Egyptian turmoil & your markets

Egyptian turmoil & your markets

By: Jeff Caldwell 01/31/2011 @ 1:07pm

Those chaotic scenes you may be seeing on the evening news of Egyptian men and women protesting the government in power in that nation are a hemisphere away from the crop fields and feedyards of the rural U.S. But, the effects of those protests and the surrounding circumstances are wasting no time in becoming a big factor to the markets for corn, wheat, cattle and hogs.

All markets, from global financials to U.S. grain futures, are watching closely as the events unfold in Egypt, an "enabler" of global trade, according to a Dow Jones Newswires report. That's because that nation and others in the Middle East have growing needs for many products, namely grains and other food staples, the shortage of which is helping drive many of the protests not just in Egypt, but elsewhere in the region, according to one market analyst on the CME Group trading floor on Monday.

"It's all about foreign food needs in the gains for grains today. All the pre-opening talk is of Middle Eastern countries expanding their grain purchases that began two weeks prior, as governments try to stabilize tension over unemployment, food shortages and inflation. Wheat is the leader, as it's turned into food for human consumption quickly," the analyst told Agriculture.com Markets Editor Mike McGinnis Monday morning.

At mid-day Monday, nearby wheat futures were almost 20 cents higher at $8.54 1/2 per bushel, according to Barchart.com. Prices like this, though sharply higher, still aren't as high as they would be if the Suez Canal -- a major shipping channel for Egypt and much of the Middle East -- is closed to barge traffic, something that's yet to happen.

"Markets are nervous as they watch events unfold in Egypt, fearing an effect on the important Suez Canal, but so far, shipping remains unfettered," according to a Dow Jones Newswires report.

Though the canal is still open, "operations at the country's ports" have been suspended for the time-being, another Dow Jones report indicates. Longer-term, analysts say though Egyptian officials have said they'd continue buying wheat on the global market at the same clip as they have been, there's certainly room for disruption in that process.

"Egypt said over the weekend that it won't step-up on it's regular wheat purchases, but that it will continue to buy 'the usual quantities.' The market seems to have been expecting them to follow Algeria & Tunisia and increase their buying, but so far no tenders have been forthcoming. There are question marks too over whether the continued unrest might disrupt import operations at major Egyptian ports. The North African country has reputedly bought over 2.75 MMT of U.S. wheat so far this marketing year, and over 670 TMT of that is apparently still to be shipped," says Dave Norris, an ag trader and broker in Great Britain.

"Certainly I'd have thought that the government wouldn't want to cause further problems by disrupting the supply of state-subsidized bread to the masses. It may however make exporters think twice about participating in future Egyptian tenders. Who's going to be in power next week and have they got the chequebook? How easy/expensive is going to be to charter a boat to go there? And what if the Suez Canal is closed when you've already sailed from, say, Australia?" Norris adds.

In the livestock trade, there's a "wait-and-see" type of attitude among traders Monday regarding how the Egyptian turmoil. The cattle trade, for one, may benefit from the upheaval, according to another Dow Jones Newswires report. "Feeder cattle also could be mixed unless investors continue buying all commodities as an investment block because of nervousness about the political stability in Egypt," according to one report.