August 6, 2010

Japan buys US wheat, corn for livestock feed

Japan is purchasing US stocks for livestock feed after Russia halted exports due to the worst drought in at least 50 years.

The country buys Russian wheat and barley for feed makers, and imports milling wheat for bread and cookies exclusively from the US, Canada and Australia, Shirara Shiokawa, director at the grain trade division of the Ministry of Agriculture, Forestry and Fisheries, said today, August 6.

Wheat futures in Chicago jumped to a two-year high after Russia, the third-biggest grower, banned exports of the grain as well as barley from August 15 to December 31. "This will boost demand for grains from the US, the biggest exporter, as Canada and Europe also brace for reduced production because of adverse weather. Asian buyers have already started switching from Russian to US grains. The US is the last reliable source of supply in case of emergency," said Charlie Utsunomiya, director at the Tokyo office of US Wheat Associates.

Japan imported 58,197 tonnes of feed barley from Russia last year, or 4.2% of its total purchases, according to data from the Ministry of Finance. Japan also imported 1,463 tonnes of Russian feed wheat in 2009, less than 1% of total purchases.

Utsunomiya said Russia's export ban will have a limited impact on Japan as its volume of shipments was far smaller than supplies from other countries. The Asian country imported 10.6 million tonnes of corn for feed use from the US last year, or 96% of its total purchases.

Wheat for December delivery rose as much as 6.5% to US$8.68 a bushel on the CBOT, taking gains to 25% this week. It extended a rally on speculation that other countries may follow Russia's export ban.

Russian Prime Minister Vladimir Putin said yesterday that the ban is "appropriate" to contain domestic prices that gained 19% last week, after drought and record heat forced the government to declare a state of emergency in 28 crop-producing regions. He proposed that Kazakhstan and Belarus, Russia's partners in a customs union, join the ban.

Japan will "carefully watch the movements" of the grain market, Chief Cabinet Secretary Yoshito Sengoku also said. The government controls overseas purchases and domestic sales of wheat to stabilise supplies. The agriculture ministry holds import tenders regularly for milling wheat to be sold to Japan's 96 flour millers. It will make purchases "with due consideration" to the market conditions, Shiokawa at the grain trade division said.

The ministry cancelled plans to purchase 70,000 tonnes of US milling wheat on Feb. 27, 2008, when Chicago wheat futures surged to a record US$13.495 a bushel. Yesterday, it bought 124,469 tonnes of US milling wheat in a regular tender, the lowest amount in five months.

The smaller purchase may be a reaction from some of the Japanese millers to soaring prices, or a reflection of weaker demand at home, Masaaki Kadota, executive director at Japan's Flour Millers Association, said yesterday, August 5.