Japan Buys No U.S. Wheat in Oct. as Trader Defaults

<!-- / icon and title --> <!-- message --> By Aya Takada

Nov. 7 (Bloomberg) -- Japan, Asia's largest wheat importer, didn't buy any of the grain from the U.S. in October as a Japanese trading company defaulted on sales of 20,000 metric tons to the government after the start of tougher food safety rules.

The company failed to sign a contract for 12,000 tons of dark northern spring wheat and 8,000 tons of western white wheat, that it had agreed to sell at a tender Oct. 16, Tatsuya Kajishima, director at the grain trade division of the Ministry of Agriculture, Forestry and Fisheries, said today by phone. He declined to name the company or give further details.

Japan introduced new rules last month requiring trading companies, at their own expense, to destroy or ship back grain tainted with agrochemicals or the fungus aflatoxin, increasing financial risks for suppliers. Defaults may add to a wheat supply glut that has helped drive prices down 61 percent from a record.

``Japan's grain import system is not working properly because of the new rules,'' Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co., said today by phone. ``The regulation is threatening stable wheat supply to Japan.''

The new rules end a practice that allowed supplies unfit for human consumption to be sold for industrial products and were introduced after a scandal over the sale of tainted foreign rice to domestic food companies.

Purchase Volumes

Japan suspended tenders to import wheat, barley and rice in September amid the scandal. Since the wheat program resumed on Oct. 10, the ministry has had difficulty purchasing volumes sought because of a lack of sellers. The ministry controls overseas purchases and domestic sales of wheat, barley and rice.

Japanese Agriculture Minister Seiichi Ota and his deputy Toshiro Shirasu resigned Sept. 19 as consumers and politicians said the ministry's lax regulation had allowed the use by food makers of tainted rice from China, Vietnam and the U.S.

Japan imports almost 90 percent of its wheat. The government purchased 5.4 million tons in the year ended March 31, representing almost 5 percent of global wheat trade.

The agriculture ministry canceled yesterday a plan to purchase 100,000 tons of U.S. milling wheat at a tender after failing to receive enough offers from trading companies.

Wheat reached a 17-month low of $4.965 a bushel on Oct. 24, down from an all-time high of $13.495 in February, as increased planting and favorable weather led to a record global harvest this year and as wider commodity markets declined.

December-delivery wheat gained 0.8 percent to $5.265 a bushel on the Chicago Board of Trade at 3:34 p.m. in Tokyo. Prices lost 3 percent yesterday on decreased sales from the U.S., the world's biggest exporter.

U.S. exporters sold 366,296 metric tons in the week ended Oct. 30, down 20 percent from the previous week, the Department of Agriculture said today. Global production may rise 12 percent to a record 683 million tons in the year ending June 30, the International Grains Council said Oct. 30.