Report Highlights:

The restart of the trade, which has been suspended just one month after Japan’s market reopening for U.S. beef last December, is primarily pending with USG’s submission of it’s investigation report and GOJ’s acceptance (including specific measures to prevent recurrences). Suppose the trade restarts by early second quarter (assumed in this report), Japan’s total imports in 2006 are expected to grow modestly by fresh rejoining of U.S. beef, but dominance of Aussie beef and domestic beef are expected to continue.

Keys to forward the trade with Japan in 2006 are the price and availability of specific grain fed cuts offered by U.S. On pork, abnormally large size of the year beginning stock is expected to lower imports of the raw material frozen cuts for processing substantially in 2006. On going government’s cracking down on illegal pork trade is adding some uncertainties over the processed products market outlook. Some modest switch back from pork to beef is expected to occur by come back of U.S. and Canadian beef.

Japan Pork Market Outlook 2006

Impacts of Market Reopening for U.S. Beef to Be Minor in 2006
With Japan’s market reopening for U.S. beef last December, it was initially thought that Japanese pork market begins to feel the impacts in 2006. However, as it stands, it will likely now take some time for U.S. beef to recover from a major blow suffered recently (import suspension) and reposition itself (See 2006 Beef Outlook Section).

Abnormally High Carryover Frozen Stock to Cause Reduced Imports in 2006

What’s more problematic clouding Japan’s pork market outlook in 2006 is abnormally large year beginning stocks carried over from last year, estimated at 300,000 MT (See 2005 Situation Summary Section). In simple calculation, the figure represents close to a half of Japan’s annual raw material pork demand for domestically produced ham, bacon and sausage products and about 8 months worth of the annual utilization of the imports for processing. [Note: Japan’s annual utilization of raw material pork for processing converted from PWE into CWE is at about 585,715 MT (Imported Pork at 464,285 MT and Domestic pork at 121,430 MT).] The size could slow down imports of frozen cuts in 2006.

Once U.S. beef makes appearances after the second quarter in 2006, what is likely to occur toward the year ending are, first, relatively small replacement of pork to beef will likely start in the second half of 2006. Some of Danish and EU, U.S. and Canadian frozen pork cuts temporary used in the food service sector for alternative dishes will be partially replaced with beef dishes featuring U.S. beef cuts again.

Then, what’s likely follow after is that the retail demand for domestic pork and U.S. chilled pork will start to fall as U.S. beef begin to show up in store shelves. This would certainly put downward pressure on market prices of the domestic pork toward the year ending at the projected increase for domestic production in 2006 (See the section on domestic pork production). The situation may likely trim some of the import demand for U.S. chilled pork later this year, too.

In light of the above, total pork consumption in 2006 is projected marginally down compared to last year at 2.50 million MT. Total imports are projected substantially lower by 10% at 1.20 million MT (down 12% for generic pork at 1.10 million MT and up 11% for prepared and processed products at 100,000 MT). A big slash in 2006 is mostly coming from anticipated reduction in imports of the frozen raw material cuts for processing utilization. At projected level of the imports, it is highly unlikely Japan’s pork safeguard will kick in by exceeding the trigger levels which are calculated (on preliminary basis) substantially high for JFY 2006 (See table 8).

At the projected imports and total consumption, the year ending stock in 2006 still comes to be relatively high at 260,000 MT representing about 7 months worth of the annual utilization of the imports for processing. Post senses that it may take another year or two for Japanese pork processors to compress further the abnormally large size stock prevailing by lowering imports further in coming years.

All major frozen pork suppliers (Denmark, EU, Canada and U.S.) will be affected with reduced import demand, particularly for frozen pork in 2006. Increased imports of prepared and processed products are mainly owing to anticipated increase in imports of ground seasoned pork from U.S., which are utilized for sausage manufacturing for the value segment market (note: ad valorem rate is 20%).

GOJ Cracking Down on Illegal Pork Imports to Continue in 2006

As touched upon in JA 5053, GOJ has begun its review of the complex pork import regime so called “Pork Differential Duty System” since last year. The action is mainly in response to concerns raised in the Diet and complaints from domestic producers over illegal activities involving imports of raw material frozen pork (import duty evasion).

GOJ’s serious cracking downs so far has resulted in uncovering series of scandals, indictments and legal punishments involving brokers/importers/processed products manufacturers last year. While the investigation is reportedly still on-going, GOJ is now requiring domestic meat trade and industry to strictly comply with the system, which, in the end, will likely raise average buying prices of imported frozen cuts and most likely end up with accumulation of frozen cuts not in actual demand. It looks that prevailing circumstances are casting great uncertainties on the future pork trade with Japan in coming years.

Japanese meat trade and meat industry have been requesting GOJ to replace the current complex system to a simple one, either a specific duty by weight (preferred option) or an ad valorem duty as most transparent and fair solution to this complex issue soonest possible. This position has reportedly met with strong oppositions by domestic producer groups, who are for maintaining the system as the way to protect them.

Above development, if left as is, would probably force domestic ham and sausage makers to go through some major restructuring with options either to increase the price of their products or to absorb the increased cost or to invest abroad to make some products at less costs (a long run solution) or to implement all of the above.

Slightly Upward Domestic Hog Slaughter Projected in 2006

According to swine inventory as of August 1s t 2005 just released by Japan Pork Producer Association, domestic sow number was 915,000 heads, slightly up from year beginning, number of hog farms were 7,731, down 5.3% due to continued exiting out of smaller scale operators. The data point to increased pig crops, which will likely contribute increased hog slaughter in the second half of 2006 adding to flat output compared to last year forecast in the first half. This makes post’s forecast for the total pork output forecast in 2006 to be slightly above the last year level at 1.26 million MT.

2005 Situation Summary

Revised swine and pork PS&D figures for CY 2005 are constructed based on preliminary production, trade and stock data available to date.

Total Pork Consumption Bound to Fall in 2005

Total domestic pork consumption is estimated to level off in 2005, down by 2% to 2.510 million MT after enjoying an unusual surge previous year. Overall meat consumption shifted to pork altering expensive and tight supplied beef in 2004. The situation benefited domestic producers bringing relatively good prices than average years through 2005 (See table 9).

Total imports kept growing (more than actual demand) in 2005 by renewing a record established last year, up 3% to 1.337 million MT [Generic pork: 1,247,000 MT, up 1% with U.S. (Share: 30%), Denmark (29%), Canada (22%) and Mexico (4%) and others being mostly EU (14%); Prepared and Processed Pork: 90,000 MT, up 34% with U.S. (Share: 48%), Canada (27%) and China (14%).] (See tables 11-a, 11-b, 11-c and 11-d)

For the first time in 2005, no pork safeguard was triggered in 2005 due partly to high enough trigger levels in JFY 2005 (See table 8) and partly to some turmoil in the trade caused by major cracking downs by GOJ on illegal pork imports noted in the Outlook Section earlier. Unexpectedly, monthly import levels, especially of raw material frozen pork, did not come down as anticipated and kept at high pace in the second half, clearly outpacing actual demand. This has caused the stocks piling up toward the year ending at an estimated 300,000 MT, 35% above the year beginning level (See table 10).

Imported chilled pork accounted 23% of Japan’s total generic pork imports and grew 4%, mainly supplied by U.S., Canada and Mexico. Imported chilled pork cuts have done relatively well by filling in reduced fresh/chilled domestic pork supplies in both retail and food service sectors (See table 11-b). Imported frozen pork accounted the rest and the volume was relatively high keeping the same level as the previous year (See table 11-c). Increased imports from U.S., Chile and Canada and some others such as Mexico, Ireland and Austria are evenly offset by a dip in imports from Denmark and some other EU countries, which may be partly a function of exchange rates, relative local prices and ability to supply cuts to meet Japan’s processing market demand prevailed in 2005. Substantial growth, up 36%, in imports of the prepared and processed products for the year is largely owing to increased imports of seasoned ground pork (raw materials for sausages) from U.S. and Canada.

Stricter compliance with the import system said to have made it difficult for meat trade to arrange procurements of inexpensive frozen picnic for sausage making, which may have contributed increased seasoned ground pork imports in 2005.

In 2005, domestic hog slaughter and pork production are projected down 2% each to 16.255 million heads and to 1.250 million MT reflecting slightly smaller number of sows compared to the previous year.

Further Information

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