Monday Market Briefing - 7th October 2024

With growing tensions in the Middle East, we have seen some nervousness in macro indicators including the oil price – up $9/barrel over two weeks. Grain values have also strengthened recently, and it would be natural to think that any conflict would support grain prices – such as the effect of war in Ukraine. However, the relationship between higher grain prices and the Middle East conflict is much more complex.

The largest wheat buyer in the world is Egypt; because of its growing population of 110 million people coupled with poor domestic production figures for cereals. Egypt has a tightly controlled, and highly subsidised bread price with the government purchasing the wheat imports and managing the flour mills. This ensures that their population doesn’t starve with good availability of bread. Unfortunately, the Egyptian government is struggling financially with rising debt and persistent inflation crippling their economy. Last week, through a combination of international funding, and deferred payment terms for Russian wheat, Egypt agreed on an unexpected 3.12 mln MT import program for the next six months. Details of the funding is unclear, but with rising food prices within Egypt and a nearby conflict, there is an interest from the international community to keep Egypt stabilised and its people fed, preventing any escalation which would add to problems in Lebanon, Isreal and Gaza.

Unfortunately, Russia remains one of the largest, and cheapest wheat suppliers to Egypt and agreeing funding for wheat imports further extends Russia’s war effort in Ukraine. What is clear however, is that over 3 mln MT has now been taken out of the supply system. Although global wheat stocks are extremely healthy, this surprize purchase agreement for Egypt could become a supportive factor if planting for Autumn 2024 is further delayed across Europe.

Have a good week