Japan. Wheat Annual. Mar 2015 April 9, 2015

PS&D

Production in 2014 Up 4.6 Percent

With generally favorable weather conditions in all the major growing regions in 2014, yield increased two percent in Hokkaido, which produces 65 percent of Japan's wheat supplies, and six percent in other growing areas. This above average yield combined with an increase in total planted area to push 2014 wheat production up 4.6 percent over 2013. Since wheat is an alternative crop to rice in some areas, Post forecasts planted area for wheat will increase slightly in 2015 as planted area for rice is expected to shrink. Despite this increase in area, assuming average yield, production volume is forecast to decline by 6 percent.

Japan's Wheat Production

Source: MAFF

*Preliminary

**FAS/Tokyo forecast

Food Wheat Consumption Steady, Feed Use Decreases

Consumption of food wheat has been relatively flat over the last three decades, at around 32 kilograms per capita. 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 metric tons in MY 2014/15 and MY2015/16. With a decline in the price of corn, Japanese imports of feed wheat gradually decreased in MY2013/14 from the record high level in MY2012/13. In the past, Japanese feed millers were reluctant to change the composition of feed ingredients. However, over the last three years, the Japanese feed industry increased the use of wheat in feed and discovered that it did not affect livestock production. Therefore, as long as the price of wheat is reasonably attractive, feed millers are expected to continue using wheat at higher than historical levels, with a utilization ratio around 1.5 ~ 1.7 percent, or 400,000 MT per year.

As a result, Post estimates overall consumption of wheat to be 6.3 million MT in MY2014/15 and MY2015/16.

Wheat Imports

All food quality wheat is imported by MAFF through 1) direct purchase of food wheat and 2) SBS imports of food wheat. Assuming steady food wheat demand and domestic production, Post estimates that imports will remain unchanged in MY2014/15 and MY2015/16.

1) Food Wheat: Direct Purchase by MAFF

MAFF purchases different types of food quality wheat, mainly from the United States, Canada and Australia, to best meet the needs of Japanese users.

Types of Wheat Imported under State Trading and Their Uses (Unit: MT)

Source: MAFF

*July2014 – February 2015

On the basis of planned arrival in Japan at the time of contract

MAFF controls both producer and resale prices of domestic wheat, as well as the resale price of imported wheat. MAFF buys imported wheat at international prices and sells it to domestic flour millers at a markup. That markup ratio fluctuated between 1.3 and 1.6 over the last two years. MAFF reportedly intends to maintain this rate at around 2 to 1, meaning MAFF sells imported wheat at twice the purchase price. For further details of how this system works.

GOJ Resale Prices of Imported Wheat (Yen/MT)

Source: MAFF

Average of five brands: WW, HRW, DNS, 1CW and ASW

The price includes 5% consumption tax until March 2014 and 8% consumption tax from April 2014

2) Food Wheat: SBS Imports

MAFF has conducted an SBS system for food quality wheat and barley since April 2007. The idea behind the SBS system is to allow for greater flexibility and transparency in a portion of the food quality wheat imports. However, MAFF still remains a "middle man" in the transaction.

MAFF holds SBS tenders under the following two categories.

Category I: Prime Hard and Durum

Category II: Any brand except:

U.S. Western White (WW)

U.S. Hard Red Winter (HRW)

U.S. Dark Northern Spring (DNS)

Australia Standard White (ASW)

Canada Western Red Spring (CWRS)

During the most recent complete Japanese fiscal year, JFY2013, a total of over 320,000 MT of wheat (Category I and II combined) was imported as shown below, up 25,000 MT from the previous year. The increase was primarily due to a recovery in Canadian Durum supply. In JFY 2014, over 260,000 MT has been contracted. Because of relatively expensive freight rates for containers, the amount of wheat imported by container (Category II) has been small.

SBS Imports of Food Wheat – JFY2013 and JFY2014, Unit: MT)

Source: MAFF

Contract basis

* As a result of the Japan-Australia Economic Partnership Agreement, as of January 15, 2015, Australian Hard Wheat and Premium White Wheat are able to be imported under SBS.

*"Other" includes organic HRS, organic Hard White, and Durum from the United States.

3) Food Wheat: Private Purchases

MAFF allows flour millers to import wheat outside of MAFF's control as long as they export an equivalent amount of wheat flour. Flour millers that successfully find export markets can import this so-called "free wheat" at global market prices.

4) Feed Wheat: SBS Imports

MAFF also imports wheat and barley for feed use under the SBS system. Reflecting weaker demand than the previous year, MAFF reduced the JFY2014 allocation for SBS feed wheat to 900,000 MT, from 1,070,000 MT in JFY2013. As of March 4, 2015, forty-two SBS tenders had been conducted, through which 348,200 MT of wheat was contracted. Total feed wheat imported in JFY2014 is expected to be approximately half the level of JFY2013. Imports of feed wheat significantly decreased in MY2013/14 from MY2012/13 as corn prices normalized. For MY2014/15, assuming the corn price continues to be competitive, imports of feed wheat are expected to fall below the MY2011/12 level, to around 400,000 MT.

As a result of the Japan-Australia Economic Partnership Agreement, effective January 15, 2015, imports of Australian feed wheat and feed barley have been liberalized so that companies can negotiate prices and import directly from Australia. As imports have not yet started under this new system, it is too early to assess the impact that this will have. However, considering that a similar amount of paper work to the SBS process, plus feed factory registration, is required for this new system, and the mark-up MAFF collects for feed wheat and feed barley is set at a minimum level – just enough to cover handling costs - how much the new system will benefit the feed industry is unknown.

SBS Imports of Feed Wheat (Unit: MT)

Source: MAFF

*April 2014 – February 2015

Feed Wheat Imports (annual series)

Feed Wheat Imports (MY2014/15 to Date)

Total imports of wheat, including wheat products, in MY2013/14 decreased by 7.2 percent to 6.1 million MT. The decrease is primarily owing to a significant drop in feed wheat imports as corn imports normalized. Given the flat aggregate demand for flour-based food products and an expected decrease in imports of feed wheat, total (feed and food) wheat imports in MY2014/15 are expected to decline slightly, to 5.8 million MT in MY2014/15. Assuming steady demand for food wheat and wheat products, total wheat imports in MY2015/16 are forecast to remain unchanged from MY2014/15.

Japan's Wheat Imports (annual series)

Japan's Wheat Imports (MY2013/14 imports to date)

Japan's Wheat Product Imports (annual series)

Japan's Wheat Product Imports (MY2013/14 imports to date)

Japan's Total Wheat Imports (Unit: MT)

*July 2014 – January 2015

Stocks

In the past, Japan held emergency stocks of wheat at a level equivalent to 2.6 months' worth of the amount of food wheat imported annually. However, due to the shortened time necessary to obtain alternative supplies in case of an emergency, the stocks have been reduced to 2.3 months' worth. For JFY2014, the government set the target for stocks at 940,000 MT. Given flat consumption of food wheat, the same amount of government's stocks is expected for JFY2015.