Japan. Oilseeds and Products Annual. Apr 2014 April 11, 2014
Due mainly to unfavorable weather, Japanese soybean production was down 16 percent in MY 2013/14. Despite this reduction, Post anticipates only a slight increase in food-grade soybean imports in MY 2013/14 as overall soy food consumption continues to decline. In the face of high global soybean prices and slackening soybean oil demand, Post projects that Japanese soy imports will continue their steady decline in MY 2013/14 and MY 2014/15. As rapeseed oil continues to displace soybean oil in the Japanese market, Post forecasts continued rapeseed import increases in MY 2013/14 and MY 2014/15. A combination of decreased feed demand and higher soybean meal prices in India (a key residual supplier) and the United States helped to drive 2013 soybean meal imports down by 23 percent in MY 2012/13; imports from India and the United States plummeted by 49 and 37 percent respectively.
Japanese soybean production in MY 2013/14 was down 16 percent to 198,000 MT; national average yields fell 14 percent, and overall planted area declined by two percent. Unfavorable weather and a powerful typhoon during the grain filling period dragged yields down across much of the country. Rapeseed production continued at negligible levels in MY 2013/14, meeting less than 0.1 percent of Japan’s annual consumption.
Rapeseed is a low yield crop and requires vast amounts of land to make commercial production economically viable. Historically, Japanese rice farmers cultivated rapeseed in a double-crop rotation with table rice. Rape seedlings were planted in rice paddies after the fall rice harvest, and rapeseed would be harvested before the rainy season, the start of the traditional rice planting season. However, starting in the late 1950s, Japan’s rapeseed production began to decrease rapidly in line with the development and adoption of technology that moved the start of rice planting from mid-June to May or even April. As earlier planting led to greater rice yields, this technology spread rapidly, breaking the rape-rice double-crop rotation and effectively ending commercial rapeseed production in Japan. Liberalization of soybean imports in 1961 accelerated rape production’s decline. In 1957, total rape planted area was 260,000 hectares. In 2013, total Japanese rape planted area amounted to just 1,590 ha. Post projects Japanese rapeseed production will remain minimal in MY 2014/15.
Despite the central role of soy in the traditional Japanese diet and evidence that Japan was an early site of wild soybean domestication, Japanese farmers rarely grow soybeans unless domestic subsidies elevate returns above what could be earned growing rice. In 2013, 85 percent of soybeans were planted in fields converted from paddy rice production. Since Japan Fiscal Year (JFY) 2011 (April/March), the Government of Japan (GOJ) has pursued lower rice production levels by providing a subsidy to farmers diverting rice acreage into soybeans and other crops. The GOJ will continue to administer this subsidy in JFY 2014. However, before the 2014 rice planting season, the GOJ substantially increased the subsidy for producing feed rice and rice for powder (up to 105,000 yen / 0.1 ha or about $4,000 / acre). In addition, farmers’ expectations of table rice prices reaching levels high enough to exceed subsidized soybean or non-table rice production could provide further incentive to revert soy production area back to rice. As such, Post anticipates soybean planted area to decline about two percent to 125,000 hectares in MY 2014/15. Assuming average weather conditions, this area is forecast to yield about 205,000 MT, which would be almost ten percent lower than recent production levels.
Remaining soybean planted area will continue to be hampered by stubbornly low national average yields of only 1.65 MT/ha, less than 60 percent of the U.S. national average. Areas where soybeans are predominantly raised on converted rice paddy land tend to drag down the national average, with Mie, Kyoto, Hyogo, Kochi and Oita prefectures all averaging less than 1.2 MT/ha. And even where soils provide better drainage than the average rice paddy, heavy rains and even typhoons often occur during key developmental periods for soybean plants.
Beyond these factors, the development and adoption of new, higher yielding soybean varieties and new cultivation technologies has been significantly delayed. Although Japanese public research entities and private companies have developed a number of new soybean varieties, the Japanese soy food producers have not signaled their acceptance of, or interest in, these new varieties, which leads many farmers to keep planting the same five traditional varieties (Fukuyutaka, Enrei, Yukihomare, Ryuhou and Tachinagaha) that accounted for over 60 percent of total soybean acreage in MY 2013/14. Japanese soy food producers’ demand for superior quality beans with high protein and sucrose content reinforces farmers’ allegiance to traditional varieties. Limited access to farm capital and traditional cultural aversions to debt have also prevented many farmers from introducing new technology and cultural practices.
Furthermore, as all Japanese soybean production is destined for the domestic soy food supply chain, genetically engineered (GE) varieties that could help improve yields are not an option. Despite having approved ten GE soybean varieties for commercial production, Japan still does not produce GE soybeans. While a number of administrative and social hurdles exist, Japanese consumers remain largely opposed to GE technology, effectively eliminating the potential for GE variety-driven yield improvements.
In March 2010, the GOJ set a number of ambitious targets for domestic production by 2020. For soybeans, these goals include: 300,000 ha of total planted area, 600,000 MT of total production, and supplying 17 percent of total domestic consumption. The production volume target is more than three times larger than MY 2013/14 production levels. It should be noted that Japan has never before produced 600,000 MT in a single year, and the last time soybean production exceeded 500,000 MT was in 1955. In addition to the challenges facing soybean yields described above, since current planted area is one-third of the 1955 level, these proposed targets will be exceedingly difficult to achieve, regardless of the level of subsidy or public investment. MAFF’s target volume for rapeseed production in 2020 is 10,000 MT, which is six times larger than the current level. This is an ambitious target that, even if realized, would only result in a gain of an additional 0.4 percent of total domestic consumption above that supplied by current production levels.
While the Japanese oilseed market is dominated by the demand for and production of oil, food grade soybeans represent a significant volume. Japan uses soybeans for oil, food, and feed in a roughly 20:10:1 ratio, with Japan crushing 1.92 million MT of soybeans for oil in MY 2012/13.
Despite recent increases in rapeseed prices, profitability of and demand for rapeseed oil has been better than soybeans in recent years, which has reinforced the trend of rapeseed displacing soybeans in the Japanese crushing market; a trend that should continue in 2014. In the face of persistently low (if not negative) inflation and fierce price competition, the Japanese crushing industry has not been able to adjust consumer oil prices to a more profitable level since the prices for oilseeds shifted in 2008. Currently, the Japanese vegetable oil crushing industry uses only imported materials; no duties are levied on imported soybeans or rapeseeds. Domestic soybeans are generally not used for oil production as they are higher-priced than imports and often lack favored characteristics.
There are 13 large-scale crushing plants with a combined crushing capacity of approximately 90 percent of annual oil consumption. The Japanese oil crushing industry has been operating at about 60 percent capacity since 2009. The crushing industry has faced increasing pressure to consolidate in response to steadily increasing prices and declining consumption. Based on continued competition from imported tropical oils, lower demand from Japanese feed millers, and relatively flat (if not declining) temperate oil consumption, Post expects Japanese crushing demand to decline slightly in MY 2013/14 and MY 2014/15. Within the crushing market, Post expects rapeseed will continue to displace soybeans for crushing, though at a slower rate if soybean price pressures moderate.
Food Use The Japanese consumption of soy foods continues to fall despite the historic centrality of soy foods in the Japanese diet, the recent designation of traditional Japanese cuisine as a United Nations Intangible Cultural Heritage of Humanity, recent research highlighting the health benefits of soy foods in a country of health-conscious consumers, and efforts by major food processors to develop new, innovative soy food products. In 2009, Japanese consumption of soybeans for food dropped below one million MT, and this trend continued through calendar year (CY) 2013 as certain soy food consumption levels fell between 7 and 26 percent since 2009. The increasing Westernization of the daily Japanese diet, a discernible decline in home preparation of traditional Japanese foods, and the unabated decline of the Japanese population continue to drive this downward trend. Along with rice, soy food consumption in Japan is projected to continue to decrease. Post expects that soy food consumption will decline to 940,000 MT in MY 2013/14 and 930,000 in MY 2014/2015.
Typical of this trend is the fermented soybean paste known as “miso,” which is a cornerstone of the Japanese culinary palate. Miso consumption has been gradually declining, falling by seven percent over the last four years. As the number of single-person households in Japan has increased, the reliance on home-meal replacement and dining out has continued to chip away at the level of miso consumption. Though Miso manufacturers have successfully developed and marketed some innovative new products, including liquid miso and miso broth, they have not been able to overcome the factors listed above.
Perhaps the exception to this trend can be seen in the utilization of soybeans for soymilk, which hit a record high of 42,000 MT in CY 2013. While soymilk represents only about five percent of total food grade soybean consumption, soymilk is noteworthy for being the only soy food product segment to consistently show year-on-year growth over the last ten years. Soy milk manufacturers have been able to develop new products that match the realities of changing Japanese tastes and consumption patterns by offering tasty, health-conscious beverage products in Japan’s ubiquitous convenience stores. Soymilk manufacturers have also pursued new consumers by expanding their product lines to include soy products for infants as well as high-protein products for athletes. While consumption growth has been incremental, any positive growth in a market with a declining population is a pattern worth noting.
Japan’s total soybean imports were up three percent in MY 2012/13 to approximately 2.8 million MT, though still below the three million MT mark for the third year in a row. Due largely to higher U.S. prices and yen depreciation, the value of soybean imports increased by 13 percent to $2.0 billion in MY 2012/13. However, production outlook improvements in key producing areas have mitigated CIF price pressures in recent months. Despite some relief from higher prices, Post expects total demand for soybeans to decline slightly to 2.8 million MT in MY 2013/14 and MY 2014/15 in response to the trends discussed above.
While the United States continued to dominate the soybean import market in MY 2012/13, maintaining a 62 percent market share, imports of Brazilian origin soybeans continued to climb in MY 2012/13 on lower Brazilian prices. Low Brazilian prices, increasing familiarity with Brazilian soybeans, and recent U.S. soybean maximum residue limit (MRL) violations may lead Japanese crushers to continue diversifying their supply sources in MY 2013/14 and beyond. Post will continue to monitor movements in soybean imports, but, at this time, Post projects imports of U.S. soybeans to remain stable at the 1.75 million MT level.
All imported rapeseed is used for oil. Rapeseed meal is an important feed and fertilizer ingredient in Japan. As crushers have increased rapeseed consumption, the Japanese feed industry has steadily increased the percentage of rapeseed meal in compound and mixed feed rations. Meanwhile, the somewhat healthier image of rapeseed oil continues to sustain retail consumer demand. Canada continued to dominate the Japanese rapeseed market in MY 2012/13 with a 94 percent market share; Australia remains a residual supplier on significantly higher unit costs. Based on the market dynamics explained above, Post estimates that rapeseed imports will increase slightly to 2.55 million MT in MY 2013/14 and continue to erode soybean market share within the crushing industry in MY 2014/15 and beyond.
While the United States had traditionally been the primary supplier of non-GE, food grade soy beans to Japan, Canadian imports have gradually eaten into U.S. market share over the last ten years. However, logistical issues in Canada have been hampered Canadian exports to Japan in MY 2013/14, creating additional near-term opportunities for U.S. food grade soybeans. And with low Japanese production in MY 2013/14 and further reduced planted area predicted in MY 2014/15, Japanese demand for imported food grade soybeans should remain strong, despite declining soy food consumption rates. Residual suppliers of food grade soybeans to Japan include China, Argentina, Brazil and the Ukraine.
The GOJ does not maintain reserve stocks of oilseeds. All stocks in Japan are privately held and the majority of stocks are held by oil crushers, who traditionally keep 30 to 40 days of production on hand.
Oilseed Meal Situation and Outlook: The soybean crushing process produces 190 kg of soybean oil and 760 kg of soybean meal from one MT of soybeans. According to a GOJ estimate, 87 percent of soybean meal was used for feed in 2013, with the rest being used for soy sauce, miso, soy protein foods, and as an improving agent for processed foods.
In line with decreased oil production, soybean meal production in MY 2012/13 was down two percent to 1.45 million MT. Demand for feed was 2.92 million MT in CY 2013, a six percent decrease from the previous year. Soybean meal consumption for feed has been decreasing due to high prices relative to other protein sources. In recent years, feed manufacturers have been lowering the ratio of soymeal in compound and mixed feed, replacing it with other ingredients such as rapeseed meal and DDGS. While feed rations before CY 2011 had typically included up to 14.0 percent soymeal, the percentage was just 11.8 percent in CY 2013, a trend that is expected to continue into CY 2014 and beyond.
Imports of soybean meal were down 23 percent in MY 2012/13 to 1.73 million MT. Due to high prices, imports from India and the United States fell by 49 and 37 percent respectively. In response, Japan increased imports China, from South Korea, and Paraguay. Based on the livestock numbers forecast from Post’s 2014 Livestock and Products Semi-Annual Report, Post expects soybean meal demand will decrease slightly in MY 2013/14 to 3,180 MT, and that imports will remain flat in MY 2013/14 and MY 2014/15.
Rapeseed meal and fish meal are used in feed and fertilizer production in Japan. Rapeseed crushing produces 410 kg of rapeseed oil and 570 kg of rapeseed meal for every MT of rapeseed. Rapeseed meal production was up five percent to 1.36 million MT in MY 2012/13. Post expects rapeseed meal production will increase further in MY 2013/14 to 1.39 million MT, due to an increase of rapeseed oil production. Post expects this trend to continue in MY 2014/15 driving rapeseed meal production even higher to 1.41 million MT.
Ninety-three percent of fish meal in Japan is produced from “fish residue” (essentially the unsaleable portions of fish prepared for direct consumption) and is utilized for livestock feed. The remaining seven percent is produced from whole raw fish and is utilized for fish feed. Fish residue has been decreasing as consumption of seafood in Japan continues to decline. There is no tariff on soybean meal, rapeseed meal, or fishmeal.
Oil Situation and Outlook: According to MAFF, the total supply of vegetable oil in CY 2013 was roughly 2.45 million MT, including 1.63 million MT from domestic production and 0.71 million MT from imports. Japanese demand for vegetable oil has increased dramatically since the 1960s, as the Japanese diet has steadily shifted more towards a Western-style diet. However, while Japanese vegetable oil demand has remained relatively stable, the composition of the supply has changed dramatically over the last ten years.
While soybeans historically dominated the Japanese oil crushing market, Japanese production of rapeseed oil has outpaced soybean oil production since 1988. However, since rapeseeds produce more than twice as much oil as soybeans pound-for-pound, it wasn’t until 2011 that total rapeseed consumption surpassed soybeans for the first time. Overall however, since reaching peak production of 1.89 million MT in 2000, Japanese vegetable oil production has been on a downward trend due to declines in both human and livestock populations as well as competition from lower-priced tropical oil imports.
While sources expect price pressures to moderate in MY 2013/14, soybean oil production will face continued headwinds from the increasing import of rapeseed for crushing, declining retail consumption of soybean oil, increased competition from tropical oils in the industrial sector, and reduced demand for soybean meal based on lower livestock numbers and feed millers’ increasing reliance on alternate protein sources for compound and mixed feeds. Accordingly, Post projects soybean oil production to be essentially flat at roughly 380,000 MT in MY 2013/14 and MY 2014/15. Based on the continued trends towards increased rapeseed crush, Post projects rapeseed oil production will continue to increase in MY 2013/14, eventually reaching 1.1 million MT in MY 2014/15.
Japanese imports of soybean oil and rapeseed oil have been negligible as the crushing industry is protected by high tariffs on imported soybean and rapeseed oils; the tariff for both products is either 10.9 yen/kg or 13.2 yen/kg depending on the acid value. Post forecasts that imports of soybean and rapeseed oils will continue to be minor relative to consumption at approximately 30,000 MT for each oil in MY 2013/14 and MY 2014/15.
Oils from tropical products, such as palm oil and palm kernel oil, are increasingly displacing temperate products (like soybean and rapeseed) for end uses where their specific attributes and lower prices make them an attractive option. Although international prices for soybean oil and rapeseed oil have been at or near all-time highs, palm oil prices have been relatively low even with a 3.5 percent ad valorem tariff. That is one of the largest reasons that tropical oils have overtaken soybean oil in the last five years as the second largest component of the Japanese vegetable oil supply. Post anticipates that imports of tropical oils will continue to increase in MY 2013/14 and MY 2014/15.
Malaysia is the largest supplier of palm oil to Japan. Around 70 percent of palm oil is used to produce margarine, shortening, instant noodles, and snack foods, while the remainder is used for various industrial products such as soap, detergent, industrial lubricant, resin paint, and cosmetics. Japan imports palm kernel oil, coconut oil, olive oil, and rice oil to meet various demands.
Japanese imports of sunflower seed oil were up 14 percent in MY 2012/13 to 33,000 MT. End uses for high oleic sunflower seed oil include food production, cosmetics and other industrial applications that benefit from its high oxidative stability. High oleic sunflower seed oil is most commonly used as a substitute for cacao butter. The United States remains the largest supplier of sunflower seed oil to Japan. The annual average price in MY 2012/13 was virtually unchanged at $1,824/MT. Based on recent trends, Post anticipates Japan will import around 30,000 MT in MY 2013/14 and MY 2014/15