March 15, 2011

 

Reduction in Japan's grain imports may not last long

 

 

Any decrease in Japan's purchases of agricultural commodities may prove to be brief, as the country is forced to replenish inventories destroyed by the earthquake and tsunami.

 

Another round of selling engulfed crop markets on Monday (14 Mar), preventing an early recovery in futures prices as funds were redirected to less risky assets in the face of another blow to worldwide economic recovery, dealt to one of the largest food importers.

 

Japan is the world's largest corn, chicken and pork importer, a major wheat purchaser and the second largest buyer of overseas cheese too.

 

"People are worried about demand destruction," said an analyst. "It's definitely injected more uncertainty into the commodities markets. The effect is to see funds pull money and hold."

 

At Commonwealth Bank of Australia, Luke Mathews said that commodity demand in the area, including agricultural commodities, is expected to suffer. "The Japanese quake adds to the existing bearish mood that had been circulating through agricultural commodity markets over the past few weeks."

 

However, an analyst raised doubts over whether the destruction would actually affect Japan's demand for agricultural commodities like wheat, or coffee, or anything like that.

 

Commerzbank analysts said that, once preliminary logistics challenges caused by earthquake and tsunami damage had been overcome, demand might even grow.

 

"Now that port facilities and other infrastructure in Japan have been destroyed, it will be difficult to unload and transport imports in the foreseeable future," Commerzbank analyst Carsten Fritsch said.
 

"Even so, Japan could import more corn, wheat and soy in the coming weeks and thus contribute to a further reduction of already low global stocks. Considerable quantities of raw materials were destroyed by the tsunami, and these will need to be replaced by buying on the world market," said Fritsch.

 

Some of Japan's feed sector is, as in many other countries, located near the coast, making access to imported grain much easier, but making it susceptible to the tsunami.

 

While the extent of damage to mills is as yet unclear, Japan's farm ministry said that 4.8 million tonnes of the 24 million tonnes of feed that Japan produces annually come from the northern areas near the centre of the disaster.

 

Power shortages are impeding production at some plants which survived with little or no damage.