Ukraine has 110,000 metric tons of wheat contracted to be sent to Egypt in November, but the imminent ban has put these sales in doubt. This is actually a relatively small amount — Egypt imported more than 10 million metric tons of wheat last year globally — but it could have an impact on local markets.
Ukraine is a relatively small wheat exporter, accounting for 3 percent (more than 4 million metric tons) of the total value of global exported wheat in 2011. Between 2008 and 2011, Egypt received 2-9 percent of its total yearly wheat imports from Ukraine — an important but not irreplaceable sum. In years in which Ukrainian wheat exports dropped, Egypt made up the difference by increasing imports from alternative suppliers, including France and the United States. Russia, Egypt's biggest supplier of wheat, and countries in South America are other countries that could help Egypt make up the difference.
Alternative Wheat Suppliers
Russia provided between 33 and 39 percent of Egypt's wheat imports between 2008 and 2011. However, domestic grain prices in Russia are rising despite the expectation that Moscow will tap into its government intervention stocks. The Kremlin has denied rumors that it could follow Ukraine in banning wheat exports — something Russia did in 2010. Instead, Moscow has refrained from intervening, allowing the price to rise. September prices were at a 20-year high, about $355 per metric ton, and Russia has opted to continue exports so far. At this price, however, Egypt has chosen not to purchase Russian wheat — a move that could have a similar effect as an export ban.
Wheat stockpiles in France, another potential supplier, are reportedly low due to surging demand. The result has been increased prices for French wheat futures; it is currently about $14 per metric ton above U.S. wheat, which normally trades at a higher rate. Still, U.S. wheat prices have increased in response to Ukraine's announced ban. Wheat futures on the Chicago Board of Trade on Oct. 24 were up 1.8 percent, to approximately $324 per metric ton, according to The Wall Street Journal.
South American wheat is another option for Egypt, and it usually trades at a lower rate than both European and U.S. wheat. Unfortunately, supplies from South America have proved unreliable. For example, strikes at Argentine docks in March delayed grain shipments.
This comes at a bad time for Egypt. In the midst of a political transition, the country is in a fragile political state, and the threat of prolonged high wheat prices and of a shrinking number of potential wheat suppliers puts additional stress on the Muslim Brotherhood to fully establish the new government. But first, the Brotherhood must complete constitutional negotiations. While this process is under way, there is the possibility that the military could step in — as it has done in the past — to stop any disturbances resulting from the higher wheat prices, such as bread riots. This sort of military intervention could undermine the newly established government and presents the possibility for ongoing instability in Egypt.
