Japan's grain companies to flex their muscles in global grain arena
Three of Japan's leading trading houses, Marubeni Corp, Mitsui Corp and Itochu Corp, are ramping up their direct grain purchases and building up their storage capabilities with a view to acquire a greater role in the global grain trade in FY09.
Mitsui, Japan's second largest trading house has ramped up its grain capabilities, investing US$90 million in Brazilian farmland through partnerships with Brazilian and US affiliates.
However, it is Marubeni, Japan's fourth largest trading house, making the most ambitious plans. The company plans to double its current volume of global grain trading to 20 million tonnes annually by 2011.
It has already acquired eight grain storage facilities in the US and is planning a further US$650 million to be invested up until 2010 to strengthen facilities in target markets.
Meanwhile, Itochu Corp has partnered Chinese food giant COFCO to expand its global food sourcing network.
All three investments were seen as moves to secure grains for the Japanese market in the wake of high prices the past year, which has seen Japan, the world's largest grain importer, competing for grains from the EU and the ethanol industry.
The investments also indicated that Japan's grain trading houses plan to make their presence felt at the global grain trade market, currently dominated by US companies such as ADM, Bunge and Cargill.
Even as US grain companies have enjoyed a bumper year of profits due to high grain prices, analysts say newcomers like the Japanese companies are entering the markets at a much riskier time, when grain prices have fallen from their record highs.
From a high of close to US$8 per bushel in late June, corn prices have lost more than a third of their value to nearly US$5 in August.
The fall in corn prices is likely to make a dent, if not a large hole in the profits of grain companies this quarter.
Joining the fray now in the global grain market would necessitate price cuts, which would put the profit margins of these newcomers under even further pressure, experts said.
Although Itochu has said it would prefer to expand in China, Marubeni has indicated an interest in entering the EU and Americas, the home turf of the big US grain companies, where competition would certainly be far more intense.