Report Highlights:

With MAFF's strong push to use rice for feed, rice used in compound feed exceeded one million metric tons in MY2014/15 for the first time on record, at the expense of wheat and corn. Japan's aggregate food wheat consumption is expected to remain flat at 5.9 million MT in MY2015/16. Increased domestic wheat production in 2015 is forecast to result in slightly lower food wheat imports in MY2015/16, but this is expected to be offset by an increase in feed wheat imports.

Overall Market Situation

Up-to-date feed production statistics and a detailed breakdown of feed ingredient utilization follow. In accordance with downward trends in the domestic livestock population, Japanese feed production (compound and mixed feed) dipped below the 24 million metric ton (MT) level in MY2013/14 for the first time since MY2004/05. At the current pace, feed production in MY2014/15 is expected to be 23.5 million MT, below 24 million MT for the second consecutive year. With the Ministry of Agriculture, Forestry and Fisheries (MAFF)'s strong push to use rice for feed, rice utilization in feed has increased to around five percent since December 2014, at the expense of wheat and corn. For the first 11 months of MY2014/15 (October-August), the amount of rice used in compound feed exceeded one million MT for the first time on record. This level is expected to continue for MY2015/16 as domestic production of rice for feed jumped 136 percent to 421,077 MT in 2015 from the previous year, and rice for feed is being sold to feed millers at a price equivalent to that of imported corn.

Japan maintains a feed price stabilization program that consists of a combination of a MAFF subsidy and an industry fund to help absorb sudden surges in compound feed prices. It is activated when the import cost of ingredients in a particular quarter exceeds the average import cost of ingredients in the previous year. Following two consecutive quarters where a compensation payment of 800 yen per metric ton was made, no compensation payment was made in the first two quarters of Japanese fiscal year (JFY) 2015 (i.e., April 2015 – September 2015). During this time, the average price of imported raw materials for compound feed decreased by 423 yen per MT - from 33,675 yen/MT to 33,252 yen/MT – in the first quarter and by 2,240 yen per MT – from 33,841 yen/MT to 31,601 yen/MT - in the second quarter, reflecting lower prices for corn and soy meal. As a result, no payment was made.

Wheat Update

Wheat

2013/2014

2014/2015

2015/2016

Market Begin Year

Jul 2013

Jul 2014

May 2016

Japan

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

210

210

213

213

213

213

Beginning Stocks

1543

1543

1339

1339

1504

1507

Production

812

812

849

852

800

920

MY Imports

6123

6123

5878

5878

5800

5800

TY Imports

6123

6123

5878

5878

5800

5800

TY Imp. from U.S.

2899

2967

2969

3020

0

0

Total Supply

8478

8478

8066

8069

8104

8227

MY Exports

269

269

262

262

270

270

TY Exports

269

269

262

262

270

270

Feed and Residual

700

700

400

400

400

500

FSI Consumption

6170

6170

5900

5900

5900

5900

Total Consumption

6870

6870

6300

6300

6300

6400

Ending Stocks

1339

1339

1504

1507

1534

1557

Total Distribution

8478

8478

8066

8069

8104

8227

(1000 HA) ,(1000 MT)

Eight Percent Increase in 2015 Production Expected

The total planted area of wheat has stayed at around 210,000 hectares (ha) since 2003, of which Hokkaido, the Northern island of Japan, accounts for about 57 percent, and the remaining prefectures account for 43 percent. Paddy field accounts for nearly half the planted area, as MAFF promotes the shift of production from rice to other crops and subsidizes specific crops, including wheat produced on paddy fields. This trend is particularly evident in prefectures other than Hokkaido, where paddy fields account for 94 percent of the planted area for wheat, while 76 percent of the wheat planting area in Hokkaido is dry field. A further shift from production of rice to wheat on paddy fields is expected to be difficult, as the GOJ is actively encouraging the production of rice for feed.

In 2015, the planted area of prefectures other than Hokkaido increased slightly to 95,000 ha, mostly due to a shift from rice production. However, as a result of too many cloudy and rainy days during the grain-filling period, yield was down 11 percent, and consequently, production decreased 10 percent to 272,400 MT. The decline is expected to be more than offset by the good harvest in Hokkaido. The planted area in Hokkaido shrank a marginal one percent to122,600 ha as farmers shifted to soybeans and sugar beets due to their more attractive prices. Thanks to favorable weather, sources indicate that 2015 saw record production in Hokkaido, at 650,000 MT. Therefore, Post estimates total 2015 wheat production of 920,000 MT, the largest crop since 1990.

About 80 percent of wheat produced in Japan is used for making Japanese noodles due to its lower protein content, and 20 percent is used for making bread and Chinese noodles, which require higher protein content. Therefore, one of the main objectives of Japanese wheat breeders is to develop varieties with higher protein content in order to increase use for bread and Chinese noodles. Several varieties have been developed successfully, such as "Yumechikara" which has a protein content of 12 ~ 14 percent. The shift to newly developed varieties has progressed throughout Japan in recent years, encouraged by an additional subsidy payment of 2,550 yen/60kg for wheat varieties used for making bread and Chinese noodles.

Japan's Wheat Production

Planted Area

Production

Yield

(hectares)

(MT)

(MT/ha)

2010

206,900

571,300

2.76

2011

211,500

746,300

3.53

2012

209,200

857,800

4.10

2013

210,200

811,700

3.86

2014

212,600

852,400

4.01

*2015

213,100

920,000

4.3

Source: MAFF

*Preliminary

Food Wheat Consumption Steady; Feed Use Expected to Increase Slightly

Per Capita Consumption of Wheat

(Unit: kg/year)

JFY1985

JFY2000

JFY2005

JFY2010

JFY2011

JFY2012

JFY2013

*JFY2014

31.7

32.6

31.7

32.7

32.8

32.9

32.7

32.9

*Preliminary

Source: MAFF

Consumption of food wheat has been relatively flat over the last three decades at around 32 kilograms per capita, and MAFF's estimate of total food wheat demand for JFY2015 (April 2015-March 2016) is unchanged from last year at 5.71 million MT. Combined with the wheat equivalent of wheat product imports of 200,000 to 300,000 metric tons, Japan's aggregate food wheat demand is expected to remain flat at 5.9 million MT in MY2015/16. Although domestic wheat accounts for only about 15 percent of Japan's food wheat demand, with stable production of new wheat varieties in recent years, demand for domestic wheat has been increasing as bread, confectionary and noodle manufacturers use domestic wheat to differentiate their products by appealing to consumers by labeling them as using "Kokusan Komugi" (i.e., domestically produced wheat).

According to MAFF, the production of flour has stayed at around 4.9 million MT for the last decade, while streamlining of flour millers has been progressing slowly but steadily with the closure of 20 small-scale flour millers. Production by the four large flour millers accounts for 77 percent of total flour production, and together with eight medium-sized flour millers which have the capacity of producing 30,000 MT/year or more, these 12 millers produce 87 percent of Japanese wheat flour. In 2013, the operating rates at the four large flour millers and eight medium-sized flour millers were 88.6 percent and 80.2 percent respectively. In addition to these millers, there are 47 millers with a capacity of 1,000 MT ~ 30,000 MT/year and 31 millers with a capacity less than 1,000 MT/year. The operating rates of these small millers were 30.9 percent and 3.4 percent respectively. Streamlining of the industry is expected to progress further in the coming years, especially among the small-scale millers.

Abundant supplies in the EU and the Former Soviet Union may attract Japanese feed millers to increase the utilization of wheat in compound feed if the price continues to be competitive against corn, sorghum and rice. Post estimates overall consumption of wheat to be slightly up to 6.4 million MT in MY2015/16.

Wheat Imports

Overall wheat imports in MY2014/15 decreased by 4.2 percent from the previous year due to a 50 percent decrease in feed wheat imports, reflecting weaker demand against corn and rice for compound feed. As mentioned earlier, competitively priced feed wheat was imported from the EU and Ukraine in recent months, and imports from these countries are expected to continue for the remainder of MY2015/16, assuming prices remain attractive vis-a-vis corn and rice. Increased domestic production in 2015 is forecast to lower food wheat imports slightly, but this is expected to be offset by an increase in feed wheat imports in MY2015/16. Accordingly, Post forecasts overall wheat imports will remain at 5.8 million MT in MY2015/16. For the latter half of JFY2015 (October 2015 – March 2016), MAFF lowered the government's purchase price for wheat by 5.7 percent from the previous six months to 56,640 yen/MT reflecting international prices.

Japan's Wheat Imports (including feed wheat)

Wheat, Group 60 (2012)

Year Ending: June Unit: MT

Partner Country

Quantity

% Share

% Change

MY2012/13

MY2013/14

MY2014/15

MY2012/13

MY2013/14

MY2014/15

2015/2014

World

6343374

5880596

5647685

100.00

100.00

100.00

- 3.96

United States

3429955

2935006

2990593

54.07

49.91

52.95

1.89

Canada

1666426

1692096

1660459

26.27

28.77

29.40

- 1.87

Australia

1241188

918917

909316

19.57

15.63

16.10

- 1.04

United Kingdom

0

0

34320

0.00

0.00

0.61

0.00

Romania

0

46761

28520

0.00

0.80

0.50

- 39.01

Ukraine

0

267740

0

0.00

4.55

0.00

- 100.00

Other

5805

20076

24477

0.09

0.34

0.43

21.92

Japan's Wheat Product Imports

Wheat product group,

Year Ending: June, Unit: MT

Partner Country

Quantity

% Share

% Change

MY2012/13

MY2013/14

MY2014/15

MY2012/13

MY2013/14

MY2014/15

2015/2014

World

185943

176920

168160

100.00

100.00

100.00

- 4.95

Italy

92540

82461

74667

49.77

46.61

44.40

- 9.45

Turkey

27305

27888

30510

14.68

15.76

18.14

9.40

United States

21873

23550

21516

11.76

13.31

12.79

- 8.64

China

18297

17591

17262

9.84

9.94

10.27

- 1.87

Thailand

6137

5855

6324

3.30

3.31

3.76

8.02

Korea South

8687

7028

5666

4.67

3.97

3.37

- 19.38

Other

11104

12546

12212

5.97

7.09

7.26

-2.66

Japan's Feed Wheat Imports

Wheat for Feed

Year Ending: June Unit: MT

Partner Country

Quantity

% Share

% Change

2013

2014

2015

2013

2014

2015

2015/2014

World

964696

650155

324985

100.00

100.00

100.00

- 50.01

United States

404118

262364

170552

41.89

40.35

52.48

- 34.99

Canada

264815

59789

73283

27.45

9.20

22.55

22.57

United Kingdom

0

0

34320

0.00

0.00

10.56

0.00

Romania

0

46761

28460

0.00

7.19

8.76

- 39.14

Latvia

0

0

9941

0.00

0.00

3.06

0.00

Moldova

0

0

7122

0.00

0.00

2.19

0.00

Russia

0

2608

1307

0.00

0.40

0.40

- 49.88

Serbia

0

10893

0

0.00

1.68

0.00

- 100.00

Ukraine

0

267740

0

0.00

41.18

0.00

- 100.00

Australia

295763

0

0

30.66

0.00

0.00

0.00

Stocks

As a contingency plan, a total of 940,000 MT of imported wheat, equivalent to 2.3 months demand, is held in reserve, of which the GOJ holds 1.8 months' worth, and the remainder is held by the private sector. For JFY2015, the reserve target remains unchanged at 940,000 MT.