March 17, 2011

 

Japan's grain demand not likely to decrease after disaster

 

 

Although the earthquake and tsunami destroyed some of the nation's ports which led to disrupted deliveries, grain demand in Japan, the world's largest corn importer, is unlikely to decrease, according to the UN.

 

The country, struck by its strongest earthquake on record on March 11, faces power blackouts and the increasing danger of radiation leaks at a crippled nuclear facility. The unloading of US corn from vessels at Kashima and other northern ports were suspended because of power outages.

 

"I do not see any particular reason for demand to decline at the moment," Hiroyuki Konuma, Asia's regional representative at the UN's Food & Agricultural Organisation (FAO), said. "Ports in the northern part are not major ports. Demand remains as foods imported can be redirected to other ports."

 

Sustained purchases by Japan may help push corn prices higher, after futures in CBOT slumped to its lowest levels in almost two months on Tuesday (Mar 14). The contract for May delivery traded 0.2% lower at US$6.3475 a bushel. Prices have tumbled 13% this month.

 

Global supplies of corn will remain tight even if the market sees a temporary decline in demand from Japan, an analyst said.

 

High food prices may continue in the next six months as the nuclear crisis in Japan boosts the nation's oil needs, increasing fuel and transport costs, Konuma said.

 

About 4.8 million tonnes of the 24 million tonnes of feed Japan produces each year come from the northern region hit by the quake and the tsunami, Eri Utamaru, assistant director at the livestock production and feed division of the Ministry of Agriculture, Forestry and Fisheries, said. Ports and feedmaking plants in coastal areas were damaged, she said.

 

About half of national feed production each year comes from corn, so the disaster may hurt 2.4 million tonnes of the grain on an annual basis, Utamaru said. Other feed ingredients include soymeal, sorghum, and barley.

 

Japan's corn demand is estimated by the USDA to rise to 16.1 million tonnes this season, up from 16 million tonnes in the previous season.

 

"Production of grains should not be affected at the moment as it is not growing time. The weather is still cold," Konuma said.

 

Global corn inventories will drop for a third consecutive season in the year through June 2012 as record world production will not be enough to satisfy rising demand, the International Grains Council forecast last month. Before the next harvest, inventories will be equal to 15% of demand, the smallest since 1974, according to USDA data.

 

"Once the situation does become clearer and if the worst is averted, then we think investors will continue to see agricultural commodities as an attractive investment path, at least in the medium term," the analyst said, referring to a three to 12-month period.

 

However, the analyst also added that the investor reaction to the disaster in Japan in the next few weeks is going to prove a significant hurdle to the rally in prices.