Wheat Costs for Japanese Millers Seen Declining to 4-Year Low

  • Stronger yen, weaker global prices help reduce import costs
  • Foodmakers may face pressure to pass on cost drop to consumers

Government-set wheat prices in Japan are expected to drop to the lowest level since 2012 thanks to a stronger yen and record global production, according to analysts surveyed by Bloomberg.

Japanese millers including Nisshin Seifun Group and Nippon Flour Mills Co. are likely to benefit from a drop of more than 3,000 yen ($27) a metric ton when the government resets the price effective from April, according to JSC Corp and three other analysts in Tokyo. Japan buys five types of milling wheat from the U.S., Canada and Australia through weekly tenders for use in bread, noodles and cakes. The average price is currently 56,640 yen a ton.

Benchmark futures fell to the lowest in five years Wednesday on the Chicago Board of Trade and have dropped 10 percent in the past year. U.S. wheat exports are forecast to fall to the lowest since the 1971-72 marketing year, according to the U.S. Department of Agriculture, amid a stronger dollar and ample global crops.

“Falling grain costs will help improve earnings of Japanese food makers,” said Makiko Tsugata, senior analyst at the investment information department of Mizuho Securities Co. “They may face pressure from consumers to reflect lower costs in their prices.”

Price Review

Japan’s Agriculture Ministry, which reviews its wheat-selling price every six months, plans to announce a revision in early March, said Koichi Okamoto, the head of the ministry’s grain pricing division. The cost of importing wheat in the five months through January declined 8 percent from the previous period, according to ministry data. The recent low point for the domestic price was the average 48,780 yen a ton for the six months beginning in April 2012.

A cut would be a second since April, when the price rose to 60,070 yen, the highest level since 2009.

The yen has climbed 7 percent this year, reaching 110.99 per dollar on Feb. 11, the strongest since the Bank of Japan expanded monetary easing in October 2014. A slowdown in China’s economy also depressed ocean freight rates, said Charlie Utsunomiya, director at the Tokyo office of U.S. Wheat Associates, an export-promotion group. The Baltic Dry Index, which tracks shipping rates, reached the lowest level since 1985 this month.

A wheat price reduction could save the milling industry about 15 billion yen a year, according to Japan’s Flour Millers Association. The move could pressure noodle and bread makers to lower prices, according to Tsugata.

Wheat Imports

Japan imported 4.7 million tons of food wheat last fiscal year, or almost 90 percent of the grain it needed, according to the agriculture ministry. Of the total, 2.6 million tons were from the U.S., 1.3 million tons were from Canada and the remainder from Australia.

The ministry controls overseas purchases and domestic sales of wheat to stabilize supply. Wheat for May delivery on the Chicago Board of Trade touched $4.465 a bushel Wednesday, the lowest for a most-active contract since June 11, 2010. Futures traded at $4.535 a bushel at 12:30 p.m. in Tokyo. Shares of Nisshin Seifun, Japan’s largest flour mill, rose 1.9 percent to 1,889 yen.

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