UPDATE 2-Japan lifts wheat import estimate, to nearly triple on yr
* Japan nearly triples feed wheat import target to 1.21 mln T
* Wheat use rising on tight corn supply after U.S. drought
* Traders say higher wheat prices may discourage imports (Updates with trade comments)
By Osamu Tsukimori
TOKYO, Sept 21 (Reuters) - Japan plans to import 1.21 million tonnes of wheat for use in animal feed this financial year, the farm ministry said on Friday, an increase of 58 percent from its March estimate, highlighting a jump in demand as global supplies of corn tighten.
Japan's use of corn in animal feed fell in July for the seventh straight month to hit a 20-year low, as soaring prices fanned by the worst U.S. drought in decades drove the world's biggest corn importer to use more wheat instead.
The U.S. Department of Agriculture has estimated this year's corn harvest at 10.727 billion bushels, the smallest crop in six years, with the lowest yield in 17 years at 122.8 bushels per acre.
Corn demand has dropped sharply after benchmark prices hit a record top of $8.49 per bushel on Aug. 10.
Japan's revised import target for feed wheat represents a near tripling from the figure of 427,000 tonnes of customs-cleared imports in the previous financial year, a farm ministry official said.
The ratio of wheat in Japan's feed production in July rose to 4.1 percent, the highest in at least in two decades, from 1.2 percent a year earlier.
In the period from January to July this year, customs-cleared feed wheat imports into Japan totalled 490,000 tonnes from four nations, the official added. Australia and the United States are the major suppliers, with Canada and Russia providing small volumes.
In the past couple of years, lower quality wheat has traded at a discount of $20 to $30 a tonne to corn, because of the ample availability of rain-damaged grain in Australia.
But traders cautioned that the search for cheap feed wheat was set to become difficult as unfriendly crop weather in key producers Australia and Russia tightens global supplies of the grain.
"Wheat took a lot of share of the corn market but the price trend has now reversed as wheat supply is also getting tighter," said one Singapore-based trader.
"Corn is much cheaper than feed wheat now."
Australian feed wheat is quoted around $380 a tonne, including cost and freight, while Indian wheat will cost Japan $355 a tonne. This compares with corn being traded into South Korea this week at $307 a tonne, the trader said.
On Friday, Chicago Board of Trade new-crop December corn was quoted at $7.51 a bushel, compared with December wheat at $8.93-1/4 a bushel.
TIGHTER WHEAT SUPPLY
While the corn crop in the world's top exporter, the United States has been devastated by the drought, the wheat supply situation is also worsening.
Adverse weather is threatening crops in Australia, the world's second largest exporter, and supplies are getting depleted in Russia, the No. 4 exporter.
The winter wheat crop in the southern U.S. Plains also needs rain to establish itself.
Japan's farm ministry, however, kept unchanged its plan to buy 1.288 million tonnes of foreign barley for animal feed use in the year to March 2013. That compared with 1.149 million tonnes imported in the previous financial year.
Japan keeps a tight grip on imports of wheat and barley to protect local farmers and sets an import target for both grains for use in animal feed.
The ministry's simultaneous buy and sell system lets feed makers negotiate the origin, price and quantity of grain with trading companies prior to jointly submitting bids to the government. (Additional reporting and writing by Naveen Thukral in SINGAPORE; Editing by Himani Sarkar) (firstname.lastname@example.org, +813 6441 1857, Reuters Messaging: email@example.com)