Japan Shifting to Brazilian Corn From U.S. on Record Prices

The worst U.S. drought in more than half a century will spur Japan, the world’s biggest corn importer, to buy a record amount from Brazil after record prices increased costs for feed makers and meat producers.

Importers have purchased about 850,000 metric tons so far this year from Brazil, the fourth-largest exporter, said Nobuyuki Chino, president of Continental Rice Corp. in Tokyo. Shipments from the South American nation may top 1 million tons in 2012, surpassing last year’s 887,861 tons, as shippers are offering the grain at prices more than $20 a ton cheaper than from the U.S., he said in an interview.

Corn climbed to a record $8.205 a bushel in Chicago on July 31, surging 62 percent from June 15, as drought scorched crops in the U.S., the top exporter, triggering concern that global food costs will rise. The Department of Agriculture cut its forecast for the world’s biggest corn harvest by 12 percent last month, and Goldman Sachs Group Inc. and Rabobank International have said they expect output to drop further.

“Brazil’s corn-export capacity has increased as the debt crisis and economic slump in Europe reduced the region’s demand for chicken imports, cutting corn consumption by Brazil’s feed industry,” said Kazuhiko Saito, an analyst at commodity broker Fujitomi Co. in Tokyo. “Corn shipments from Brazil to Asia are rising as users seek cheaper alternatives to U.S. corn.”

Feed Wheat

Japan’s imports may drop about 2 percent this year from 15.3 million tons in 2011, the lowest level since 1986, as feed makers are substituting feed wheat and dried distillers’ grains with solubles, or DDGS, for expensive corn, said Chino, who has traded grains for three decades.

Corn from the U.S. may represent less than 80 percent of this year’s imports, the lowest ever level, after Japan boosted purchases from the Black Sea region including Ukraine and Romania in the first half, Chino said. Ukrainian corn is offered to Japanese buyers at prices $3 to $4 a ton higher than Brazil for shipments in the quarter starting October, he said.

The U.S. supplied 85 percent of Japanese corn imports in the five months ended May 31, with Ukraine representing 10 percent and Romania 1.2 percent, government data showed.

Brazil, the third-largest producer of corn, can “easily” export as much as 12 million tons this year without harming stockpiles for internal consumption, Secretary of Agriculture Policy Caio Rocha said in an e-mailed statement on July 31.

Smithfield Foods

The country’s corn output may reach a record 70 million tons this season. The decline in U.S. corn production due to dry weather has raised prices and may cause Brazilian farmers to sell their production abroad, Rocha said.

Smithfield Foods Inc., the world’s largest pork producer, will import corn from Brazil, a move that reflects how surging costs for U.S. feed grains are rippling through the livestock and meat industry, the Wall Street Journal reported July 24.

Japan imported 6.51 million tons in the five months ended May 31, 0.8 percent more than a year earlier, according to the agriculture ministry. Of the total, grain for feed production amounted to 4.36 million tons, declining 3.1 percent from the same period last year, reflecting a shift to feed wheat and other alternatives. The remainder was used for food, sweetener and industrial purposes.

“Tight supplies mean less corn is available to meet growing feed demand, forcing feeders to look for alternatives,” U.S. Wheat Associates, the export-promotion organization, said in a report yesterday. “Feeders will likely rely more heavily on wheat this year than in prior years.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE