Japan. Grain and Feed Update Oct. 18, 2016

Highlights

As a result of favorable weather conditions, 2016 rice production (including feed rice) is estimated to increase slightly despite reduced planting area. However, rice utilization in compound feed is believed to have reached its ceiling in MY2015/16, and further expansion is expected to be limited due to the price competitiveness of other feed grains (namely corn). Following Japan's record crop in 2015, wheat production is estimated to decrease significantly in 2016 due to unfavorable weather conditions.

Feed Production

As a result of declining livestock inventories, Japanese compound feed production has fallen for the last three years. The Ministry of Agriculture, Forestry and Fisheries (MAFF)'s latest statistics show that cattle and swine inventories further declined in 2016, but noted a small increase in the number of Japanese egg laying hens (layers). As feed for layers accounts for nearly 30 percent of total compound feed production (the largest share), the small increase in layer inventories was enough to offset the gradual decline in other livestock inventories. Accordingly, Japanese compound feed production in MY2015/16 is expected to remain flat. Japan maintains a feed price stabilization program that consists of a combination of a MAFF-issued subsidy and an industry fund to help absorb sudden surges in compound feed prices. The industry fund is activated when the import cost of ingredients, in a particular quarter, exceed the average import cost of ingredients in the previous year. As a result of lower prices for corn, soy meal, and freight, however, no compensation payments have been made since the first quarter of Japan Fiscal Year (JFY, April – March) 2015.

Rice

Rice Production, Supply, and Distribution

Production

With Japanese table rice consumption decreasing year-on-year, MAFF is subsidizing farmers to shift production from table rice to other crops (such as wheat and soybeans). For those farmers who have not shifted production, as shown in table 4 below, MAFF has had some success in encouraging increased production of rice for feed and whole crop silage (WCS) on paddy field.

As a result of MAFF's push, Japanese feed rice production more than doubled in 2015, to 400,490 MT, partly offsetting the reduction in table rice production. However, Japanese total rice production still decreased 2.3 percent to 7.67 million MT. MAFF has continued the subsidy for feed rice production in 2016, and estimates that the planting area for table rice production has decreased by nearly 25,000 ha in 2016 (when compared to 2015) while the planting area for feed rice has increased by roughly 11,000 ha. Factoring in these planting changes, plus planting area changes for other types of rice (e.g., rice for processing), we anticipate a decrease in the total rice planting area of approximately 15,000 ha (to 1.57 million ha). As a result of favorable weather during the growing period, MAFF estimates that the 2016 rice-crop index is 103 (NOTE: 100 represents an average crop), and that rice yields are above average (at 5.0 MT/ha). As MAFF has incentivized farmers to plant high-yield varieties of feed rice with an incremental subsidy payment for higher yields, the yield for feed rice (5.2 MT/ha) is expected to exceed the yield for ta ble rice. Despite the decreased planting area for rice, the increased yield is forecast to increase total rice production by 120,000 MT to 7.79 million MT in 2016.

Consumption

Per-capita rice consumption dropped one kilogram to 54.6 kilogram in JFY2015, and MAFF estimates that total table rice consumption dropped 160,000 MT to 6.96 million MT in MY2015/16. MAFF forecasts total table rice consumption will further decrease by 30,000 MT to 6.92 million MT in MY2016/17. For feed, about 1.1 million MT of rice1 was used in compound feed production in MY2014/15, increasing rice's utilization ratio from 3.9 percent in MY2013/14 to five percent at the expense of sorghum, corn and wheat. For the first nine months of MY2015/16 (November 2015 - July 2016), the utilization ratio of rice in compound feed increased only 0.1 percent to 5.1 percent, and this slow growth is attributable to competitive prices for corn (whose utilization ratio increased by more than one percent). Accordingly, as feed consumption is not expected to offset the 160,000 MT decrease in table rice consumption, total rice consumption is expected to decrease 100,000 MT to 8.5 million MT in MY2015/16.

Rice for feed use is forecast to remain flat in MY2016/17 as strong corn demand is expected to suppress any increases in feed rice consumption. Consequently, total rice consumption is forecast to remain unchanged at 8.5 million MT in MY2016/17.

Wheat

Wheat Production, Supply, and Distribution (1,000 MT)

Production

Following Japan's record crop in 2015, wheat production is estimated to decrease significantly in 2016 due to unfavorable weather conditions. MAFF estimates that the total planting area increased 1,300 ha to 214,400 ha, as some table rice production was shifted to wheat on paddy fields. Despite increases in the planting area, MAFF estimates a three percent decrease in production (in prefectures other than Hokkaido) as high temperatures cut short the grain filling period.

Although MAFF has yet to publicize production data for Hokkaido, where 65 percent of Japan's wheat is produced, heavy rains delayed the harvest and negatively impacted the quality of the grain (reports indicate that the wheat began to germinate during the delayed harvest). Accordingly, yield and production estimates in Hokkaido are expected to be below average. Therefore, factoring in Hokkaido, total Japanese production is estimated to decrease 25 percent to 760,000 MT in 2016.

After the Hokkaido wheat was harvested in early August, a series of typhoons hit in early September and also severely damaged production of potatoes, onions and sugar beets and their fields. As wheat is part of the crop rotation with potatoes and sugar beets, planting of wheat has been delayed and a reduction in the planting areas is forecast in 2017.

Consumption

Given the aging population, Japanese food consumption has been trending down in recent years. Both per-capita caloric intake and per-capita grain consumption have decreased six percent, and rice consumption has decreased by 11.1 percent in the last decade. Contrary to this trend, per-capita wheat consumption increased 4.1 percent in the last decade. Food wheat consumption is expected to remain strong at 5.9 million MT for MY2016/17. Because of low international wheat prices and the strong Japanese yen, MAFF reduced the government's resale price of five major wheat classes between October 2016 and March 2017 by an average of 7.9 percent to 48,470 yen/MT. The average price of hard and semi-hard wheat classes (DNS, 1CW and HRW) fell 6.5 percent to 48,250 yen/MT and the average price for soft wheat (ASW and WW) is reduced 10.4 percent to 48,920 yen/MT. In accordance with declining imported wheat prices, prices of domestic wheat will be lowered, and flour millers are expected to lower flour prices in December. Wheat prices have declined from their highest levels in early 2015, but a decline in price in a relatively short time period is not expected to spur consumption increases (rather, it is expected to put additional pressure on rice consumption).

Wheat is a minor ingredient in compound feed and the quantity used remained relatively flat at approximately 390,000 MT in MY2014/15 and MY2015/16 (with the composition ratio at 1.6 percent).

Sufficient global supplies lowered wheat prices, and Japan's imported feed wheat price dropped 20 percent in MY2015/16 from the previous year. Despite competitive wheat prices, industry contacts report that wheat for feed use is unlikely to increase during this MY unless wheat prices become much lower than other feed ingredients. Post forecasts wheat for feed and residual consumption to remain flat at 500,000 MT in MY2016/17.

Trade

Record domestic wheat production last year suppressed food wheat imports (down four percent in MY2015/16). However, as a result of an anticipated decrease in 2016 domestic production, total wheat imports in MY2016/17 are expected to rebound to 5.8 million MT in order to meet demand.

Barley

Barley Production, Supply, and Distribution (1,000 MT)

Production

For 2016, the total planting area for barley remained relatively unchanged, but production estimates are down six percent. MAFF estimates that the planting area of two-row barley increased one percent while production decreased eight percent due to prolonged rain during the planting period, and a shortened grain filling period caused by high temperatures in the main production regions (i.e., Tochigi and Saga Prefectures). The planting area for six-row barley remained unchanged but production increased two percent as a result of favorable weather in the major production region (i.e., Hokuriku). The planting area of naked barley decreased four percent because of a shift of production to wheat, and production decreased 13 percent as prolonged rain from planting to the grain filling period decreased yields in the main production regions (i.e., Ehime and Oita Prefectures).

Consumption

Barley for feed and residual consumption and food, seed & industrial (FSI) consumption are expected to remain unchanged at 950,000 MT and 400,000 MT, respectively, in MY2015/16. For MY2016/17, FSI consumption is forecast to remain flat, but feed and residual consumption is forecast to decline slightly to 930,000 MT due to a projected decline in cattle inventories (more than 90 percent of Japan's feed barley is used for compound feed for cattle).

Sorghum

Sorghum is wholly consumed as a feed in Japan. The utilization ratio of sorghum in compound feed declined in the first 10 months of MY2015/16 (October 2015 – July 2016) from 3.9 percent to 2.8 percent mainly due increased corn use. Accordingly, consumption is expected to decrease to 700,000 MT in MY2015/16. Given competitive prices for corn and increased domestic production of feed rice, increases in sorghum consumption are not anticipated. Thus, sorghum consumption is forecast to remain unchanged in MY2016/17.

Rye

Rye Production, Supply, and Distribution (1,000 MT)

Due to its price relative to other grains, Japanese consumption of rye continues to decline, and the utilization ratio of rye in compound feed fell below 0.1 percent in the first 10 months of MY2015/16. Rye for feed consumption is expected to fall below 11,000 MT in MY2015/16. As feed rye is exclusively used for cattle feed, and cattle inventories are anticipated to fall slightly, rye for feed consumption is forecast to decline to 10,000 MT in MY2016/17.

Corn

Corn Production, Supply, and Distribution (1,000 MT)