Bunge Ltd. has launched legal proceedings against Egypt's state grain buyer over a rejected cargo of French wheat, highlighting uncertainty among suppliers who are already charging a risk premium to the world's largest wheat importer.
Egypt, which buys wheat to provide its poorest citizens with bread, has in recent weeks fueled confusion in the global grain market because different government agencies have made conflicting statements about whether the country would accept shipments with any presence of ergot, a fungus.
The quality of a cargo that Bunge, one of the world's top grain traders, shipped to Egypt met the terms of a tender that allowed a maximum of 0.05 percent ergot at loading, according to the company.
"While the cargo's quality has been called into question, the facts are clear," Bunge said in a statement.
The company did not say where it had started legal proceedings and did not immediately respond to a request for more information.
Egypt in December rejected the French wheat shipment it said did not meet import rules.
But Bunge said that quality certificates for the cargo were signed by a surveyor nominated and appointed by Egypt's General Authority for Supply Commodities (GASC).
And a phytosanitary certificate issued by French authorities and certificates issued by an Egyptian delegation "prove compliance of the cargo with Egyptian requirements and regulations," the company said.
Mamdouh Abdel Fattah, vice chairman of Egypt's General Authority for Supply Commodities (GASC), said a wheat import agreement stipulates that health and agricultural authorities in Egypt need to approve shipments of wheat.
"There is no comment because the terms of agreement are clear," he said in an interview when asked about Bunge's legal action.
Egypt imports around 10 million tonnes of wheat each year, most of which goes to providing subsidized bread to feed its population of 90 million.
Confusion over the allowed limits of ergot fungus have forced Egypt to cancel two tenders to buy wheat, and Bunge's legal action could add to caution among suppliers about bidding in future tenders, one European trader said.
"It doesn't really change the overall situation but it won't help and people will still add a risk premium in the tenders," the trader said.
French wheat offers in a Feb. 5 GASC tender were about 2 to 3 percent higher than offers in a tender two weeks earlier. Benchmark French milling wheat futures were down nearly 5 percent over that period.
On Sunday, Egypt's ministries of supply and agriculture held a joint press conference to calm traders' concerns and affirmed that they would accept all shipments with less than 0.05 percent ergot.
Egypt's ministry of supplies and GASC had baffled traders by assuring them their wheat could contain up to 0.05 percent ergot, even as the agriculture ministry said it would categorically reject all such shipments.
"That is the scary and dangerous thing about now trying to do business with Egypt because you've got these agencies that are fighting amongst themselves," said Al Conway, a U.S. trader and consultant for Cascade Commodity Consulting Company.