Yen Drop Means Wheat Gains as Foodmaker Profits Hit, Nomura Says

Wheat prices in Japan, Asia’s second-biggest importer of the grain, are poised to climb the most since 2011 as the weakening yen increases costs for food producers, according to Nomura Holdings Inc.

The government, which controls wheat imports and domestic sales to stabilize supply, is likely to boost prices for flour mills by about 10 percent from the current average of 50,130 yen ($539) per metric ton, Satoshi Fujiwara, vice president at Nomura’s equity research department, said in an interview. Any change in prices, which are reviewed twice a year, will be announced by the end of this month and take effect in April, said Hiromi Iwahama, a director of grains trading at the agriculture ministry.

Japan’s currency has weakened against all of its major peers in the past three months and touched 94.46 per dollar on Feb. 11, the lowest since May 2010. Wheat climbed 19 percent in 2012, the best performer among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, and futures for the grain in Chicago are down 4.5 percent this year.

“If the yen declines further, it will have a major impact on earnings of foodmakers,” Fujiwara said in an interview in Tokyo yesterday. “Flour millers will probably start raising prices around June and this will increase costs for bread and noodle makers.”

Prime Minister Shinzo Abe pushed the Bank of Japan to expand stimulus and double its inflation target to 2 percent to jolt the economy onto a growth path. In Japan, where 60 percent of farm produce is imported, the weaker yen has spurred an 8.8 percent advance in the benchmark Nikkei 225 Stock Average this year and helped exporters such as Toyota Motor Corp. raise profit forecasts.

Costing Billions

An increase of 10 percent in wheat prices would add about 1 billion yen in costs for noodle makers Nissin Foods Holdings Co. and Toyo Suisan Kaisha Ltd., Fujiwara said. It would also boost costs for Nisshin Seifun Group Inc., a maker of processed foods including pasta and soup based in in Tokyo.

Yuka Kaneko, a spokeswoman for Tokyo-based Toyo Suisan, declined to comment on Nomura’s estimates. Masashi Kanaya, a spokesman for Osaka-based Nissin Foods also declined to comment, as did officials at Nisshin Seifun.

Masaaki Kadota, executive director at Japan’s Flour Millers Association, also said a 10 percent increase in wheat prices was likely, adding about 25 billion yen a year in costs to the industry.

This would be the biggest gain since the agriculture ministry raised prices by 18 percent in April 2011, followed by a further 2 percent in October that year. In 2012, the ministry cut prices by 15 percent in April, then boosted then by 3 percent in October.

Food Producers

“Food producers and distributors will probably pass on the higher raw-material costs to consumers while companies that benefit from a weaker yen may increase payments to workers,” said Tetsuhide Mikamo, director at Marubeni Research Institute in Tokyo.

Consumer prices in Japan fell in 2012 for a fourth straight year. Inflation may begin to accelerate as early as 2014, according to Fujiwara.

Japan depends on imports for almost 90 percent of its wheat, according to the agriculture ministry. The U.S. was the largest supplier last fiscal year, even as the worst drought since the 1930s hurt crops, accounting for 58 percent or 5.6 million tons of imports, ministry data show.

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