Executive Summary

Japanese consumers in 2010 will continue to seek lower beef prices pending an improvement in the global economy that would result in improved job prospects and higher incomes. Despite a slightly positive economic growth forecast for 2009, the economy has not yet reached a real recovery. In 2010, total beef consumption in Japan is projected to grow only slightly to 1.195 million metric tons (MT) with imports comprising a 57 per cent share. Despite high demand, comparatively lower priced US beef exports to Japan are projected to grow just 8 per cent to 91,000 MT due to the limited supply of cattle that meet the under 20 months Export Verification (EV) program requirement.

In 2010, lethargic consumption and a relatively ample supply of domestic pork in Japan will decrease demand for pork imports resulting in a slight slip in total imports to 1.209 million MT. Increased competition with lower priced domestic pork will lead to decreased sales of US chilled cuts. However, US and Canadian seasoned ground pork exports to Japan will increase with solid demand for processing. Post expects Japan’s livestock market in 2010 to remain sluggish due to demand for lower priced product. This report is an update to JA9019.

The current political situation is further exacerbating uncertainty in the economy. The lower house election in August shifted the balance of power to the Democratic Party of Japan (DPJ) away from the Liberal Democratic Party that has held power almost continually since World War II. The DPJ campaigned on a platform that included calls for reform in agricultural; thus, Japan’s future economic and agricultural policy may well change direction, particularly for various farm subsidies and support programs.

Quantities listed in the text are made on the basis of carcass weight equivalent – CWE (unless specified otherwise). Numbers shown in some of the inserted tables are of the product weight basis before converted to CWE.

Conversion rates from the product weight to CWE are:
Beef Cuts (Boneless) – 1.40
Pork Cuts (Boneless) – 1.30
Processed/Prepared Beef Products – 1.79
Processed/Prepared Pork Products – 1.30

2010 Pork Market Outlook

Sluggish market to lower domestic outputs and imports in 2010

Amid economic recession, the 2010 outlook appears slightly gloomy at present as weaker than anticipated pork sales reported in 2009 are expected to continue for sometime. Total consumption in 2010 is projected to be down slightly to 2.485 million MT; though the volume is still considered relatively high in historic terms. The decline is partially attributed to lower hog slaughters (projected down one per cent to 16.48 million head) expected in 2010. Likewise, Japan’s pork production is also projected to decline by one per cent to 1.27 million MT in 2010. The reason for the expected decline is that domestic hog producers may start adjusting their output to shore up the low prices for hog carcasses, which prevailed during 2009. Nevertheless, a sluggish consumption outlook in 2010 and a relatively ample supply of domestic pork is expected to remain in stocks next year.

The above situation is expected to trim total pork imports in 2010 to a projected 1.209 million MT with pork cuts down by one per cent to 988,000 MT and processed/prepared (includes seasoned ground pork products) up by three per cent to 221,000 MT). A slight reduction in US pork in 2010 is also likely, projected to fall to 409,500 MT due to increased competition for chilled cuts with low priced domestic pork (for retail and food service). Furthermore, import demand for low value frozen cuts (US picnic and shoulder loin) for various processing purposes is expected to be replaced by seasoned ground pork also supplied by the United States.

Given the favourable exchange rate in 2009, Japanese end-users are said to have been switching their raw material needs from generic frozen cuts to seasoned ground pork for processed products marketed in the value segment, according to a trade contact. (Note: Seasoned ground pork is not subject to Japan’s pork differential duty system, the so called gate price system (See JA9019).

If the strong yen and lower hog prices reported in overseas market continue to persist through next year, it should make it difficult for importers to clear the pork gate price to import cheap frozen cuts without paying substantial amounts of differential duty. The EU share of raw material frozen cuts for processing will also likely remain limited as in 2009.

2009 Pork Market Situation Update and Outlook

Increased supply of domestic pork will lead to reduced imports in 2009

Japan’s total pork consumption in 2009 is projected to rise marginally from last year to 2.494 million MT. As described in the last semiannual report, 2008 was a very good year for both domestic and imported pork (Ref. JA9019). However, the favorable situation did not last. Amid on-going recession in 2009, some signs of weakening demand (weaker than anticipated consumption, symptoms of surplus, deteriorating wholesale market prices) have developed since late last year. The slow-down in pork consumption especially in retail did not allow for a reduction of supplies in domestic pork cuts, which resulted in deteriorating wholesale market prices for domestic hog carcasses.

Note: In contrast with post’s last semi-annual forecast, MAFF’s recent statistics on livestock inventories indicated that Japan’s beginning year sow numbers in 2009 were actually up three per cent from last year to 937,000 head. This points to an increased hog slaughter in 2009, projected to rise by three per cent to 1.285 million MT (or 16.67 million heads). Domestic hog producers have apparently responded positively to the relatively high market prices for domestic pork that have prevailed for the past couple of years and perhaps did not anticipate the recession would be this serious. In addition, the emergency subsidies and financial support programs for livestock producers that have been in effect since JFY 2008 may have given security and incentives for continued expansion of output in 2009. The above measures were mainly designed to alleviate the impact of skyrocketing feed prices and would ease farmers’ debt burden.

Increased domestic pork production is expected to hold back total imports this year, with production projected to drop by five per cent to 1.21 million MT with pork cuts down by six per cent to 996,000 MT and processed/prepared up by five per cent to 215,000 MT). This will allow total pork consumption in 2010 to rise slightly; however, the actual situation may become even worse for both domestic pork and imports toward the end of the year when domestic slaughter will reach a seasonal peak in Japan.

While the United States will continue to remain the largest supplier of pork to Japan in 2009, strong competition from domestic pork used in retail and food service outlets will result in decreased exports of US pork cuts by five per cent to 416,000 MT comprising an estimated 42 per cent share of total pork cut imports. The decline will likely be partially offset by increased imports of seasoned ground pork, projected to increase by 12 per cent to 136,500 MT for the year (at an estimated 64 per cent share of prepared/processed products).

Post expects no significant changes for the year’s ending stocks, estimated at 238,000 MT, in line with levels at the beginning of the year.

Summary of the Market Situation Year to Date

In the first half of 2009, Japan’s household consumption of pork was up one per cent, processed pork with ham was down one per cent, sausage up two per cent and bacon up by two per cent. Amid economic recession, the available data suggests there is solid demand for less expensive processed products. From January to June 2009, Japanese imports of sausages rose 19 per cent over the same period last year from China (up one per cent), the United States (up 44 per cent) and Thailand (up 119 per cent). During the same time, imports of prepared/processed products increased along with US products (mostly seasoned ground pork) rising 14 per cent from last year.

As with beef, the Japanese food service market also suffered from reduced sales from the previous year, according to the data published by Japan Food Service Association. Family restaurant chains (which include pork cutlet chains) registered a couple of percentage points lower sales than the first half of the previous year. The only exception was the fast food category [Western style fast foods: hamburger/other ground meat (pork)/fried chicken/processed meat products (hot dogs), Japanese style fast foods: Beef and pork bowl, fast food Sushi, and take-out lunch box]. This specific segment uses imported red meat and poultry plus processed/prepared products and had slight growth for the period.

Reflecting sluggish consumption and competition with Japan’s first half 2009 imports of pork cuts dropped nine per cent or CWE 478,114 MT. Chilled cuts were down two per cent and frozen cuts were down 12 per cent. US pork cuts imported in the same period was also down from last year by five per cent or CWE 202,141 MT. Imports of frozen cuts from Denmark and the EU were substantially down for the period. Trade sources explained the main reason for the import decline of frozen cuts for the first half was that there were ample stocks and no growth in demand for processing.

Further Reading

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January 2010