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Japan, Korea may Face U.S. Wheat Supply Disruption by Sungwoo Park, Aya Takada and Tony Dreibus Bloomberg News, March 11, 2010

Japan, the biggest buyer of U.S. wheat, may stockpile the grain or seek alternative supplies before the U.S. closes its largest export gateway later this year for a three-month revamp, potentially delaying shipments.

Downstream lock gates on the Columbia River and the Snake River in the U.S. Pacific Northwest will be repaired from mid- December through mid-March, closing the waterways to barge traffic, said Diana Fredlund, a spokeswoman for the Army Corps of Engineers Northwestern Division in Portland, Oregon. The work will affect shipments of Western White wheat, said industry groups in Japan and South Korea.

The potential supply disruption from the world's largest exporter may affect wheat prices, which have fallen 11 percent this year partly because of rising global inventories. The Columbia River is the biggest wheat and barley export gateway in the U.S. and the third-largest grain gateway in the world, according to the Web site of Pacific Northwest Waterways Association.

"Buyers are concerned that supplies of white wheat may be disrupted," said Park Jeong Seop, deputy general manager at the Korea Flour Mills Industrial Association. "They are trying to work with suppliers and related parties to find ways to minimize any possible disruption."

Japan's flour milling industry may look into options including transporting wheat by rail, expanding stockpiles before the revamp starts, or substituting Australian wheat for the U.S. supplies, according to Masaaki Kadota, executive director at Japan's Flour Millers Association.

Gate Repairs

The repairs will be made to lock gates at the Dalles and the John Day dams on the Columbia River and the Lower Monumental dam on the Snake River, Fredlund said. This may boost demand for rail, which could slow overall shipments and result in congestion, Park said.

Lock gate networks on the two rivers are normally closed for two weeks every year for maintenance and repairs, the U.S. Army Corps of Engineers said.

"What we're hearing is farmers plan to ship as much of their product as possible via barge, then hold their product during the closure," said Kristin Meira, a spokeswoman for the Pacific Northwest Waterways in Portland, Oregon. U.S. farmers "may take advantage of rail for a small amount of product," she said.

Pacific Northwest Waterways, established in 1934, led the way to securing Congressional authorization and funding to build locks and dams on the Columbia and Snake Rivers, its site shows.

"We hear there will be a flurry of activity when the locks reopen in mid-March. Not much grain will be directed to different modes of transportation," Meira said.

No Proposals

The Japanese government has no concrete proposals at the moment, said Shirara Shiokawa, director at the grain trade division of the Ministry of Agriculture, Forestry and Fisheries, which controls overseas purchases and domestic sales of wheat, barley and rice.

"We expect the government will discuss with U.S. shippers to come up with a solution," the Millers Association's Kadota said by phone.

Japan was the biggest buyer of U.S. wheat last year, importing 3 million metric tons, and South Korea was the fifth- biggest with 1.1 million tons, according to U.S. Department of Agriculture data.

Wheat for May delivery lost 0.3 percent to $4.82 a bushel in Chicago at 4:51 p.m. Seoul time. The most-active contract dropped 11 percent last year.

Western White Wheat

Western White wheat, used to make snacks and cakes, made up about a quarter, or 710,000 tons, of Japan's imports of U.S. milling wheat in the year ended March 31, 2009, data from the agriculture ministry show.

In the same year, Japan bought 727,000 tons of Australia's Standard White wheat, which could be a substitute for U.S. grain. Australia is the world's fourth-biggest wheat exporter. White wheat accounts for half of Korea's milling wheat imports from the U.S., or 500,000 tons, the Korean group said.

"Firstly, we will have to wait until around July to see what alternative measures suppliers come up with," said Park Yang Jin, deputy senior manager at the business department of Daehan Flour Mills Co., Korea's largest milling wheat importer. "Both sides need to seek solutions together."

Park ruled out boosting purchases before the river shutdown because of higher transport and financial costs and lack of storage capacity at Korean ports. Mills can't switch to buying Australian wheat because of different specifications, he said.

Korean millers need more time to discuss countermeasures, Park said. Korean mills buy wheat through public tenders.