Middle Eastern Countries on Brink of Wheat Crisis

The destroyed silo sits in rubble and debris after an explosion at the seaport of Beirut, Lebanon, on August 5, 2020. (AP)
The destroyed silo sits in rubble and debris after an explosion at the seaport of Beirut, Lebanon, on August 5, 2020. (AP)
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Middle Eastern Countries on Brink of Wheat Crisis

The destroyed silo sits in rubble and debris after an explosion at the seaport of Beirut, Lebanon, on August 5, 2020. (AP)
The destroyed silo sits in rubble and debris after an explosion at the seaport of Beirut, Lebanon, on August 5, 2020. (AP)

Since the eruption of the Russian-Ukrainian tensions, fears have emerged that the global wheat and grain markets will be severely affected, given that the two countries secure an important part of global exports.

Russia and Ukraine account for 29% of world wheat exports, 19% of corn exports, and 80% of global exports of sunflower oil.

Since the launch of Russia's invasion against Ukraine on Thursday, wheat prices on the Chicago Stock Exchange have risen to their highest level in nine and a half years, while the conflict threatens to disrupt the flow of supplies from the region.

Meanwhile, European wheat futures jumped to a record peak, and wheat prices reached 344 euros per ton at the Euronext group, which operates a number of European stock exchanges.

Ukraine is a major exporter of corn, most of which goes to China and the European Union. Russia is also competing in supplying wheat to major buyers, such as Egypt and Turkey.

An adviser to the Ukrainian president’s chief aide said the army suspended commercial shipping in Ukrainian ports after Russian forces invaded the country, fueling fears of supply disruption.

Officials and sources in the grain sector had previously said Russia also indefinitely suspended the movement of commercial ships in the Azov Sea, but kept its ports on the Black Sea open to navigation.

In the midst of this political dilemma, the countries of the Middle East, mainly Egypt, Lebanon, Iraq and the Maghreb countries, are threatened with a serious problem, as their major reliance on Ukrainian and Russian wheat would be difficult to compensate from other markets.

Lebanon faces a severe crisis

Lebanon had lost its grain storage capacity since the massive explosion that rocked the port of Beirut in August 2020 and destroyed the wheat silos.

On Friday, Lebanese Economy Minister Amin Salam told Reuters that wheat reserves were sufficient for one month at most, adding that he was seeking to conclude import agreements from different countries amid market concerns over the Ukrainian crisis.

He added that Lebanon, which imports nearly 60% of its wheat from Ukraine, was in talks with other countries including the United States and India to import wheat.

“We don’t want to create a state of panic, we have positive indicators,” the minister told Reuters.

Earlier on Friday, Georges Berbari, the ministry’s general director of grains and sugar beets, told Reuters that Lebanon’s wheat reserves were enough for 1.5-2 months.

Two wheat shipments headed for Lebanon were being loaded in Ukraine, but they have been delayed by the war, he revealed.

Distress call from Yemen

The World Food Program (WFP) warned on Thursday that the war in Ukraine would likely increase fuel and food prices in war-torn Yemen, which could push more residents into starvation as aid funding dwindles.

The WFP has had to cut food rations for eight million people in Yemen, as the seven-year war between the government and the Iran-backed Houthi militias has pushed the country to the brink of famine.

“The escalation of conflict in Ukraine is likely to further increase fuel and food prices and especially grains in the import-dependent country,” said a WFP statement on Thursday.

It added: “Food prices have more than doubled across much of Yemen over the past year, leaving more than half of the country in need of food assistance.”

“We have no choice but to take food from the hungry to feed the starving and, unless we receive immediate funding, in a few weeks we risk not even being able to feed the starving,” the WFP statement cited WFP Executive Director David Beasley as saying.

“This will be hell on earth,” he warned.

A daunting task

In Egypt, the most populous Arab state and the world’s biggest importer of wheat, the authorities will scramble to find urgent alternatives to feed 100 million citizens, with the country importing about 40% of its needs from Russia and Ukraine.

However, multi-pronged moves are likely to solve the crisis, including the local expansion of wheat cultivations and diversification of imports, in addition to having reasonable reserves that are enough for six months.

Moreover, the country’s local production is sufficient to produce daily bread, Dr. Saad Nassar, economist and advisor to the Egyptian Ministry of Agriculture, told Asharq Al-Awsat.

Egypt’s state grains buyer, the General Authority for Supply Commodities (GASC), cancelled its international purchasing tender on Thursday because of a lack of offers. The Authority received one offer at $399 a ton for 60,000 tons of French wheat on a free-on-board (FOB) basis in its international tender on Thursday, traders said.

Reassuring messages

In Tunisia, the Ministry of Agriculture revealed the availability of sufficient grain stock to cover local needs until next May.

Abdel Sattar Fihri, Director of Supply at the Grain Office, said that about 80% of Tunisia’s grain imports came from Russia and Ukraine, which necessitates taking precautionary measures as the crisis could last long and impact shipments.

He added that the Ministry of Agriculture had ordered a search for other markets, such as Bulgaria, Romania, Uruguay and Argentina, for new bid requests, and to avoid Russia and Ukraine during this period.

Similarly, a spokesman for the Iraqi Ministry of Trade said on Thursday that his country has a sufficient strategic stock of wheat from its purchases from local farmers, adding that he was not worried about reserves. But he added that Iraq might resort to the market to buy wheat if the crisis between Russia and Ukraine is prolonged.



France Lowers Growth Forecast, Will Miss Deficit Target

French Minister for Economy, Finance, and Industrial, Energy and Digital Sovereignty Roland Lescure gestures as he speaks during a press conference to update the governments growth and fiscal deficit forecasts for the 2027 budget, at the Bercy Economy and Finance Ministry in Paris, France, September 11, 2026. REUTERS/Stephanie Lecocq
French Minister for Economy, Finance, and Industrial, Energy and Digital Sovereignty Roland Lescure gestures as he speaks during a press conference to update the governments growth and fiscal deficit forecasts for the 2027 budget, at the Bercy Economy and Finance Ministry in Paris, France, September 11, 2026. REUTERS/Stephanie Lecocq
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France Lowers Growth Forecast, Will Miss Deficit Target

French Minister for Economy, Finance, and Industrial, Energy and Digital Sovereignty Roland Lescure gestures as he speaks during a press conference to update the governments growth and fiscal deficit forecasts for the 2027 budget, at the Bercy Economy and Finance Ministry in Paris, France, September 11, 2026. REUTERS/Stephanie Lecocq
French Minister for Economy, Finance, and Industrial, Energy and Digital Sovereignty Roland Lescure gestures as he speaks during a press conference to update the governments growth and fiscal deficit forecasts for the 2027 budget, at the Bercy Economy and Finance Ministry in Paris, France, September 11, 2026. REUTERS/Stephanie Lecocq

France's economy will grow less than expected this year and the government will miss its budget deficit target, Finance Minister Roland Lescure said on Friday.

The downgraded outlook complicates the government's task of getting its 2027 budget passed in the coming months in a deeply divided parliament, where parties have hardened their positions before an April-May two-round presidential election.

Lescure told journalists he was lowering the government's 2026 economic growth forecast to 0.5% from 0.7% previously, but stuck with a ⁠projection of 1.0% ⁠for next year.

"This year has been marked by extreme crises involving four different types of shocks," Lescure told reporters, according to Reuters.

Slower growth will make it more difficult for the government to trim its fiscal budget deficit as planned to 5.0% of economic output this year.

"The ⁠reality is that the budget was built on a 5% assumption. And the reality is that, today, 5% is no longer an option," Lescure said.

The minister did not give a new deficit target.

The economic fallout from the war in the Middle East and summer heatwaves and drought that hit agriculture output have dragged down growth and put the government's fiscal targets out of reach.

"I think it is reasonable to say that economic ⁠uncertainty has ⁠never been greater than it is today," Lescure said. "We are operating under tight budgetary constraints; there is no more fat to trim."

Further complicating the picture, French borrowing rates have surged in recent weeks as investors have identified France as one of the weaker links in a global bond selloff due to its weak public finances and serial slippage on its deficit-reduction plans.

Lescure stressed that France had no difficulties in issuing debt, but acknowledged that it now cost more.


ECB Policymakers Open Door to More Rate Hikes on Energy Risk

The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo
The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo
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ECB Policymakers Open Door to More Rate Hikes on Energy Risk

The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo
The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo

Two European Central Bank policymakers opened the door on Friday to further interest rate increases if a war-fueled rise in energy prices continues and pushes up other prices in the euro zone.

The ECB raised borrowing costs on Thursday for the second time this year and sources told Reuters policymakers expect further policy tightening in the months ahead, with a move possible as early ⁠as October.

The central ⁠bankers of Germany and Estonia acknowledged this prospect on Friday although they both stressed any move would depend on how oil and gas prices develop.

Bundesbank President Joachim Nagel said the ECB might need to raise rates to a level that mildly curbs the economy.

"I will not exclude that we have to ⁠go into the mild restrictive territory, but as I said, it's very much dependent on how the energy prices evolve, how the price picture is evolving over the course of maybe the next month," he told CNBC in an interview, according to Reuters.

The euro zone central bank increased its key rate from 2.25% to 2.50%, bringing it to the upper end of its estimated neutral range, which neither stimulates nor slows down the economy.

Money markets have started pricing in at least another three ECB rate hikes over the next ⁠year.

Ülo Kaasik, ⁠Estonia's central bank governor, said such expectations were "understandable" given the latest increase in fuel prices and the risk that food would also become more expensive.

"Recent developments in energy markets, for example, indicate the possibility that the price increase for gas and fuels will be much larger and last longer than expected in the forecast," he said in a blog post.

Slovenia's central bank governor Primož Dolenc also warned in a blog post about "rising energy and electricity costs in the autumn and winter months".

The ECB on Thursday slightly increased its projections for growth and inflation but these did not capture the latest energy price moves.


Dollar Holds Gains, Yen Slips as Middle East Energy Shock Deepens

14 January 2020, Iraq, Baghdad: US dollar banknotes are pictured at a currency exchange service provider. (dpa)
14 January 2020, Iraq, Baghdad: US dollar banknotes are pictured at a currency exchange service provider. (dpa)
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Dollar Holds Gains, Yen Slips as Middle East Energy Shock Deepens

14 January 2020, Iraq, Baghdad: US dollar banknotes are pictured at a currency exchange service provider. (dpa)
14 January 2020, Iraq, Baghdad: US dollar banknotes are pictured at a currency exchange service provider. (dpa)

The dollar held near its highest levels of the past week in Asian trading on Friday as renewed fears of energy supply disruptions in the Middle East pushed up bond yields and oil prices.

The US dollar index, which measures the greenback's strength against a basket of six currencies, was trading flat at 99.084, after strengthening to its highest level since September 7 during the previous session. The rise followed the release of data showing US producer prices increased 0.4% in August, meeting market expectations as energy prices rebounded during the month.

"The safe-haven US dollar gained on risk-aversion flows, helped by higher energy prices that have lifted the chance of a Fed hike next week to 70%," said ‌Tony Sycamore, market ‌analyst at IG in Sydney.

Energy prices snapped a five-day gaining streak, with Brent crude ‌futures ⁠down 0.6% at $106.99 ⁠a barrel in Asian trade.

But both major benchmarks remained above the $100 mark earlier this week, with WTI futures surging across the threshold on Thursday for the first time since May 21.

Against the yen, the US dollar was down 0.2% at 154.105 yen and on track for its second consecutive week of declines, while the euro slipped 0.2% to 178.99 yen after the European Central Bank hiked interest rates on Thursday for the second time this year.

The Japanese currency regained ⁠some strength after data released on Friday showed wholesale inflation rose 7.6% in August ‌from a year earlier, bolstering the case for a rate ‌hike this month.

The Bank of Japan is set to raise interest rates next week, most likely by 25 basis points, and ‌may signal faster future tightening if price pressures heighten risks of an inflation overshoot, four sources familiar with ‌its thinking told Reuters.

The kiwi dollar was up 0.5% at $0.5827, retracing a selloff on Thursday that has put the currency on track for its third week of declines. New Zealand's 10-year government bond yields rose by 15.5 basis points to 5.06% on Friday, extending the biggest two-day jump in borrowing costs since last year's "Liberation Day" selloff.

"New Zealand seems to have been hit harder ‌than most in the latest leg of the bond market sell-off," said Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington.

The Australian dollar ⁠was up 0.2% at $0.7167.

Both ⁠the euro and the British pound were level against the dollar at $1.1609 and $1.3503, respectively.

PRESSURE BUILDS ON FEDERAL RESERVE

Markets are awaiting the release of US CPI later on Friday, one of the last major economic data points released before the Federal Reserve meets next week.

Fed funds futures are pricing an implied 71.1% probability of a 25-basis-point hike at the US central bank's next two-day meeting ending on September 16, compared with a 61.2% chance in the previous trading session, according to the CME Group's FedWatch tool.

Fixed-income markets remained uneasy after the US Treasury Department tripled the size of its long-dated bond repurchase, with a gauge of bond volatility rising to its highest level in a month. The yield on US 10-year government bonds was up 1.5 basis points at 4.957%.

"10-year US Treasury yields are within striking distance of 5%, as the markets have reassessed the Fed's path higher while term premium is appropriately hovering near pre-GFC levels," Barclays analysts wrote. "We remain of the view that bonds are not cheap yet and catalysts for a rally do not appear imminent."

In cryptocurrencies, bitcoin was down 0.2% at $77,094.41 while ether was 0.1% lower at $2,457.96.