Japan, Asia’s biggest wheat importer, may increase purchases to a more than three-year high as rain cuts domestic output and lower prices help revive demand.

The government is considering raising imports to more than the 4.91
million metric tons planned in March, Shirara Shiokawa, director at the
grain trade division of the Ministry of Agriculture, Forestry and
Fisheries, said in an interview. Japan buys almost 90 percent of its
wheat from overseas, according to government data.

Increased imports may help stem a 13 percent drop in Chicago prices
this year and boost shipments from the U.S., the largest supplier to
Japan. Wheat demand is recovering after the nation’s worst postwar
recession and a rise in the grain’s price last year spurred a shift to
rice, Shiokawa said.

“Japan needs to raise wheat imports to satisfy domestic demand as
adverse weather hurt local production,” Takaki Shigemoto, analyst at
Tokyo-based commodity broker Okachi & Co., said by phone today.
“Increased imports by Japan will support wheat prices as the nation is
a major buyer in the international market.”

Wheat flour sales began rising in May after the ministry cut prices of
foreign supplies sold to millers by an average 14.8 percent in April,
the first drop since 2006, Shiokawa said.

The cut was made as international prices fell, the yen appreciated and shipping costs dropped, the ministry said at that time.

More Cuts

“We may cut wheat prices again in October,” Shiokawa said yesterday in
Tokyo without specifying the size of a reduction. The ministry, which
controls overseas purchases and domestic sales of wheat, reviews the
selling price to millers twice a year based on import costs in the
previous eight months.

Wheat for December delivery on the Chicago Board of Trade gained 0.5 percent to $5.31 a bushel at 1:47 p.m. in Tokyo.

The volume of additional imports will depend on the size of the
domestic crop being harvested, Shiokawa said, adding that rain may
reduce output on the northern island of Hokkaido, Japan’s largest
producing area.

Japan imported 4.86 million tons of milling wheat in the year ended
March 31, 2009, according to ministry data. The U.S. supplied 2.94
million tons, or 60 percent of the total, the data showed. Canada was
the second-largest supplier with 1.12 million tons and Australia third
with 799,000 tons, the data showed.

Growth Stalls

The country set a plan in March to boost purchases by 1 percent to the
highest since the year ended March 31, 2007 on forecasts for rising
consumption following price reductions and stagnant growth in local
output.

The ministry in March forecast domestic production this year of 830,000
tons, unchanged from 2008. Hokkaido’s output was 541,500 tons last
year, 65 percent of the total crop.

Cool and rainy weather this summer, an influence from the El Nino
weather pattern, is reducing farm output in Japan, the world’s largest
grain importer. The nation’s rice production may decline 6.9 percent
this year to the lowest level in six years on lower yields, Tokyo-based
Rice Databank Co. said Aug. 5.

El Nino is a warming of Pacific Ocean waters that creates unusual
weather in various parts of the world. Sea surface temperatures
indicated the event was taking place, the Japan Meteorological Agency
said July 10.

An expected cut in Japan’s wheat selling prices in October may be the
largest in four decades, after the reduction in April was the biggest
since 1970, Shiokawa said. The ministry may change the price
calculation method to better reflect international market fluctuations,
he added.

Source: Bloomberg

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