18 February 2010

7 minute read

2010 Beef Market Outlook

Price and Value to be Key to Import Growth in 2010

Similar to 2009, the Japanese beef market in 2010 is expected to remain price and value conscious, which does not favor consumption of relatively expensive meat products such as beef. Total beef consumption in 2010 is projected to rise by one per cent to 1.195 million MT, with domestic production projected slightly down from last year to 520,000 MT (or 1.24 million head) and total imports projected up by one per cent to 678,000 MT (Beef Cuts: up by 1 per cent to 658,000 MT, Processed/Prepared: down by eight per cent at 20,000 MT). Year ending stock levels are projected to be roughly unchanged from the beginning of the year at 126,000 MT.

The market is highly sensitive to price, so exchange rates are a significant driver of sales for imported meats. Japan’s imports of Aussie beef in 2010 are projected slightly above the level of the previous year at 511,000 MT, with firm demand for both grass fed cuts (mainly for fast foods and prepared foods) and grain fed cuts (for retail and food service).

BSE Import Restrictions on US Beef Curb Overall Market Prospects in 2010

US beef will continue to face a number of market access constraints under the EV program. Trade sources concur that the maximum supply level US beef cuts to Japan will reach in 2010 will be somewhere between 85,000 – 100,000 MT, and demand will concentrate on various shoulder and plate cuts, which are relatively low priced. Therefore, preliminary post projections for US beef in 2010 are around 91,000 MT, which is still just about 20 per cent of the quality exported in 2000.

Sales of American beef (grain fed) have increased around the country at retail and food service outlets and demand remains strong. However, greater sales will depend on progress made in bilateral talks with GOJ on the EV program. Japanese consumers have demonstrated a preference for US beef, which could substitute for Australian beef in greater quantities if these restrictions are lifted. Cheaper product is not likely to affect sales of domestic beef (particularly Wagyu), which supplies the high end market with marbled beef.

Japan was the largest market for US edible meat (beef offal) prior to the imposition of the BSE restrictions, with annual sales registered in 2000 at US $668 million (or 93,000 MT at @US$ 7.8) as compared to US $90 million (or just over 7000 MT at US$ 12.61) in 2008 (Note: Not accounted in the PS&D). While the issue is still pending, bringing an end to Japan’s BSE restrictions could greatly expand the sales of edible meat to this market as well.

The World Animal Health body (OIE) has granted controlled risk status to the US (May 2008) and Japan (May 2009). Given the fact that both Japan and the US have been classified as controlled risk countries, Japan’s BSE restrictions on US beef are no longer relevant to the actual risk status of each country; additionally the substantive BSE risk mitigation measures taken by the US to date are working to ensure the safety of the beef trade internationally.

Beef and Pork Import Safeguard Use Not Foreseen in 2010

Note: Discussions in this section are based on the Japanese fiscal year (JFY), which starts April and ends in the following March. For the sake of convenience, the import numbers discussed in this section are all on a customs clearance basis (almost equivalent to boneless product weight basis, not based on CWE).

For the past four years in a row, Japan used a ‘special method’ to calculate the trigger level for its beef import safeguard. The current circumstances surrounding Japan’s beef market (sluggish consumption, weak market prices for beef, relatively low imports year to date) will most likely support yet another extension of the special measure to be applied in the next JFY 2010 (See Supplemental table II). For more information on Japan’s beef safeguard for 2009 please see JA8077.

For the past five years, the pork safeguard has not been triggered. At present, the possibility of triggering the pork safeguard in JFY 2010 appears remote. The first quarter trigger level in JFY 2010 is calculated on a preliminary basis of 224,488 MT, which is 9,175 MT less than the 2009 trigger level. Pork import surges are unlikely to occur the first quarter of JFY 2010, which extends from April to June, due to weak consumption and an increased domestic supply that will keep monthly ending stocks at relatively high levels.

2009 Beef Market Situation Update and Outlook

Slight Increase in Beef Consumption Forecast in 2009

The on-going economic recession has been a major factor limiting Japan’s overall beef consumption in the first half of 2009. Prospects for the second half do not look promising, but post expects Japan’s beef consumption eventually to trend up over the coming months with lower market prices. Japan’s total beef consumption in 2009 is forecast to increase 1 per cent to 1.19 million MT. Japanese consumers tend to prefer inexpensive cuts for home use, which should favor demand for US and Australian beef.

Overall market demand for imported beef appears to be favouring lower priced cuts with the majority of orders being filled by Australian beef. Thus, Japan’s total imports in 2009 are projected to rise by two per cent to reach around 672,000 MT (Beef Cuts: up by two per cent to 651,000 MT, Processed/Prepared: up by 20 per cent to 21,000 Mt). In 2010, Aussie beef will take a majority share, estimated at 77 per cent or (504,000 MT, marginally up from last year) of total beef imports.

Japanese imports of American beef in 2009 are also projected to increase 11 per cent to 84,000 MT, with a 13 per cent share of the market. Unfortunately, the increase in American beef in the first half of 24 per cent over the previous year is likely to be offset in the second half due with less age verified cattle expected to be available. Though the supply is still limited by the EV programme, recent growth in the market indicates that Japanese consumers still prefer the taste of American grain fed beef.

In contrast with lower priced American beef, higher priced domestic beef is being negatively affected by the prevailing economic circumstances. Domestic beef production this year is forecast to grow slightly from the previous year by one per cent to 525,000 MT (or 1.245 million heads), although market demand has been lethargic during the first half of the year and the situation is expected to continue through the second half.

Monthly cattle slaughter data to date points to increased slaughter of Wagyu (estimated up four per cent) cattle through this year, which will more than offset the reduced slaughter of other breeds of Holstein steer and F-1 cross breed.

Year to Date Market Situation Summary

Reduced beef retail prices did not stimulate Japan’s household consumption of beef during the first half of 2009, which remained unchanged from the previous year (See supplemental table I). Despite the relatively large sales share held by domestic beef in the Japanese retail market, sales of high priced domestic beef cuts were sluggish, causing wholesale carcass prices to slump across breeds (See supplemental table V-a).

The Japanese food service market also suffered from reduced sales for the period compared with the previous year according to data published by Japan Food Service Association. The only exception being the fast food category [Western style fast foods: hamburger/other ground meat, (pork)/fried chicken/processed meat products (hot dogs) and Japanese style fast foods: Beef and pork bowl, fast food Sushi, take-out lunch box and others]. The specific segment utilizing large amounts of imported red meat and poultry registered a few points sales growth for the period compared with last year.

Helped by a strong yen and fairly solid demand for inexpensive products, Japan’s first half 2009 imports of beef cuts rose three per cent (or CWE 322,585 MT) (See Table 2-a, 2-b and 2-c). US beef outperformed last year’s results; up 24 per cent (or CWE 35,730 MT).

Sales of Aussie beef cuts for the period were sluggish with total imports up one per cent, and an eight per cent increase in chilled cuts being offset by a four per cent decline in frozen cuts. Trade sources explained the main reason for the increase was that major importers of Aussie beef were reducing stocks purchased during an expensive period last year and the sources expect that imports of frozen cuts from Australia will pick up in the second half to meet demand for inexpensive frozen cuts used in fast foods and take out lunch boxes. Aussie grain fed cuts, supported by a reportedly improved feed lot situation, did very well in the first half of the year (particularly chilled cuts, up 13 per cent), according to MLA data (See table 1). At the same time, the decline of frozen grain fed cuts, down 19 per cent is an indication that this segment is being substituted with US frozen grain fed cuts.

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