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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


21 March 2012

USDA GAIN: Japan Grain and Feed Annual 2012USDA GAIN: Japan Grain and Feed Annual 2012

The Great East Japan Earthquake of March 11, 2011 devastated, both physically and emotionally, a country that had already been suffering from a stagnant economy. The so-called “triple disaster” also challenged Japan’s food security regime. During this unprecedented crisis, Japan’s food supply system demonstrated remarkable resilience and strength in its ability to secure ample, undisrupted supplies of food for people in the affected regions and feed for livestock animals. Despite economic setbacks and infrastructural damage, which have not been overcome, the fundamentals of Japan’s food and feed industry remain sound, attesting to the robustness of Japan’s food security system which relies on both domestic production and the availability of reliable imports.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Corn

Prolonged Price Volatility Leads to Adjustment in Utilization

Due to soaring feed grain prices the price of compound feed by the third quarter of 2008 had increased almost 60 percent since late 2006. Japan has a feed price stabilization program, where a combination of a MAFF subsidy and an industry fund help absorb sudden surges in the compound feed price. As the graph below shows since the second quarter of 2006, the subsidy has helped curb feed price increases. As grain prices declined in the fourth quarter of 2008, subsidies ceased. From the third quarter of 2006 through the third quarter of 2008 the total amount of subsidies reached 353 billion yen (approx. 4 billion dollars), 45 billion yen (approx. 500 million dollars) of which came out of MAFF’s budget. Grain prices took another sharp rise in the last quarter of 2010 and subsidies were once again activated at 3,250 yen per metric ton, then was raised to 4,700 yen for the first and second quarters of 2011, and as the corn price declined, reduced to 2,100 yen during the third quarter and deactivated for the last quarter of 2011.

The Entire Feed Industry Unites to Sustain Feed Production and Distribution to Overcome the Great East Japan Earthquake Devastation

The Great East Japan Earthquake and tsunami destroyed five major ports and adjacent feed mills on the North-Eastern Pacific coast, the combined production capacity of which amounted to 30 percent of Japan’s total feed production. Japan’s feed industry gathered its strength and overcame this unprecedented crisis by increasing the production in Western Japan and Hokkaido, and transporting feed to unaffected North Western ports by vessel as well as by ground transportation. The affected ports are now open and feed mills are back in operation, although not to the pre-disaster level. On a side note, the post-disaster experience and response to expand capacities in the unaffected regions may accelerate rationalization/consolidation of the feed manufacturing industry in Japan.

The table above shows the trend in the population of Japan’s major livestock animals. Since the figures are reported as of February, the latest statistics do not reflect the impact of the Great East Earthquake. According to MAFF, damage to the dairy/meat cattle and swine population was negligible, however, approximately 4.5 million birds (broilers and layers combined) died primarily from starvation. This is still a fraction of Japan’s overall broiler/layer population and much of it has reportedly been recovered. Over the last decade, dairy cattle population has declined notably by 17 percent.

Utilization Patterns

Corn is the largest ingredient used in compound and mixed feed. The ingredient ratio is adjusted from year-to-year, depending on the prices of various grains. The corn ratio of 49 percent, pre-2008 price surge, was lowered to 48 percent in 2009, then to 47 percent in 2010, and with the recent price re-surge, the Japanese feed industry has been forced to once again adjust the ratio down to the 44-45 percent range. (The table below “Feed Utilization by Ingredients 2010” covers the reporting period of April 2010 to March 2011 and does not reflect the drop in the utilization ratio.) The recent decline in the ratio translates to a roughly 700,000 metric ton reduction in corn demand for feed as Japan’s aggregate feed production is approximated at 24,500,000 metric tons.

The devastation of north eastern ports and feed milling facilities by the Great East Earthquake resulted in a decline in feed production for several months as shown in the table below. The feed industry consolidated its strength to rev up production in the unaffected regions, and as reconstruction of infrastructure progressed, feed output returned to near normal by fall 2011.

Prices

The CIF price of U.S. corn which jumped nearly 50 percent in 2008 over 2007 returned to the pre-soaring level in 2009 and remained stable throughout 2010. Fluctuations in U.S. corn prices directly translate to feed prices in Japan as explained in the previous sections. The recent re-surge in corn prices has resulted in a significant price increase of compound feed. (Refer to Chart 6.) As mentioned earlier, this has led to a lowering of the ratio of corn used in compound feed to 44-45 percent.

Trade

The 2009 U.S. corn crop suffered from several quality concerns: BCFM (broken kernel, foreign materials), low test weight (low grain density), low protein content, and DON (vomitoxin). This drove Japanese importers to divert supply sources to Brazil and Argentina as depicted in CY 2010 figures in Table 22.

Although the quick trade statistics report issued by the Ministry of Finance (MOF) shows that total feed corn imports in 2011 were 10,019,602 MT, Post estimates that they were actually higher by around 1 million MT. Food corn imports, on the other hand, should be lowered by 1 million MT to about 4.3 MMT. Historically, MOF has often revised its corn import statistics later in the year.

The general trend in recent years is that increases in food corn imports have been compensating for declines in feed corn imports. The driving force in the food corn demand comes from the beverage sector, particularly for high fructose corn syrup (HFCS) used in low alcoholic drinks like happoshu (light beer) and other alcoholic beverages, in addition to a continued strong demand for soft drinks. However, due to general public restraint on holding receptions and parties in the aftermath of the Great East Earthquake, beverage consumption staggered in 2011. According to reports by major brewers, 2011 shipments of beer and related beverages declined 3.7%. The drop in 2011 food corn imports, after Post adjustment, reflects this stagnant beverage consumption in 2011.

Stocks

Japan holds emergency stocks of essential feed grains, i.e. corn, sorghum, and rice. The stock level since 2005 had been set at approximately 950,000 MT in total. The breakdown is 600,000 MT of corn and sorghum combined (roughly 90 percent is corn) and 350,000 MT of rice. The level of corn/sorghum/rice stocks was lowered in 2011 to 750,000 MT (i.e. reduction in corn stocks by 200,000 MT). The stocks were effectively utilized during the post-Great East Earthquake emergency response when all the major North-East ports were shut down. MAFF reports 350,000 MT of grain stocks were released to feed mills in the unaffected regions by the end of April. Given this experience, MAFF is reconsidering what the appropriate level of grain stocks should be.

DDGS Imports Leap to a Record High Level

One of the positive side-effects of the ethanol boom in the United States is the increasing availability of a high value coproduct, Distiller’s Dried Grains with Solubles (DDGS). Japan’s imports of DDGS from the United Sates have been increasing remarkably and surpassed the 100,000 MT mark in 2007, and 275,000 MT in 2009. Following a slight setback in 2010, the demand for DDGS surged further as corn prices jumped. The majority of these DDGS are currently used in dairy cattle feed. Aggressive trade education activities led by the U.S. Grains Council have been behind this notable growth.

Rice, Milled

Production Normal Despite Earthquake/Tsunami

MAFF estimates about 20,000 hectares of rice paddy, which could have produced about 90,000 metric tons of rice, were damaged by the 3/11 tsunami. In addition, a ban on planting in the no-go zones near Fukushima Daiichi Nuclear Power Plant accounts for approximately 50,000 metric tons of rice taken out of expected production volume. Despite these damages, overall national production of rice in 2011 ended at normal 8,402,000 metric tons (MT), brown rice basis, and remained at last year’s level.

Overall Consumption Remains Sluggish and Chronic Surplus Continues

Per capita consumption of rice in Japan has been steadily declining since its peak in 1962, and finally went below the 60 KG mark in 2008. MAFF forecasts the aggregate table rice demand for 2011/12 to be 8,049,000 MT. The 2010 harvest of 8,402,000 MT will add some 353,000 MT to the stocks. In order to reduce surplus rice supply, MAFF has been pushing rice into the feed sector where the utilization ratio of rice in compound and mixed feed increased from 0.1 percent (or 13,464 MT) in 2003 to 2.3 percent (or 557,571 MT) in 2007 (Chart 1). In 2008, the feed use of rice declined to 468,000 MT and to 256,020 MT in 2009. It appeared that incentive to use feed rice, as opposed to conventional feed grains, had diminished.

However, as the coarse grain prices started to surge once again, feed millers returned to rice in 2010/2011 and rice utilization in feed recovered to 400,000 MT. On the table rice side, the four-decade-long downward trend in consumption will not likely be reversed, given the demographic situation depicted in Chart 2, where Japan’s population peaked in 2005, faster than previously forecast, and is also aging rapidly (one out of four Japanese will be older than 65 by 2015).

As a result of a reduction in rice consumption, as well as a decline in price over the years, household expenditures on rice have been cut by more than half during the last two decades. The average Japanese household now spends slightly over three percent of food expenditures on rice.

Wholesale Price of 2011 Crop Rebounds to 2009 Level while Retail Price Stays Flat

The tables below show the wholesale and retail price trends. Following the Great East Earthquake, there was some consumer hoarding of rice as emergency household stocks. The retail price spike in June 2011 reflects that movement.

Then, the radiation scare caused by the Fukushima Daiichi Nuclear Power Plant failure and subsequent detection of aboveregulatory-level of radionuclides in rice harvested near the nuclear power plant drove up the wholesale price. Post’s trade sources see this situation as somewhat artificial in that there is an abundant supply of rice but some farmers are unwilling to release their newly harvested rice to major wholesalers in speculation that the strong price will be sustained. However, stores are reluctant to raise the retail price under the struggling economy. Supply and demand will eventually dictate both the wholesale and retail price in the longer term, which is unmistakably downward.

Wheat

Production in 2010 Declines 16 Percent

The total planted area for wheat in 2011 increased to the highest level in the last five years. With relatively undisruptive weather conditions bringing a better yield than the previous year, production volume increased 30 percent over the poor harvest in 2010.

Wheat Consumption Stays Flat

Consumption has been flat in the last three decades at 31-32 kilograms per capita. The Ministry of Agriculture, Forestry and Fisheries (MAFF) estimates the total food wheat demand to be 5.74 million metric tons for 2011/12 Japan fiscal year (April 2011-March 2012). In addition, Post estimates that the feed industry consumes 300,000 to 400,000 metric tons, which makes Japan’s aggregate wheat demand 6.0 to 6.1 million metric tons.

Wheat Utilization

WheatDue to limited domestic wheat supplies, nearly 90 percent of Japan’s wheat demand must be met by imports. Most of the imported wheat comes through the state trading system administered by MAFF. MAFF purchases different types/brands of wheat mainly from the United States, Canada and Australia to best meet the usage/needs by Japanese users.

Sorghum

Production

Like corn, production of sorghum is negligible in Japan.

Consumption

As sorghum is a substitute for corn, its utilization rate in the production of compound and mixed feeds fluctuates depending on its relative price to corn and other ingredients. Due to a declining price appeal as well as to MAFF’s aggressive promotion of “rice for feed,” the utilization ratio of sorghum in feed has been declining steadily over the last several years. As described in the WHEAT section, use of wheat in feed wheat expanded significantly this past year, cutting into the share of corn and sorghum in feed to a still small but notable extent. The sorghum utilization ratio went down to 4.6 percent in 2007 from 7.6 percent in 2001, but recovered to 6.9 percent in 2009 due to improved price relative to corn, then down again to 6.0 percent in 2010 and is currently staying at the 6 percent level; Whereas, the ratio of wheat in feed, at a mere 0.7 percent in 2009, is now approaching 2 percent.

Prices

Just as corn prices did, CIF prices for sorghum rose sharply in 2008, returned to the 2007 level in 2009, remained calm in 2010, then surged again in 2011.

Trade

Since sorghum is mainly a substitute crop, potential growth in Japan’s sorghum imports largely depends on its relative price to corn and other feed ingredients. As the U.S. and Argentine sorghum prices soared in 2008, Australia returned as a major supplier in 2008 and further strengthened its position in 2009, lowering the U.S. share to below 23 percent in 2009. With the U.S. prices having stabilized, 2010 imports from the United States recovered in volume and market share, but in 2011, lost its share again to the two competing countries.

Imports are classified as being either for feed or food, however, despite this technicality, much of the sorghum imported under the food HS code eventually ends up in the feed sector. Therefore, the volume of sorghum used in feed, shown in Table 19, accurately represents the demand for sorghum in Japan: 1.46 MMT in 2010.

Stocks

As written in the previous CORN section, Japan holds emergency stocks of essential feed grains, i.e. corn, sorghum, and rice. The stocks of sorghum had been kept at 130,000-170,000 MT over a decade until 2003. Following the policy of reducing the overall feed grain stocks, sorghum stocks have also shrunk significantly. Post estimates the current stock level to be 50,000 MT or less.

Barley

Production

The 2011 barley production increased 5 percent. However, the yield was still below average due to continued unfavorable weather conditions, particularly low temperatures in early spring and rain in mid/late spring. Production remains 20 percent smaller in volume than its peak in 2008 despite a 6 percent acreage increase.

Consumption

In Japan, roughly 80 percent of barley is consumed in the feed sector. Barley is used for compound and mixed feed production for the cattle sector (beef and dairy). It is particularly important in feeding beef cattle because it produces high quality beef with the white marbling that Japanese consumers favor. The largest non-feed uses are for the production of shochu, a traditionally distilled liquor, and beer. Other uses include miso (soybean paste) and barley tea. Aggregate consumption of barley (feed and food) is estimated to be 1.5-1.6 million MT. There is little indication that the demand will increase in the near future. On the contrary some decline is expected as Japan’s cattle population shrinks.

Prices

BarleyAs in the case with other feed grains, the average CIF price of barley soared in 2007 and 2008. In 2009 it returned to the presurge level, remained stable in 2010, and jumped again in 2011. Since no imports from the United States were recorded in 2011, CIF price information is not available.

Trade

Along with rice and wheat, barley imports are controlled by MAFF as a “Staple Food”. MAFF has been hesitant to remove barley from the state trading system entirely because it is a strategic alternative crop under the rice crop diversion program. As described in detail in the WHEAT section, starting April 2007, food barley can be imported under the Simultaneous Buy and Sell (SBS) system.

Since 2009, imports from the United States have dropped significantly due to the resurgence of Australia – which had suffered from drought - as the leading supplier due to its price competitiveness and proximity to Japan’s major barley importing port in Kyushu.

Stocks

Japan used to hold 350,000 MT of emergency barley stocks, but since 2006 they have been replaced by rice stocks. Since practically all of feed barley Japan needs can be imported through the SBS tenders with an ample allocation (1.41 million MT), MAFF explains that government-held emergency stocks are no longer necessary.

Rye

Production

Production of rye is minimal in Japan.

Consumption

Rye is almost exclusively used for feed in Japan. The main uses of rye are for cattle feed and swine feed. Like sorghum, most rye users consider it as substitute mainly for corn. Since there is practically no domestic production, annual rye consumption and imports are directly linked with domestic cattle and swine production, and prices of corn and other feed grains. In 2010, the latest statistics available (Table 19), total rye utilization in feed was 103,389 MT: 17,006 for dairy cattle; 12,135 MT for beef cattle; and 71,977 MT for swine. The ratio of rye in compound and mixed feed had been declining in the last several years due to declining price competitiveness, and the total utilization went down significantly from 150,000 MT in 2007 to 54,000 MT in 2009 because of the fall in imports from Germany as explained in the following trade section. With the price having stabilized since 2009, the utilization of rye in feed has picked up in 2010 as reflected in increased imports. However, as the prices rose again in 2011, Post forecasts that use of rye in feed will show a decline once again.

Prices

As shown below, U.S. rye is significantly less price competitive than that of Germany or Canada, the two major suppliers for Japan. The price of German rye soared in 2008 due to a fervent demand in the EU caused by poor Russian and Ukraine crops, but it returned to the pre-surge level in 2009, stayed relatively flat in 2010, and soared again in 2011.

Trade

Germany had dominated rye exports to the Japanese market because of its price competitiveness. Imports from Germany declined dramatically, from 154,000 MT in 2007 to 5,000 MT in 2008, due to the price situation as explained above. Although the price situation improved in 2009, imports did not fully recover in 2009 mainly because sorghum became more attractive. In 2010, as the rye/sorghum price ratio moved in favor of rye, imports of rye recovered to the 100,000 MT mark. In 2011, as the price of German rye more than doubled over the 2010 level, Canada has taken over the leading exporter position. In the medium term, rye imports are expected to be on a declining trend as Japan’s cattle and swine populations will likely shrink. Prospects for U.S. rye exports to Japan are directly linked to the relative price of U.S. rye.

Stocks

Unlike corn, sorghum and barley, Japan does not hold strategic emergency stocks of rye. Commercial stocks are estimated to be smaller than 20,000 MT.

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