From January to June 2011, American beef imports surged up 50 per cent from the previous year, testifying to Japan’s strong demand. Japan's overall beef market consumption is expected to improve from the previous year’s slump in 2012 as consumer anxieties over food safety incidents (E. coli poisoning and cesium detection in beef) subside and the distribution of domestic beef is normalised. The pork market is expected to sustain a relatively high level consumption. However, the anticipated recovery of domestic pork production is expected to curtail the import outlook for the year.

Preface

Previous semiannual outlook numbers for 2011 have been adjusted to reflect first half data for annual cattle (beef) and swine (pork) production, trade and monthly ending stocks, and year beginning livestock inventory publicized by the government.

In compiling the demand and supply outlook and forecast numbers for CY 2012, Post applied the following assumptions:

• no changes to Japan’s Export Verification (EV) Program for US beef, thus continuing to limit the market access for US beef, and
• a lack of positive income growth, keeping average consumers to remain low-price seeking.

Quantities listed in the text are made on the basis of Carcass Weight Equivalent – CWE (unless specified otherwise). Some numbers in the inserted tables are on a product weight basis and have not been converted to CWE.

Rates of conversion from 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

Executive Summary

The beef market will remain a difficult environment for high priced domestic beef. Overall market consumption in 2012 is expected to improve from the previous year’s slump as market anxieties over several food safety incidents (E. coli poisoning and caesium detection in beef) subside and the distribution of domestic beef is normalised after the disruption from the March 2011 earthquake. While the total imports of beef cuts for 2012 are projected to remain constant with the previous year at 707,000 metric tons (MT), a strong market preference for affordably priced grain-fed beef is supporting a modest growth outlook for American imports, projected up by only five per cent.

In 2012, the pork market is expected to sustain a relatively high level of consumption. The anticipated recovery of domestic pork production is expected to curtail the import outlook for the year, projected slightly down to 1.222 million metric tons (MMT) especially affecting the chilled pork trade. Although imports from the United States are also projected lower, it will retain its sizable share as Japan’s top pork supplier for both pork cuts and the prepared and processed products.

2012 Pork Market Outlook (New)

Rebounding domestic pork supply to cut imports in 2012 modestly

Japan’s total pork consumption in 2012 is projected to hold steady at a relatively high level. However, an improved beef market outlook may become a factor, trimming pork consumption slightly in 2012, thus the level is projected marginally lower from the previous year at 2.501MMT given relatively stable demand projected in the household, food-service and processing sectors.

Total pork production in 2012 is projected up by two per cent to 1.28MMT (or total slaughter of 16.6 million head), rebounding from the decline that was forecasted for the previous year, reflecting the rebuilding of sow inventories in major swine production regions, namely Kyushu, Kanto and Tohoku (See the 2011 Situation Summary and Revised Outlook Section), where 60 per cent of the nation’s hogs are raised.

However, in 2012, this anticipated increase of domestic pork supply is expected to curtail imports, which is projected down by one per cent from the previous year to 1.222MMT (Pork Cuts: down by one per cent to one million tons and prepared/processed products: unchanged at 221,000 MT). Increased distribution of domestic pork cuts priced lower than last year will likely give a better presence to fresh domestic cuts, recapturing some of its retail share lost to the imported chilled cuts, possibly impacting the sales of American and Canadian chilled cuts in 2012.

The United States will stay as Japan’s top pork supplier claiming an estimated share in the total imports at 39 per cent (pork cuts) and at 65 per cent (prepared and processed products, mostly seasoned ground pork), which were unchanged from the previous year.

2011 Pork Market Situation Update and Revised Outlook (New)

High level demand for pork to continue in 2011

At this time, the market situation suggests another good year for pork in 2011. The total consumption estimate is raised slightly from Post’s previous semiannual outlook forecast and is now projected to reach a seven-year high of 2.50MMT. This projected increase is largely based on a modest rise in anticipated Japanese retail demand for pork, particularly helped by modest growth in the household consumption of pork, as well as processed products which are expected to sustain through the year while holding food service and processing utilisation relatively constant.

More Japanese retail and food-service users have been turning to imported chilled cuts as an alternative source of supply due to the reduced distribution of domestic fresh/chilled cuts that occurred in the first half of 2011. For January-June 2011, Japanese household consumption of pork and processed products were; pork (up three per cent), ground meat (unchanged), ham (up three per cent), sausage (down two per cent) and bacon (up three per cent), beef (unchanged), chicken (down seven per cent). The latest manufacturing data for first half processed meat product production was reportedly up 1.5 per cent. No positive outlook has been generated from the sluggishly performing food-service sector, which has been hard hit by the continued economic slump, as well as the earthquake. With the reported overall consumption slowdown for red meat and poultry (broiler meat) entering into the second half of the year, the above gain for first half total consumption could be moderately offset on an annual basis. USMEF promotion activities have been effective in educating Japanese users/consumers to the appealing and competitive qualities of American chilled pork.

Domestic pork outputs to lower, resulting in higher prices in 2011

In this report, Post’s previous projection for slightly lower national pork outputs in 2011 made in the last semi-annual report has been revised and is now projected to be even lower, down by three per cent to 1.255MMT. The above revision is based on recently publicised sow inventory data by MAFF, which was also down at the same rate of 901,000 head. The number of hogs raised in the nation at the year’s beginning was also down at 8.186 million head.

This decline in the national sow and hog inventory data is attributed to the following factors:

1. reduced farrowing rate negatively affected by a long and severe hot summer in 2010
2. slower than anticipated recovery of swine inventories in the Miyazaki prefecture, the nation’s second largest hog-producing state, after the massive Foot and Mouse Disease (FMD) outbreak in 2010, and
3. temporarily stalled hog production and slaughter in the Tohoku and Kanto regions due to the earthquake this year.

In the Tokyo market, tight supplies of domestic pork have caused average wholesale market prices of domestic hog carcasses to strengthen during the first half (Excellent grade - up eight per cent at JP¥486, Medium grade: up 10 per cent at JP¥450). Likewise, wholesale prices of pork cuts have been higher than the last year, making already low-priced imported chilled cuts even more competitive and attractive, partially eroding the predominant share held by domestic fresh cuts in the retail sector.

Imported chilled pork to increase market presence in 2011

The prevailing situation has been providing a good market opportunity for the United States and Canada, two major chilled pork suppliers to Japan, to advance their share and presence. On the other hand, Japan’s processing demand for imported frozen raw material cuts, are expected not to be significantly high for the previous six months and instead, processing demand has been met by existing stock run down.

Based on the above information and first half results, Japan’s total pork imports in 2011 are projected to grow by two per cent from last year to reach around 1.235MMT (pork cuts, up four per cent to 1.014MMT, and prepared and processed products, down three per cent to 221,000MT). Moderately lower year ending stocks are also forecasted, down by seven per cent to an estimated 202,000MT.

For January-June, total pork imports were up three per cent from the previous year at 512,703MT (chilled cuts, up 12 per cent at 163,023MT; frozen cuts, down two per cent at 349,681MT). Imports of prepared and processed products in the same period were up only one per cent at 110,258MT. However, not reflected in the PS&D table, Japan’s fast growing sausage imports in recent years appears to have slowed in the first half, down one per cent at 20,992MT on customs clearance basis, most probably affected by the sluggish food-service performance.

While appreciating the first-half result, trade sources are predicting that the growth pace of chilled cuts may not hold with a surplus risk and market price deterioration in case the current level import exceeding 20,000MT per month were to last. For specific products, loin items are estimated to be already somewhat oversupplied and belly is in short supply and has good demand.

Further Reading

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December 2011