What is the USDA saying about Japan’s wheat needs? Although consumption and production are forecasted to remain unchanged in 2018/19, it highlights the continuation of long-term trends.
In Japan right now, long-term production trends are favoring the production of wheat over other crops. Production went from 778,000 metric tonnes to 930,000 metric tonnes from MY2016/17 to MY2017/18, highlighting the trending increase in production since MY2013/14, due to demand for domestically produced wheat. The government is also trying to encourage less rice acreage, and therefore no longer offers support payments for rice farmers, which supports a long-term transition away from rice plantings to other crops, such as wheat. Domestic wheat prices incentivize wheat plantings, at $507 USD / metric tonnes (or $13.80 USD / bushel and $17.43 CAD / bushel).
However, these long-term trends have been slowed by the outbreak of Tilletia caries, due to repeated cultivation, and farms have been recommended to not plant wheat three years in a row. Also, the high price of rice is keeping rice farmers from choosing to make the switch to wheat. As a result, planting acres are forecast by the USDA to be unchanged at 526,334 acres for MY2018/19, with production at 860,000 metric tonnes.
When looking at the specific wheat grown in Japan, almost all is winter wheat, with spring wheat plantings concentrated around Hokkaido.
87% of wheat is semi-soft wheat, which is used for making Japanese noodles. However, the government is trying to encourage more production of semi-hard wheat varieties, which have a higher protein content and are used for making bread and Chinese noodles. The government is providing higher support payments for semi-hard wheat farmers. This has led to the long-term trend of more semi-hard wheat varieties. In the last five years, the amount of semi-hard wheat planted has doubled.
Domestic consumption trends are increasing the demand for wheat flour. It is even expected to outpace the rice demand in Japan. The long-term consumption trend in Japan is for increased wheat consumption, which is up to 5,800,000 metric tonnes.
For feed wheat, consumption is expected to fall to 600,000 metric tonnes in MY2017/18 due to the lack of availability of feed wheat, and the competitive prices of other feed grains. This is expected to remain unchanged in MY2018/19.
The demand for wheat flour in Japan necessitates a lot of imports, 50% coming from the United States. Imports are projected to remain unchanged at 5,800,000 metric tonnes. Exports are also projected to remain unchanged at 270,000 metric tonnes, most going to Asian countries as wheat flour.
The USDA projections for 2018/19 shows short-term consumption and production trends relatively unchanged from 2017/18. However, these indicate the continuation of long-term trends, which show the transition to domestic wheat production over rice, more semi-hard wheat varieties over semi-soft, and growing wheat flour demand and consumption in Japan.
FAS/Tokyo forecasts Japan’s MY2018/19 (July-June) wheat planting area to remain unchanged from MY2017/18 at 213,000 ha (based on pre-planting contract information). However, MY2018/19 production is forecast to total 860,000 MT, three percent lower than MY2017/18 production levels (assuming normal weather).
In response to increasing demand for domestically produced wheat, Japan’s wheat planted area has gradually increased year-on-year since MY2013/14. However, this trend ended when the planted area decreased one percent in MY2017/18 (by 2,100 ha — 1,300 ha in Hokkaido and 800 ha in the remaining Prefectures) to 212,300 ha. Following the 2016 outbreak of Tilletia caries, which spread to 1,130 ha in Hokkaido (one percent of the total planted area in Hokkaido), affected producers shifted production to other crops to avoid damage from repeated cultivation. As these affected farms were recommended not to plant wheat for three consecutive years, the planted area in Hokkaido is forecast to remain unchanged in MY2018/19. Despite decreases in the planted area, MY2017/18 production increased 16 percent due to increased yields (0.7 MT more per ha) due to favorable weather and no major pest or disease outbreaks.
Wheat is produced throughout Japan as a conversion crop from rice in rice paddies and as a rotational crop with beans, sugar beets and potatoes in dry fields in Hokkaido. Nearly all wheat produced in Japan is winter wheat which is planted between September and December and harvested between May and August. Spring wheat, planted in March/April and harvested in August/September, is largely produced in Hokkaido (and only accounts for eight percent of Japanese wheat plantings).
While 87 percent of wheat produced in Japan is semi-soft wheat (used mainly for making Japanese noodles), efforts have been made to increase the production of higher protein varieties in the last decade. For example, in JFY2011, the GOJ began offering higher support payments to farmers who grew wheat varieties suitable for making bread and Chinese noodles (ramen). As a result, the planting area and production of semi-hard and hard wheat has gradually increased. In fact, Japan has doubled the planted area of these varieties over the last five years (to account for 13 percent of the total wheat produced in MY2016/17). Despite the growth in new wheat varieties in Japan, the total planted area (and production) has remained relatively flat. As a result, Japan continues to import high quality wheat to satisfy its needs.
Despite the GOJ’s discontinuation of support payments under the rice acreage reduction program in MY2018/19, the current high price for rice in Japan is expected to discourage a major shift in production from rice to other crops (like wheat). Domestically produced wheat currently trades at a similar price to MAFF’s sales price for imported wheat. However, in the spring of 2018, MAFF announced its intention to raise the price of imported wheat from April-September 2018 (see the Trade section below). This, in turn, increased the price of domestic wheat nearly four percent to 53,624 yen/MT ($507/MT) which should help encourage Japanese wheat farmers to keep producing wheat (as opposed to something else). Accordingly, FAS/Tokyo’s wheat planting area is forecast to remain unchanged in MY2018/19.
Roughly 4.9 million MT of wheat flour per year is produced in Japan — 40 percent is used to make bread and 30 percent is used for making noodles. Japan’s food wheat consumption has been strong. Over the last decade, per-capita consumption of wheat increased 1.9 percent to 32.9 kilograms (as of JFY2016), despite a six percent decrease in per-capita total grain consumption during the same period (to 88.9 kilogram – due mainly to an 11 percent decrease in per-capita rice consumption (see Chart 3). With new uses being developed, as well as its ease of use, demand for food wheat is expected to remain strong and outpace demand for table rice.
MY2017/18 feed and residual consumption is projected at 600,000 MT, down 14 percent from MY2016/17. Consumption is expected to fall in MY2017/18 due to an expected increase in the use of other competitively priced ingredients in the production of feed (such as corn) as well as the reduced availability of domestic feed – grade wheat.
Given an expectation that these market condition will continue, FAS/Tokyo forecasts feed and residual wheat consumption in MY2018/19 to remain largely unchanged.
MY2017/18 total wheat imports are expected to decrease 100,000 MT to 5.8 million MT due to increased Japanese production coupled with a decrease in feed wheat demand. FAS / Tokyo forecast s MY2018/19 total wheat imports to remain flat as ending stocks are forecast slightly lower.
Roughly 90 percent of the food wheat Japan consumes is imported (with the United States accounting for nearly 50 percent of Japan’s imports). Wheat is a state traded item, and imported by MAFF thorough tenders. MAFF imports wheat duty – free and sell s wheat to flour millers at the imported price, plus a markup (and the markup is used to promote domestic wheat production (see Table 5). As a state importer, MAFF sets the sales price for the five major classes of food wheat 12 and revises them twice a year (April-September and October-March) to reflect changes in international prices. In March, MAFF announced its intention to raise its sales price for April – September 2018 by an average of 3.5 percent to 54,370 yen/MT (roughly $515/MT) (the average price of DNS, 1CW and HRW is up 3.4 percent to 55,440 yen/MT (approximately $525/MT), and the average price for ASW and WW is up 3.5 percent to 51,980 yen/MT (nearly $490/M T)). The price increase account s for an increase in freight costs, a weaker Japanese Yen, production concerns about high protein wheat in North America, and price increase s for Australian noodle wheat (sub-classes of ASW). This is the third consecutive price increase for imported wheat since October 2016 – March 2017 when the average price was 48,470 yen/MT (approximately $460).
While MY2018/19 total wheat imports are forecast to remain unchanged, Japanese wheat product 13 imports are forecast to increase if recently concluded Japanese trade agreements are effectuated. MY2016/17 wheat product imports increased 8.8 percent to 261,000 MT (wheat equivalent) due, in large part, to a relatively weak Japanese Yen. Imports of pasta have been trending upwards over the last decade (see Chart 5) with Italy, Turkey and the United States dominating the imported pasta market. Additionally, imports from Turkey have grown significantly due to Turkey’s price competitiveness and a production shift by a major Japanese pasta factory from Japan to Turkey in 2015. Because pasta imports are forecast to increase from the EU after implementation of the Japan-EU Economic Partnership Agreement, the markup for imported Durum wheat (nearly all of which comes from Canada), and imported wheat for confectionary production will reportedly be lowered or abolished to bolster the competitive position of the Japanese industry (for additional information, see JA7153).
MY2018/19 total wheat exports are forecast to total 270,000MT (wheat equivalent), unchanged from MY 2017/18 levels, as demand for wheat flour from Asian countries is projected to remain flat. Wheat flour accounts for more than 80 percent of Japan’s total wheat exports, and is exported to Asian markets, such as Hong Kong, Singapore and Vietnam. Wheat imported for the manufacture of wheat flour, macaroni and spaghetti, and biscuits enters Japan duty – free in order to facilitate Japanese exports. With advancements in milling technologies in Asian countries, Japanese wheat flour exports have decreased 40 percent over the last decade. However, the decline in exports has slowed and demand for Japanese wheat flour is expected to remain relatively constant in MY2017/18 and MY2018/19.
As a contingency plan, the private sector holds a total of 930,000 MT of imported wheat, equivalent to 2.3 months of demand, in reserve, of which the GOJ subsidizes the storage costs for an amount equivalent to 1.8 months demand (millers cover the difference). Together with operating stocks held by flour mills and feed mills, approximately 1.2 million MT of wheat is believed to be held in stocks in Japan.