy has failed to recover from its recent political revolution. Having walked through Cairo after the revolution, I can attest that it is a shell of the commerce center that it once was.
The nation faces chronic unemployment, currency instability, and a decline in tourism revenue.
Some analysts have debated that the Arab Spring, which began in 2010 in Tunisia and spread across five other nations including Egypt, was rooted in rising food prices and the conversion of crops to make biofuels. While holes exist, the argument does draw attention to higher grain prices and the nation’s significant reliance on imports.
Wheat is an especially critical commodity due to its mark as a staple food ingredient in the Egyptian culture.
Egyptian Wheat Buying: A State Affair
In fact, the national government has a subsidized bread program. After the nation’s currency plunged in November 2016, the country faced sharp inflation rates. Inflation in October 2016 sat at 13.8%. By April 2017, that figure nearly reached 44%, according to the FAO.
With food prices rising and currency instability a massive problem, the government guarantees that 70 million residents receive a form of welfare that totals five loaves of bread per day.
The cost is an equivalent of USD $0.01 per loaf of “Baladi” bread and an additional USD $1.16 in goods per month.  The Baladi bread costs the citizen one-tenth of what it costs the break-maker actually to make.
The government then pays back the bakeries for the difference in production costs 
Roughly 60% of the nation’s imports are controlled by a state body known as the General Authority for Supply Commodities or the GASC.
Do the math, and you know that private firms handle 40% of the import trade.
The problem for these private companies is that the subsidy system had been hurting them. They were spending an immense amount of money subsidizing bread to make it possible for the lower-income population to procure food.
Reform of the subsidy policy should help reduce waste. Some analysts predict that in time, Cargill and other multinational firms will handle imports into the country.
From Russia… Not With Love… But With Wheat
From a price perspective, Egypt secures the bulk of its wheat from the Black Sea, which is home to major Russian and Ukrainian ports. The Black Sea trade primarily competes directly against French exporters to export to the Middle East.
Last year, Egypt’s three largest suppliers were Russia (4.47 million metric tonnes), Romania (1.26 MMT), and Ukraine (560,000 MT).
The U.S. barely showed up on the scales. 
Back in May of this year, the Egyptian government bought U.S. wheat for the first time in two years. But this wasn’t an effort to reestablish trade ties. The country was simply looking to fill a small gap while Russian producers were just starting their winter wheat harvest and ramping up enough its export program.
Can the U.S. Compete Against Russia?
The 150,000 metric tonnes of American wheat purchased was around $207.50 USD per metric tonne at the time (This would be a delivered price of about $5.65 USD or $7.15 CAD per bushel).
By comparison, Russia was supplying Egypt with prices about $15 to $20 lower per tonne.
That’s a big cost differential for a nation buying millions of tonnes of wheat while facing rising inflation, economic uncertainty, and the constant threat of an angry population.
Egypt even went so far as to back off a major trade dispute with Russia to ensure that it could still obtain less expensive wheat from the Black Sea, which has become a beacon of financial investment.
As Russia and Ukraine prepare for significant upgrades and expansion to their shipping infrastructure, it is “Destination Egypt” that many inspectors will find on many, many containers in the year ahead.
Meanwhile, the U.S. wheat industry is literally retreating from Egypt.
U.S. Wheat Associates (USWA) recently announced it would shutter its office in Cairo, Egypt on December 1st.
The export development organization for American wheat producers is in charge of marketing U.S. wheat to potential customers and receives its funding from 17 state wheat commissions and the USDA’s Foreign Agricultural Service. 
Will Egypt Still Buy Wheat from North America?
Egypt is a large buyer of U.S. agricultural products. The nation purchased about $807 million in goods from the U.S., with top exports being corn, soybeans, and beef. But Egypt doesn’t appear much on the radar when discussing U.S. wheat.
The U.S. isn’t giving up on Egyptian wheat exports. But the USWA’s physical departure will turn its focus to private buyers, millers and agribusiness producers.
Why? They’re going to cater to higher value bread, cakes, and confectionery products in the private market.
Further, the USWA will be bolstering its marketing to Asian and Latin American markets.
Meanwhile, Canada rarely shows up in any GASC wheat tenders. During the 2016/17 calendar, Canada did not complete any deals over 100,000 metric tonnes with GASC.
It’s worth noting that Egypt rejected several shipments of Canadian wheat due to an ongoing dispute over ergot levels.
Egyptian Wheat Buying Remains a Key Price Factor
No doubt about it, Egyptian wheat purchasers a critical factor in the global trade.
Rising purchases from the Black Sea may help to offset the incredible uptick in Russian exports and production that we’ve discussed as a bearish wheat factor.
However, it likely isn’t enough right now to help wheat markets find support.
The USWA’s departure from Cairo is a sign that Russia, Ukraine, and Romania have won the short-term battle. The Black Sea producers have secured customers in the wheat-starved region.
With Egypt effectively “spoken for,” the U.S. wheat industry will aim to be more competitive elsewhere. They will target new and established markets in Latin America and Asia.
In addition, this transition will alter the global landscape and establish a new set of grain price factors while emboldening others.
You’ll want to stay on top of these changing factors to keep you informed on why your crop prices are rising and falling.