Japan Wheat Prices Increase Most in 34 Years on Costs (Update2)

By Aya Takada

Feb. 15 (Bloomberg) -- Japan, Asia's biggest wheat importer, will boost prices of the grain sold to flour millers by the most in more than three decades, increasing production costs for bread and noodle makers.

The 30 percent average gain starting in April follows a surge in imported wheat prices driven by a rally in world markets, the Ministry of Agriculture, Forestry and Fisheries said today in a statement released in Tokyo.

Japan's wholesale prices rose at the fastest pace in 27 years in January, led by oil and wheat costs. Food companies including the largest flour miller Nisshin Seifun Group Inc. are increasing prices to customers as global wheat markets have more than doubled in the past year.

``The ministry may have to raise wheat prices again after the April increase,'' Nobuyuki Chino, president of Tokyo-based grain trading company Unipac Grain Ltd., said by phone today. ``Wheat supplies will remain tight,'' he said.

Wheat traded on the Chicago Board of Trade soared to a record $11.53 a bushel Feb. 11, as adverse weather hurt crops globally. The May-delivery contract rose 9.75 cents, or 0.9 percent, to $10.5075 a bushel in after-hours electronic trading at 6:05 p.m. in Tokyo.

Domestic Sales

Japan imports almost 90 percent of its wheat. Overseas purchases and domestic sales are controlled by the ministry, which reviews the selling price to millers every six months.

Average wheat prices will rise to 69,120 yen ($639) per ton in April from 53,270 yen per ton currently, the statement said. The increase is the largest since December 1973, when the ministry boosted wheat selling prices by 35 percent on average.

``The increase in wheat prices will likely have a negative impact on corporate earnings, as companies have difficulty passing rising costs onto customers completely,'' Soichi Okuda, chief economist at Sumitomo Shoji Research Institute Inc., said by phone today.

The ministry boosted prices by 10 percent in October, after raising them in April for the first time since 1983.

``If the international wheat market stays around the current level, domestic wheat prices may rise again,'' Yasuo Sasaki, director at the ministry's grain trade division, told reporters in Tokyo today.

The 30 percent increase in wheat prices could push up consumer prices in Japan by 0.03 percentage point, Sasaki said.

Food Companies

Increasing costs for commodities including wheat and soybeans have caused food companies to boost prices.

Kikkoman Corp., Japan's biggest maker of soy sauce, is planning its first increase in 18 years. Nisshin Seifun increased product prices in November and Yamazaki Baking Co., the nation's largest bread and pastry maker, said in October it would raise prices to cope with higher wheat costs.

Wheat stockpiles in the U.S., the world's biggest exporter, will drop 40 percent from a year earlier to 272 million bushels at the end of May, the lowest in 60 years, the U.S. Department of Agriculture said in a report Feb. 8.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

Last Updated: February 15, 2008 04:33 EST

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