(Bloomberg) -- Egypt may have to import more wheat -- and at higher prices -- as problems from payment disputes to a fungus-tainted cargo disrupt supplies to one of the world’s top importers.
The North African country on Thursday said it rejected a cargo of Russian wheat due to higher-than-allowed levels of the common ergot fungus, which is only harmful in large amounts. That follows two shipments of Russian grain that were held back amid payment disputes, while another won’t be shipped due to a missed delivery time.
Delivery disruptions could leave Egypt’s state-run buyer in a difficult position, having to buy at much higher prices than in previous tenders. Benchmark futures in Chicago surged 23 percent this year amid dryness from the U.S. to the Black Sea region that hurt crops. Any purchases would also come at a time when the General Authority for Supply Commodities typically slows imports toward the end of the season.
"Egypt is playing with fire," said Pierre Tronc, a broker at BGC Partners in Geneva. "The market now is very high compared to what they bought."
Egypt’s Agriculture Ministry said it turned away a 63,000-ton cargo of Russian wheat at the Red Sea port of Safaga because its ergot levels slightly exceeded international standards of 0.05 percent. The cargo’s fate is still unclear as Egyptian inspectors will take a second sample and conduct further tests before making a final decision, said Ismail Gaber, head of the General Organization for Export and Import Controls, which oversees grain inspections.
The seller, Dubai-based trader GTCS Trading DMCC, said the grain met GASC specifications and that the quality was confirmed by Russian officials and surveyors at the port of loading. Russia’s agriculture agency Rosselkhoznadzor said the rejected wheat meets Egyptian requirements and the agency is sending specialists to Egypt on Saturday to study the situation, spokeswoman Yuliya Melano said.
The rejection comes after payment disputes held back a Russian wheat cargo in Egypt and another one at the Black Sea port of Novorossiysk, people familiar with the matter have said. The vessels were withheld because suppliers didn’t receive payment from AOS Trading DMCC, which then sold the wheat to Egypt in tenders, the people said. A third cargo sold by AOS won’t be shipped as the trader missed the agreed delivery period, one person said.
Egypt’s supply minister on Thursday said the country is considering bypassing AOS to buy the cargo stuck at one of the country’s port directly from the original supplier, and that a decision will be made next week.
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The latest issues could mean Egypt has to pay a premium when it next taps international markets, BGC’s Tronc said. The number of tender participants could also fall, as has happened in recent years when Egypt turned away cargoes amid a dispute over how much ergot was allowed.
"Merchants don’t like to fight to get their money," Tronc said. "Last year we saw ABCDs and other big merchants pull out of Egyptian tenders," he said, referring to the world’s top agricultural commodity traders, Archer-Daniels-Midland Co., Bunge Ltd., Cargill Inc. and Louis Dreyfus Co.
Some traders could also be wary of selling to Egypt after the nation’s corruption watchdog arrested four officials suspected of taking bribes from commodity suppliers. Separately, an official at Egypt’s customs silos and two employees at a grain import and export company have been detained pending an investigation into allegations of bribery, abuse of office, profiteering and wasting about 30 million Egyptian pounds ($1.7 million) of public funds. It’s unclear if the cases are related.
(Updates with Egyptian authority comment in fifth paragraph.)