Japan - Livestock and Products Semi-Annual

The outbreak of Foot and Mouth Disease (FMD) in Miyazaki is unlikely to have a significant impact on national cattle and pig production this year due to the fact that the disease was contained by the end of July without spreading further to neighbouring prefectures and other major livestock-producing regions in Japan, according to the latest Beef and Pork Market Outlook from the USDA Foreign Agricultural Service.

7 September 2010

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Summary

Miyazaki FMD (April to July 2010): brief assessment

This report will give a preliminary impact assessment for the 2010 and 2011 market outlook following the outbreak of FMD (April – July, 2010) in Miyazaki, the nation’s top livestock-producing prefecture.

In nutshell, the Miyazaki outbreak will not likely have a significant impact on national cattle and pig production this year due to the fact that the disease was contained by the end of July without spreading further to neighbouring prefectures and other major livestock producing regions in Japan.

As outlined in the relevant sections of this report, the Miyazaki case is expected to result in a small decline for both domestic beef and pork output respectively; estimated to be in the range of one to two per cent on a yearly basis. Nevertheless, a delayed response to the initial outbreaks came at a price. Although the total amount has yet to be calculated the outbreaks reportedly cost the government of Japan (GOJ) tens of billions JP yen for various control measures to deal with the emergency and compensation paid for damage and losses to cattle and hog producers.

The market demand for beef and pork so far this year has been somewhat lethargic primarily due to the state of the Japanese economy (deflationary trend, jobless rate over five per cent, and less consumer spending for goods and services). Taking those factors into consideration, post projects static market growth for both beef and pork in 2010 and 2011.

One bright spot in the picture is strong sales of American beef this year, which testifies to its increasing popularity with Japanese consumers. Post expects strong demand for American beef through the current year and beyond despite the fact that the exportable volume is constrained by age restrictions under the Export Verification (EV) programme and consumer preferences for certain cuts. Progress on bilateral talks will be essential to the realization of full market potential and would put US beef exports on a growth path.

Note: On 27 July 2010, GOJ lifted movement and shipment restrictions from the last area in Miyazaki that had FMD outbreak after an exhaustive fight against this highly infectious livestock disease that lasted over four months. In total, nearly 290,000 head of animals (68,300 head of cattle and 220,000 swine) were slaughtered to contain the disease.

For the first time, GOJ vaccinated animals, albeit on a limited scale, to prevent further spreading of the disease from the specified areas, where outbreaks were mostly concentrated in Miyazaki. The initial outbreak was thought to have been detected on 9 April 2010 but the latest GOJ investigation concluded that several outbreaks had already occurred as early as March with the first case thought to be at a farm with a small herd of buffalos.

Pork Market 2011 Outlook (New)

Ample pork supply to sustain in 2011

Assuming economic conditions and consumption trends do not change, post anticipates that Japan’s pork demand in 2011 will be almost the same level as the current year with total consumption at around 2.44 million metric tons (MT). Both retail and food service demand for raw material frozen pork cuts for processing will remain the same as 2010. At this level of consumption, the market will have an ample supply, which would press the market prices for pork (both domestic and imported) to decrease further in 2011.

Similar to 2010, overall market prices for pork, partially affected by competition from chicken and beef, will likely remain relatively weak. Minimal growth is expected for pork imports, projected up by one per cent at 1.157 million MT after accounting for an increase in prepared/processed products from China, rather than the increase of seasoned ground pork from the United States/Canada. Similar to this year, the processing demand for frozen cuts is expected to stay somewhat lethargic in 2011, which in turn leaves sizable stocks at the end of the year at an estimated 208,000 MT, almost unchanged from the year beginning.

A slight increase in domestic output is also forecast, projected up by one per cent at 1.29 million MT, mainly attributed to the production recovery to take place in Miyazaki.

Lastly, at the level of imports projected, Post does not expect the pork safeguard to be triggered in the first quarter of Japanese fiscal year 2010 (April to June). On a preliminary basis, the trigger level for the period is calculated based on the formula agreed under the Uruguay Round talks: Pork (chilled and frozen combined): 228,896 MT (on customs clearance basis) please see supplemental table II.

Pork Market 2010 Situation Update and Outlook (Revised)

Consumption weaker than anticipated in 2010

The same underlying market trends remain in 2010. Therefore, Post has not significantly adjusted the pork market outlook from the previous semiannual report (JA0007). Reported swine losses in Miyazaki this year due to FMD outbreaks are unlikely to change overall market conditions. Even though the loss in Miyazaki, combined with sow adjustment measures implemented by hog producers in response to a prevailing surplus since last year, is factored in, the 2010 total domestic pork outputs are projected down by two per cent to 1.28 million MT (or 16.6 million head). The level appears short of resolving the existing surplus of domestic supply with weaker pork consumption expected this year. Thus, total pork consumption has been reduced from the last semiannual and is now projected at 2.44 million MT, down one per cent from the previous year.

Household consumption data in the first half 2010 suggests somewhat weaker than last year retail pork sales (quantity: down one per cent, and expenditure: down five per cent). In the same period, with the exception of sausage (quantity: up four per cent and expenditure, down one per cent), lower than previous year prices for other processed pork products (ham, bacon and ground meat) do not appear to have led to any increased purchases by households. Furthermore, on the food service front, pork utilisation has also been fairly lethargic. Overall market prices for pork are expected to remain relatively weak throughout the year and possibly beyond.

Small rise in pork imports forecast

Japan’s total pork imports in 2010 are projected unchanged from the last semi-annual (JA 0007), up by one per cent at 1.15 million MT (pork cuts: up by one per cent at 923,000 MT and processed/prepared products: up one per cent to 228,000 MT) on an annual basis. In this, reduced chilled cut imports will likely more than offset by the increased imports of raw material frozen cuts for processing/food service utilisation. US share is projected at 40 per cent (or CWE 371,000 MT) holding a top, followed by Canada at 25 per cent and Denmark at 18 per cent.

Specific to pork cuts, first half imports were up by four per cent (CWE 497,964 MT) but the results were far from positive. Due to severe competition with relatively abundant low priced domestic cuts, imported chilled cuts from major suppliers dipped eight per cent (CWE 145,886 MT) for the period (United States,down nine per cent; Canada: down three per cent; Mexico: down 18 per cent).

Nonetheless, frozen imports were up 10 per cent at 352,138 MT [United States: up 11 per cent (CWE 94,587 MT); Canada: up 22 per cent; Denmark: up one per cent] supported by relatively solid processing demands for frozen raw material cuts such as picnic/shoulder prevailing during the same period. Danish frozen cuts grew by only one per cent somewhat mirroring the static sales of ham and bacon for which Danish frozen loin/belly is used extensively.

In the same period, Japan’s imports of prepared/processed pork products grew a modest three per cent to 110,286 MT while US seasoned ground pork (for sausage/dumpling manufacturing) fell three per cent (CWE 68,303 MT). The increased use of frozen picnic from the United States/Canada for sausage making has reduced the amount of seasoned ground pork that is used for the same purpose.

Post expects the second half import situation to be similar to the first half. However, some slow down in frozen cut imports may occur with importers cutting back on stock replenishment, which is thought to have gone too fast in the first half while leaving surplus domestic frozen stocks unutilized. Given the above scenario, a slight reduction in year end frozen stocks is projected, down by three per cent from the beginning of the year 2010 with 210,000 MT.