Japan Pork Market 2010 Outlook (Revised)

Ample pork supplies to continue in 2010

The general market outlook and previously anticipated trends for 2010 – weak consumption relative to supply – portrayed in Post’s last livestock annual report still holds valid. Thus an ample supply of domestic pork will continue to limit prospects for imported pork, particularly chilled cuts, which were significantly reduced in the previous year. On the other hand, a significant reduction in the total imports in the previous year helped to effectively run down the high level of frozen stocks to an estimated 217,000 metric tons (MT) by year-end in 2009, down eight per cent from the beginning of the year. Solid sales of processed pork products are expected to be sustained in 2010, which will allow imports of frozen raw material pork to be utilized in the processing sector.

Pork consumption to remain weak in 2010

Japan’s total pork consumption in 2010 is projected to decline by one per cent from last year to 2.46 million MT; a relatively high level of consumption that despite plentiful supplies of the domestic pork will support only a slight reduction in total production in 2010 projected at 1.30 million MT (or 16.88 million head). The projected level may not be quite enough to eliminate Japan’s existing surplus that has existed since last year. Thus, similar to the previous year, overall market prices for domestic pork at the wholesale level (both carcass and pork cuts) will remain low and competitive with international prices.

In response to deteriorated market prices for domestic pork, MAFF (the Ministry of Agriculture, Forestry and Fisheries) has been implementing a domestic pork buy-out and storage measure to raise wholesale prices since last fall (October 2009 – March 2010) (See the details in the 2009 situation summary section). So far, the above measure has only been partially effective in keeping the price level above the floor price of ¥400 per kilo after market prices surged momentarily during seasonal sales at the end of the last year. In addition, post noted that MAFF created a subsidy scheme last fall to help hog producers replace old sow stocks so that the number of piglets reaching a finishing age this fall are reduced in comparison with last year. At the present point in time, it is uncertain if these surplus trimming measures can effectively reduce total hog slaughter in 2010 (Sow numbers for the year have yet to be announced.).

Slight increase in total pork imports projected in 2010

Given the above, the range of recovery for imports in 2010 is limited. Post projected Japan’s total pork imports in 2010 to increase somewhat, by one per cent from last year to 1.15 million MT (pork cuts, up by one per cent to 923,000 MT; processed/prepared pork, up by one per cent to 228,000 MT). The projected increase takes into account some demand for stock replenishing likely to be generated by the processing sector for frozen stocks.

For pork cuts, Post raised the projection for Danish pork, a major frozen supplier, at 169,000 MT up by six per cent from last year, but left the numbers almost unchanged for US pork at 377,000 MT and Canadian pork at 221,000 MT for the following reasons: similar to last year, some US and Canadian chilled pork cuts may be affected by the increased availability of domestic pork cuts, which have become fairly price competitive. On the other hand, it is likely that Japan’s processors will import some frozen cuts from the United States, Canada, Denmark and other suppliers for stock replenishment assuming the market demand for processed pork products stays solid as expected in 2010. For the same reason, Post raised the number for processed/prepared imports up slightly from last year. US seasoned ground pork is projected at 149,500 MT, up three per cent from last year assuming a continuation of the strong yen.

Note: Unlike pork cuts, which are subject to the pork differential duty system (the gate price system), the import duty for seasoned ground pork is under an ad-valorem duty. In theory, when the Japanese yen is strong against the US dollar or other currencies, importing inexpensive raw material frozen pork cuts will become difficult without paying a large differential duty, but favour seasoned ground pork. This is supposed to be true even with mixed combinations of high-priced and low-priced cuts.

Pork safeguard triggering unlikely in JFY 2010

Given the state of surplus and at the projected level of imports, a triggering of the pork safeguard is not foreseen in Japanese fiscal year (JFY) 2010 for any specific quarter. The trigger levels calculated by post for JFY 2010 are based on the preliminary results of JFY 2009 [All Customs Clearance Basis – first quarter (April–June), 224,488 MT; first to second quarter (April–September), 434,398 MT; and first to third quarter (April–December), 645,089 MT] are slightly lower than the level of the previous year, but look sufficient.

Note: Calculation of the trigger level for pork is made by taking the quarterly cumulative average from the three preceding years (JFY 2007, 2008 and 2009) and then multiplying by 1.19 (119 per cent)

2009 Pork Market Situation Summary (New)

Increased domestic pork supply created a major surplus in 2009

With consumption somewhat weaker than last year, a significant surplus due to an unprecedented rise in domestic pork output became a major concern for the Japanese pork market in 2009. Total domestic hog and the pork outputs surged in 2009, up five per cent from the previous year to a total of 1.31 million MT (or 16.965 million head) – an unprecedented rise for a single year. This was due to: 1) producer speculation in anticipation of good market prices similar to 2007 and 2008; and 2) reduced mortality rate for piglets stemming from the use of a newly approved vaccine. Consequently, market prices for domestic pork plunged severely and led to government intervention in reducing surplus domestic pork until the situation reverts to higher demand and tighter supplies. The average wholesale price of domestic pork, carcass and various cuts, on an annual basis showed mostly double-digit declines ranging from 15 to 25 per cent from the previous year.

Note: As the average wholesale price of domestic pork carcass declined remaining below a floor level of ¥400 per kilo during the second half (the standard stabilisation price, an official parameter for an estimated break-even point for hog producers), MAFF (the Ministry of Agriculture, Forestry and Fisheries) announced the start of the Supply Adjustment Measure for Storing Domestic Pork, which took effect mid-October 2009. Under the programme, up to 70,000 head (with a budget of ¥1.8 billion) are to be bought out and stored in an attempt to shore up average market prices beyond the floor by the end of March this year. The measure will be implemented from October 2009 through March 2010 by the ALIC (Agriculture & Livestock Industry Corporation, which is affiliated 100 per cent with MAFF) and cooperation from relevant industries. Specifically, ALIC will ask participating farm cooperatives and ham/sausage manufacturers to buy out and store surplus pork for a certain period of time and will provide the cold storage charge, and possible price discount incurred for freezing fresh cuts after releasing the stored pork back to the market.

Thus, as actual production and trade numbers started to become available for 2009, substantial adjustments were made in the post forecast PS&D numbers for pork from the previous livestock annual report.

Total pork consumption lowered in 2009

On a preliminary basis, total Japanese pork consumption in 2009 was down one per cent from the previous year reaching an estimated 2.469 million MT. Despite ample supplies of low priced pork, demand from the food-service sector slumped. Competition with other low-priced commodities such as chicken and beef (including hamburger and ground beef products) was fairly intense while the sector reportedly suffered overall from reduced sales. On the other hand, the retail sector response to prices was reportedly positive and stayed solid for pork and processed pork products.

For January–December 2009, the quantity of pork purchased by the average household rose tow per cent while expenditures fell three per cent. For processed pork products, purchased quantities also increased; ham; up two per cent, sausages; up three per cent, bacon; up one per cent and ground meat including ground pork up seven per cent while the corresponding expenditures were either down or remained unchanged from the previous year.

Total imports deeply slashed in 2009

Abundant supplies of domestic pork cuts, which were priced fairly low, virtually flooded the market in 2009. This consequently had a negative impact on imports that have already been impacted by increased stocks at the beginning of the year. The situation resulted in a significant cut-back in total pork imports in 2009, which were down 10 per cent from the year before at 1.14 million MT (pork cuts, down 14 per cent to 914,000 MT; processed/prepared, up 10 per cent to 225,000 MT). A plunge in imports of pork cuts was partially offset by a rise in imports of processed/prepared products. With intense competition from low-priced imported pork, the market price of imported pork appears to have lost its competitive edge (both chilled and frozen) and stayed weak throughout the year.

Specific to pork cuts, Japanese imports of American pork dipped to 375,270 MT, down 14 per cent with a total share of 41 per cent (chilled cuts: down 10 per cent to 220,920 MT; frozen cuts: down 20 per cent to 154,350 MT). The reduction in US cuts, however, was partially offset by an 18 per cent hike (or 145,010 MT) in seasoned ground pork imports under the processed/prepared products category. Canadian pork did relatively well with imports down one per cent to 224,090 MT (chilled cuts, down 17 per cent to 68,720 MT; frozen cuts, up eight per cent to 155,370 MT). Danish pork (mostly frozen for processing and food service) was also down 23 per cent to 159,800 MT. Most EU pork suppliers to Japan followed suit as Japanese importers cut back their purchases of frozen raw material cuts in 2009.

Sausage imports to grow in 2009

Although not included in Post’s PS&D estimates, it is noted that sausage imports in 2009 were up 11 per cent, reaching 40,735 MT. While China held a 51 per cent share of the total (or 20,645 MT), products from the United States, Thailand and Brazil made substantial inroads into this value and price conscious market, up 23, 83 and 35 per cent, respectively, for the year.

Further Reading

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April 2010