Production

On higher planted area and favorable weather in Hokkaido and Tohoku (accounting for 46 percent of planted area) during the grain filling period, Japanese soybean production in MY 2014/15 climbed 13 percent to 225,600 metric tons (MT).

Planted Area, Production and Yield of Soybeans in Japan

MY

Planted Area (Hectares)

Production (MT)

Yield (MT per hectare)

Yield – U.S.* (MT per hectare)

2010/11

137,700

222,500

1.62

2.98

2011/12

136,700

218,800

1.60

2.82

2012/13

131,100

235,900

1.80

2.69

2013/14

128,800

198,000

1.55

2.96

2014/15

131,600

225,600

1.71

3.21

Source: MAFF (approximate figures for MY2014/15) and *USDA-National Agricultural Statistics Service, Crop Production 2014 Summary (January, 2015)

Planted area was up two percent in MY 2014/15, as the subsidy payment for diverting rice paddy fields into soybean production improved prospective returns for soybeans ahead of planting decisions. In MY 2014/15, 84 percent of soybeans were planted in fields converted from paddy rice production. However, since Japanese farmers prefer to grow paddy rice in paddy fields, the effectiveness of this subsidy is likely to wane in MY 2015/16, as the increased subsidies for producing rice for feed and for flour in MY 2015/16 are expected to draw some MY 2014/15 soybean planted area back into paddy rice production in MY 2015/16. In tandem with the increased subsidies, JA Zen-Noh (the marketing arm of the National Federation of Agricultural Cooperative Associations), which bought 34 percent of Japan's total rice production in MY 2013/14, has set the feed rice target production level for MY 2015/16 at 600,000 MT, which is three times the production volume of MY 2014/15.

GOJ Table Rice Diversion Subsidies

Crop/Subsidy

JFY 2013

JFY 2014 - 2015

Wheat, Soybeans, Feed Crop

35,000

35,000

Paddy Rice for WCS

80,000

80,000

Buckwheat, Rape Seed

20,000

0

Rice for Industrial Use

20,000

20,000

Feed Rice, Rice for Flour

80,000

55,000 - 105,000

As the inherently poor drainage of rice paddy soils results in significantly lower yields, national average yields remained stubbornly low, at little more than half of U.S. yields. For example, in Mie prefecture, where 98 percent of soybean area is planted in diverted rice paddies, yields were 0.84 MT/hectare in MY 2014/15, compared to yields of 2.56 MT/hectare in Hokkaido, where the paddy planting rate is only 54 percent. Where soils do provide better drainage than the average rice paddy, heavy rains and even typhoons often occur during key developmental periods for soybean plants. Recently published research has shown that Japanese paddy cultivation conditions are associated with a variety of yield-reducing maladies, including moisture damage, black root rot and low soil nitrogen levels caused by continuous soybean planting. Though Japan has approved 14 genetically engineered (GE) soybean varieties for commercial production, potential yield improvements through GE technology remain unattainable as social and administrative hurdles preclude the technology's use. While Japanese public research organizations and private companies have developed new, higher-yielding soybean varieties, Japanese soy food producers' commitment to five traditional, lower-yielding varieties renders demand for these new varieties virtually non-existent. In addition, limited access to farm capital and traditional cultural aversions to debt have also prevented many farmers from introducing newer technology and cultural practices that could enhance yields in the absence of higher-yielding varieties. Based on the factors described above, Post forecasts soybean planted area to decline approximately one percent in MY 2015/16 to 130,000 hectares and production to fall to 220,000 MT, based on historical average yields.

Domestic rapeseed production is primarily for ornamental or for hobby purposes. Despite a production subsidy of 9,640 yen per 60kg, rapeseed production continued at negligible levels in MY 2014/15, with planted area amounting to just 1,470 hectares. With duty free access for imported rapeseed, the high cost of domestic rapeseed relative to import prices, and little available land for expansion of rapeseed planting, Post projects that domestic rapeseed production will continue at an inconsequential scale in MY 2015/16.

With regard to longer-term production projections, the Ministry of Agriculture, Forestry and Fisheries (MAFF) released its Basic Plan for Food, Agriculture, and Farm Villages in March 2015. This 10-year agricultural policy blueprint for the national government was last updated in 2010. Of note in the 2015 Basic Plan, MAFF reduced the national food self-sufficiency ratio target for 2025 from 50 to 45 percent; this was the first time the Government of Japan (GOJ) has reduced the target, which has been used to justify fiscally unsustainable agricultural subsidies for decades. Accordingly, the 2025 target production volumes for soybean and rapeseed have been significantly reduced in the 2015 Basic Plan, with soybeans 47 percent lower and rapeseed down 60 percent. Despite these revisions, the new targets (320,000 MT of soybeans and 4,000 MT of rapeseed in 2025) still remain highly ambitious, due to the fact that there is little chance of introducing yield-improving varieties (conventional or genetically engineered), limited available land for oilseed area expansion, and a concerted effort by the GOJ and JA Zen-noh to expand production of rice for feed and for flour that should further reduce Japan's soybean planted area.

Consumption

Crushing

As a result of a shrinking population and the steady exit of aging farmers from production agriculture, Japanese livestock numbers are expected to continue their gradual decline in MY 2014/15 and in MY 2015/16. While this will suppress some of the demand for imported oilseeds through reduced demand for oilseed meals, Japan's recent pattern of importing well over 1 million MT of soybean meal demonstrates the considerable domestic demand that Japan is unable to meet through oilseed imports and domestic crushing. With duty free access for soybean meal, rapeseed meal and fish meals, high tariff barriers for temperate oils, and an upper limit on total domestic vegetable oil utilization, Japanese oilseed import volumes will continue to hinge on the profitability of domestic crushing relative to the price of imported oilseed meals and oils.

Japanese Livestock Population (1,000 heads)

CY

Dairy Cows

Beef Cattle

Swine

Layers

Broilers

2010

1,484

2,892

9,750*

NA

NA

2011

1,467

2,763

9,768

175,917

NA

2012

1,449

2,723

9,735

174,949

NA

2013

1,423

2,624

9,685

172,238

131,624

2014

1,395

2,567

9,537

172,349

135,747

Source: MAFF Monthly Statistics of Agriculture (as of February each year)

While rapeseed meal is a critically important feed component, displacing large volumes of soybean meal in feed rations over the last 30 years on lower prices and expanding volumes, feed millers have reached the theoretical limit to how much soybean meal they can replace while still maintaining the necessary minimum nutritional value for the animal. Although the somewhat healthier image of rapeseed oil continues to sustain retail consumer demand, rapeseed oil already accounts for 80 percent of oil for household use, and there is not much room for increasing market share. These factors together may be tantamount to an effective ceiling on Japanese rapeseed imports going forward.

The benefits of recent global oilseed commodity price declines have been largely offset by depreciation of the Yen against the Dollar, keeping crushers' profit margins thin. However, as a result of the April 1, 2014 national consumption tax increase from five percent to eight percent, and the continued monetary expansion by the Bank of Japan, inflationary pressures are rising and consumers are showing the first signs of inflationary expectations. Price increases in the fiercely competitive Japanese retail and food service segments began to emerge in CY 2014, and are expected to continue through CY 2015. The ability to raise vegetable oil prices should improve crushers' profitability in MY2014/15 and MY 2015/16.

There are 13 large-scale crushing plants in Japan with a combined crushing capacity of approximately 90 percent of annual oil consumption. Although there has been no change in oil crushing capacity, slack in the crushing industry has grown wider since 2001, when crushers began converting additional production lines to handle greater volumes of rapeseed. The influx of duty free palm oil from 2005, brought even more lower-priced (relative to soybean) vegetable oil to the Japanese market, placing additional strain on soybean crushers' profitability and leading to the idling of additional crushing capacity.

Many large crushing plants were built in the late 1960s and the cost of maintaining and/or refurbishing these older plants continues to rise every year. A major oilseed crusher recently announced planned construction of a new soybean crushing plant in collaboration with a feed miller and grain storage company, all of which will relocate around the new site. This new plant is scheduled to begin operation in 2017, when the company will decommission one of its plants that was built in 1968. While the crushing capacity of the new plant will be slightly smaller, the facility will require only half the staff and is estimated to save ¥700 million to ¥1 billion ($5.8 to $8.3 million USD) in annual operating costs. This example illustrates the future direction the crushing industry will need to travel to continue to profitably service the demands of Japanese vegetable oil users and feed millers.

Japan's Oil Crushing Capacity

CY

Number of Mills*

Crushing Capacity*

(1,000 MT)

Production (1,000 MT)

Operating Ratio*

(percent)

2010

40

8,587

5,388

62.7

2011

40

8,587

5,087

59.2

2012

40

8,587

4,977

58.0

2013

40

8,587

4,977

57.5

2014

40

8,587

5,068

59.0

Source: MAFF (Vegetable oil production report), * Post estimate

Based on steadily, albeit slightly, declining demand from Japanese feed millers, and relatively flat (if not declining) temperate oil consumption, Post expects Japanese oilseed crush to remain relatively flat in MY 2014/15 and MY 2015/16. With effective limits on the volume of palm oil that can be used for processed foods and rapeseed meal that can be used for gradually declining feed production, as well as the high level of market penetration of rapeseed oil in the retail marketplace, Post expects the 45:55 ratio of soybeans to rapeseed for crushing to hold steady in MY 2014/15 and MY 2015/16.

Food

While the Japanese oilseed market is dominated by the crushing industry, food grade soybeans represent a significant volume at well over 900,000 MT of consumption. Japan uses soybeans for oil, food, and feed in a roughly 20:10:1 ratio, with Japan crushing nearly 2 million MT of soybeans for oil in MY 2013/14. Japanese domestic soybeans are generally never used for oil production, as Japanese soybean prices are far higher than imported soybeans and often lack desired crushing characteristics.

In line with the continuing decline of the Japanese population and the increasing diversity of the Japanese diet, Post expects that soy food consumption in Japan will continue its steady decline, falling to 929,000 MT in MY 2014/15 and 925,000 in MY 2015/16. The contrast of efforts to sustain, if not expand, the consumption of soy foods in Japan is neatly illustrated by tofu and soy milk. Tofu production continues to dominate utilization of food grade soybeans in Japan, accounting for almost half of total consumption. While there are over 8,500 companies and shops producing tofu in Japan, that number has decreased by 40 percent over the last ten years as the proprietors of 'mom and pop' operations retire without successors. The majority of tofu manufacturers are small, geographically dispersed businesses. As single-person households in Japan continue to increase, home-meal replacement and dining out continues to chip away at the level of tofu consumption. Though some tofu manufacturers have successfully developed and marketed innovative new products, including tofu with various flavors and individual-serving sized packages, the industry has not been able to overcome the factors listed above.

As the only soy food product to consistently show year-on-year growth over the last ten years, soymilk represents the counterpoint to the tofu industry's progressive decline. Despite representing only about five percent of total food grade soybean consumption, utilization of soybeans for soymilk set yet another record high in CY 2014. Soy milk manufacturers have developed new products to match changing Japanese consumption patterns, offering tasty, health-conscious beverages. The concentration of soymilk production among five manufacturers has helped the industry work cooperatively to pursue new consumers through national educational and promotional campaigns.

In October 2014, the Japan Soymilk Association held the first soymilk recipe contest for students, receiving over 900 recipes from 43 schools across Japan (a very robust response for a Japanese recipe contest). By using childhood nutritional education as a vehicle to promote the product, soymilk manufacturers have succeeded in elevating the profile and recognition of their product and generating positive, incremental growth, in spite of the continued decline of the overall population.

Trade

Japan's total soybean imports were up two percent in MY 2013/14 to approximately 2.9 million MT, because of a slight recovery of demand for soybean for crushing on improved meal profitability and relatively stable demand for soybean oil. Although overall domestic livestock numbers have been trending downward in recent years and total feed production in CY 2014 was down two percent from CY 2013, total utilization of soybean meal for mixed and compound feed remained unchanged in CY 2014 as inclusion rates rose slightly to meet the needs of growing poultry flocks (both broilers and layers), which account for about 55 percent of soybean meal consumption.

Imported soybean meal prices are projected to remain relatively high through MY 2014/15 on tighter global exportable supplies and the relatively weak Yen, providing additional demand for domestically crushed soybean meal. As global soybean prices have descended from recent heights and soybean meal demand remains steady, soybean crushing profitability has improved, narrowing the profit margin advantage of rapeseed crushing. Post expects total imports of soybeans to remain at 2.9 million MT in MY 2014/15 and MY 2015/16 in response to the trends discussed above.

The United States continued to dominate total Japanese soybean imports in MY 2013/14, expanding its market share by nearly 5 percentage points to 66 percent. Despite consistent low prices, Brazil's underdeveloped transport infrastructure and long shipping times continue to undercut the attractiveness of Brazilian soybeans in the Japanese market. While increasing familiarity with Brazilian soybeans may lead Japanese crushers to further diversify their supply sources in the future, at this time, Post projects imports of U.S. soybeans to remain stable at 1.85 million MT in MY 2014/15 and MY 2015/16.

Over the last ten years, Canadian non-GE, food grade soybeans have steadily displaced Chinese supplies and eroded U.S. market share (just 43 percent in CY 2013, down nearly 10 percentage points from CY 2008). With little projected improvement in Japanese production in the near future, Japanese demand for imported food grade soybeans should remain flat, if not slightly lower, in MY 2014/15 and MY 2015/16.

Demand and supply of soybeans in Japan (1,000 MT)

CY

Demand

MY

Supply

Total

Oil

Food

Feed

Japan

Import Total**

U.S.

Brazil

Canada

China

2010

3,562

2,473

976

113

2009/10

230

3,401

2,492

495

495

46

2011

3,123

2,067

950

106

2010/11

223

2,917

2,032

496

346

40

2012

2,987

1,935

946

106

2011/12

219

2,759

1,718

624

372

42

2013

2,951

1,911

963

104

2012/13

236

2,830

1,746

635

385

42

2014

3,013*

1,992

929*

104*

2013/14

194

2,894

1,896

576

369

38

Source: MAFF; * estimate; ** includes residual suppliers.

All imported rapeseed (99.99 percent of total annual new supply) is used for crushing. Canada continued to dominate the Japanese rapeseed market in MY 2013/14, with a 93 percent market share in spite of significant shipment disruptions as expanded Canadian petroleum production monopolized available rail freight. With Canadian freight issues largely resolved, Post expects total rapeseed imports to recover to MY 2012/13 levels in MY 2014/15 and MY 2015/16. Australia remains a residual supplier due to higher unit costs. Based on the market dynamics explained above, Post estimates that rapeseed imports will not continue to expand beyond MY 2014/15, but rather should remain at 2.45 million MT in MY 2015/16.

Demand and supply of rapeseeds in Japan (1,000 MT)

MY

Demand

Supply

Canada

Australia

Import total

Domestic

Total

2009/10

2,277

2,068

207

2,275

2

2,277

2010/11

2,342

2,266

54

2,321

2

2,323

2011/12

2,367

2,273

76

2,350

2

2,352

2012/13

2,438

2,338

157

2,495

2

2,497

2013/14

2,400

2,211

167

2,378

2

2,380

Source: Global Trade Atlas (GTA), MAFF

MY Average CIF Import Price Comparison of Soybeans, Rapeseeds and Soybean Meal (Dollars per MT)

2009/10

2010/11

2011/12

2012/13

2013/14

% change

2015 Feb.

Soybeans (World)

523

617

636

698

672

-3.6

555

U.S.

502

606

604

681

646

-5.1

528

Brazil

463

516

611

635

621

-2.3

667

Canada

699

781

779

833

844

1.3

764

China

866

969

1056

1,114

1002

-1.2

1040

Rapeseed (World)

476

642

681

713

559

-21.7

502

Canada

469

636

674

713

556

-22.0

507

Australia

492

724

738

695

589

-15.2

494

Soybean Meal (World)

456

479

481

611

607

-0.5

538

Source: GTA, HS 1201, HS 1205, HS 2304

Stocks

The Government of Japan (GOJ) does not maintain reserve stocks of oilseeds. All stocks in Japan are privately held, the majority by oil crushers and silo companies, which traditionally keep 30 to 40 days of production on hand.

Production, Supply and Demand Data Statistics:

Oilseed, Soybean

2013/2014

2014/2015

2015/2016

Market Begin Year

Oct 2013

Oct 2014

Oct 2016

Japan

USDA Official

New post

USDA Official

New post

USDA Official

New post

Area Planted

130

129

130

132

0

130

Area Harvested

127

129

125

132

0

130

Beginning Stocks

184

184

231

228

0

260

Production

198

200

205

226

0

220

MY Imports

2,894

2,894

2,900

2,850

0

2,850

MY Imp. from U.S.

1,896

1,896

1,900

1,850

0

1,850

MY Imp. from EU

0

0

0

0

0

0

Total Supply

3,276

3,278

3,336

3,304

0

3,330

MY Exports

0

0

0

0

0

0

MY Exp. to EU

0

0

0

0

0

0

Crush

1,940

1,969

1,970

1,970

0

1,970

Food Use Dom. Cons.

975

936

980

929

0

925

Feed Waste Dom. Cons.

130

145

135

145

0

152

Total Dom. Cons.

3,045

3,050

3,085

3,044

0

3,047

Ending Stocks

231

228

251

260

0

283

Total Distribution

3,276

3,278

3,336

3,304

0

3,330

1000 HA, 1000 MT

Oilseed, Rapeseed

2013/2014

2014/2015

2015/2016

Market Begin Year

Oct 2013

Oct 2014

May 2016

Japan

USDA Official

New post

USDA Official

New post

USDA Official

New post

Area Planted

0

2

0

2

0

2

Area Harvested

2

2

2

2

0

2

Beginning Stocks

109

109

114

84

0

81

Production

2

2

2

2

0

2

MY Imports

2,378

2,378

2,450

2,450

0

2,450

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

2,489

2,489

2,566

2,536

0

2,533

MY Exports

0

0

0

0

0

0

MY Exp. to EU

0

0

0

0

0

0

Crush

2,370

2,400

2,450

2,450

0

2,450

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

5

5

6

5

0

5

Total Dom. Cons.

2,375

2,405

2,456

2,455

0

2,455

Ending Stocks

114

84

110

81

0

78

Total Distribution

2,489

2,489

2,566

2,536

0

2,533

1000 HA, 1000 MT

CY: Calendar Year

JFY: Japanese Fiscal Year (April – March next year)

MY: Market Year for oilseeds, meal made from oilseeds, oil: October – September next year

MY for fish meal: January – December

Conversion Ratio: Oil : Meal (weight basis)

- Soybean: 0.1975 : 0.7563

- Rapeseed: 0.4388 : 0.5551