Global wheat prices continue to decline, with the Wheat Continuous Contract hitting $6.28 per Bushel on Wednesday.
According to the Wall Street Journal's market data, wheat dropped 51.47 percent from its record $12.94 level in March, on the heels of the Russian-Ukrainian war.
The prices are even lower by around a dollar compared to 2021 levels. Russia and Ukraine are among the world's biggest wheat exporters.
"The stability of current low prices is contingent upon a set of factors, including extending the Black Sea grain deal and mitigating the war in Ukraine," Medhat Nafei, former advisor to the Minister of Supply and Internal Trade, told Ahram Online.
*Development of Wheat Continuous Contract. WSJ.
Developments in Russia, Ukraine feud
The war between Russia and Ukraine had a devastating impact on global grain prices. The two countries signed, in July, a one-year extendable deal to facilitate their grain exports through the black sea, which sent relief to the market and contributed to the decline in prices.
However, the deal is at stake, as Russian President Vladimir Putin threatens not to extend it in July, blaming Kyiv for not keeping its side of the bargain.
"Unfortunately, we were once again cheated -- nothing was done to liberalize our grain supply to foreign markets. There were a lot of conditions that the Westerners had to fulfil under the leadership of the UN. Nothing has been done," Reuters quoted Putin as saying.
According to the US Department of Agriculture, Russian wheat exports increased by 36 percent compared to last year, hitting a record 45.0 million tons in 2022/23. Russia's exports in 2022/2023 far exceeded those of the second largest exporter – the EU – whose wheat exports stood at 35 million tons in the same period.
The Ukrainian government hasn't released enough relevant data. However, Aakash Doshi, head of commodities North America at Citi Research, states that the country is expected to export 30 million tons of corn and wheat during 2023/24, as domestic demand slashed due to the ongoing war.
According to the World Bank's Deputy Chief Economist Ayhan Kose, the decline in commodity prices, wheat included, indicates a slowdown in global economic growth.
The World Bank expects the global economy to slow by 2.1 percent in 2023, from 3.1 percent in 2022, before rising to 2.7 percent in 2024.
Impact on Egypt
Furthermore, the decline in wheat prices is good news to many countries that were hardly hit by the conflict in Ukraine, like Egypt.
"Egypt could make the best of the current price decline by engaging in future contracts. Such agreements are usually reached through the mediation of global institutions, not directly through the General Authority for Supply Commodities (GASC)," Dr Nafei commented.
Earlier in June, GASC announced an international tender for wheat that will be financed by the International Islamic Trade Finance Corporation (ITFC).
Egypt aims to purchase four million tons of local wheat during the current harvest season, which started in April and runs through the fall. The government increased the local wheat procurement price by 20 percent to EGP 1,500 per ardeb (150 kg) for the harvest season starting in April.
"Egypt's local wheat supplies had offset the shortage that followed the eruption of the Ukrainian war. However, the increase in wheat cultivation has impacted the sugar beet harvest, as both grow in the same season. A shortage in sugar beet is looming, which would push sugar prices higher," Nafei explained.
According to official inflation data, sugar prices surged by 12.1 percent in May, compared to the previous month.
With an annual consumption of up to 18 million tons of wheat, of which 12 million tons are imported based on 2022 figures, Egypt aims to mitigate disruptions in global food supply chains and the upward trend in commodity prices by encouraging farmers to increase wheat supply to the government.
According to a US Department of Agriculture report, Egypt had long been the world's top wheat importer before being toppled by China.