U.S. may lose Japanese wheat fight

The U.S. industry says the Comprehensive and Progressive Agreement for Trans-Pacific Partnership could spell disaster

U.S. wheat is facing “imminent collapse” in the Japanese market, and Canada and Australia will be the beneficiaries of its demise.

Japan has been the largest and most valuable U.S. wheat customer over the past five years, but that is about to change in a hurry, according to U.S. Wheat Associates.

Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF) is that country’s sole importer of wheat. It resells imported wheat to flour millers with a significant mark-up of $154 per tonne.

Through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the mark-up on Canadian and Australian wheat will be capped at $148 per tonne as of Dec. 30, 2018, and fall to $140 per tonne as of April 1, 2019.

USW president Vince Peterson said that will put U.S. wheat at a $14 per tonne price disadvantage as of April 1.

“Given its demographic and consumption trends, Japan is generally a market where we seek to maintain our strong 53 percent market share, but today we face an imminent collapse,” he said in a transcript of remarks he made at a Dec. 10 public hearing held by the U.S. Trade Representative on potential trade negotiations with Japan.

The price disadvantage will grow to $70 per tonne by 2027, undermining seven decades of market development work.

“Japanese food processors are looking at ways to reduce their exposure to U.S. wheat right now,” said Peterson.

“They will reformulate products to adapt to wheat from different origins because they will have to. If they don’t, their competitors will.”

Tom Steve, general manager of the Alberta Wheat Commission, said Canadian exporters are salivating at the prospect of increasing market share in the world’s premium wheat market.

“It is definitely a topic of discussion in the industry as to how much additional volumes that we’re going to be able to market into that Japanese wheat market,” he said.

“There is definitely an advantage to be had, particularly for hard red spring wheat (HRSW) into the Japanese market and potentially mid-protein wheats.”

Canadian mid-protein wheats can be substituted for U.S. hard red winter wheat, which is typically blended with HRSW by Japanese flour millers.

Not everybody thinks the $14 per tonne price advantage is going to result in an increase in exports of Canadian wheat.

“To me it’s just not the way the Japanese do things,” said Bruce Burnett, director of markets and weather with Glacier’s MarketsFarm.

He wishes that were true, but he thinks Peterson is being alarmist with his comments.

In some markets a $14 per tonne price swing would have a huge impact on trade.

“I just put Japan in a different class. They do not react that quickly to these price changes,” said Burnett.

He noted that Canada’s export basis has been lower than the basis in the U.S. Pacific Northwest for the last two to three years, but that hasn’t led to any changes in Japan’s buying patterns.

Peterson indicated in his remarks that changes are already taking place, but that hasn’t shown up in Canadian export data, which shows that 2018-19 sales of No. 1 CWRS wheat to Japan are 340,000 tonnes to the end of October, which is down slightly from the previous year.

Burnett also noted that Japan imports six classes of wheat, and they are not all interchangeable.

Peterson said U.S. wheat farmers are relieved that the administration is prioritizing free trade negotiations with Japan.

“We urgently need a solution that will fix the enormous vulnerability created by CPTPP,” he said.

“We urge you to act quickly to save our market in Japan.”

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