“Prices of wheat will definitely decrease, but will not return to pre-ban levels,” said Noamany Noamany, vice president of Egypt's General Authority for Supply Commodities (GASC).
Russian Prime Minister Vladimir Putin announced yesterday that his country will lift the grain export ban starting 1 July, 2011.
Formerly the third-largest wheat exporter in the world, Russia banned exports in August 2010 after the worst drought in over a century devastated Russian crops.
This ban had its toll on wheat prices, which grew by 30 per cent as a result of the decline in supply, according to Noamany.
This hike in prices expensed a heavy bill on Egypt, the largest wheat importer worldwide. Egypt imports around six to seven million tonnes yearly, comprising almost 60 per cent of its total consumption, according to several news reports.
“The Egyptian government increased the allowance for grains in the budget by LE4.5 billion ($77 million) to offset the rise in prices” says Noamany.
One day before the Russian announcement wheat prognosis for July delivery rose by 0.6 per cent on the Chicago board of trade. The effect of the ban lift should appear when the market reopens after the weekend. However, Noamany was not conclusive about the magnitude this ban lift will have on prices.
“Harvests in the USA and France are likely to deteriorate this season due to droughts. Russian wheat will balance the market and cause a price decline, but it will not be hefty,” he added.
“Russia will also want to sell its crop at current, high prices. We’ll have to wait and see how the market reacts,” Noamany explained.
Shipping cost is another factor that heavily determines the price of wheat.
GASC’s vice president highlighted that Russia’s proximity to the Middle East makes it the preferred wheat supplier for the region. “Unlike shipments from the USA, Russian grains don’t cost much to ship, making it cheaper de facto,” he clarified.
As for wheat quality; Noamany attested that it is unlikely to alter. “Quality depends on the harvest; not the place of origin. Egypt has a minimum quality standard that has to be met by suppliers; so quality should not be affected much.”