25 April 2010

8 minute read

Japan Beef Market 2010 Outlook (Revised)

- Market Continues to Remain Price and Value Sensitive

The basic underlying market trends for beef and pork described in the 2009 livestock annual report have not changed. The deflationary trend that began last year is expected to further prevail in 2010 making the prospects for an economic recovery, which has already been hindered by income and job uncertainties, even less promising. Japanese consumers are likely to continue being sensitive to prices this year.

Amidst the situation described above, total Japanese beef consumption in 2010 is projected to be around 1.21 million MT, unchanged from last year. However, the market is expected to see a small but continued increase in imports, projected up by one per cent to 702,000 MT, resulting from lower market prices for imported cuts this year. This will likely offset the small reduction anticipated in domestic beef production, which is projected down by one per cent to 510.000 MT. The estimate for year ending stocks is just marginally below last year's level at 118,000 MT (See Table III-a).

Following the previous year’s trend, consumers will continue to seek value cuts and lower priced products for daily use rather than more expensive cuts in 2010. Beef imports are one bright spot in the overall gloomy situation for meat in the Japanese market and growth in imports is expected to continue, assuming a strong yen holds on this year.

- Access for US Beef Continues to be Limited by the EV Programme

Unfortunately, at the present point in time U.S. beef continues to face high regulatory hurdles under the Export Verification (EV) program, which has limited growth in the total volume of American beef entering Japan. If the current restrictions remain in place in 2010, US beef exports will continue to grow however will be constrained from meeting their full market potential. As of this time bilateral talks between the United States and Japan have not led to a normalization of the beef trade. Nevertheless, there is strong market demand for US beef and full access through a lifting of beef restrictions would certainly result in increased exports. A similar Export Verification Program for Canadian beef is having the same effect; leaving a void in supply that has been filled by beef from other sources such as Australia.

- Total Beef Imports Forecast Up in 2010

Given the better than expected results for beef imports in 2009, post has raised projections for 2010 modestly from the forecast made in the last livestock annual report. Now, total beef imports in 2010 are projected up by one per cent from last year to 702,000 MT (Beef cuts: 679,000 MT, up by one per cent, Processed/Prepared Beef: 23,000 MT, unchanged). Specific to the trade in beef cuts, American and Canadian grain fed beef is expected to show a modest sales expansion due to lower market prices. A shift in preference to American beef and the taste of grain fed beef is even expected to begin substituting for Aussie chilled grass fed / frozen grain fed cuts this year. Furthermore, it will likely also support Japan’s purchase of relatively high priced US loin cuts in addition to some popular value cuts like short plate and chuck items.

Recognising this favourable situation, post has raised 2010 projections for US beef up by 12 per cent to 102,000 MT (PWE 73,000 MT) and Canadian beef up by 33 per cent to 16,8,00 MT (PWE 12,000 MT), while the projection for Aussie beef has been lowered by one per cent from a year ago to 504,000 MT (PWE 360,000 MT). Japanese demand for Aussie chilled grain beef will remain strong due to the price competitiveness of the product and the wide availability of cuts including steak from loins that Australia enjoys with the absence of age restrictions such as have been placed on US and Canadian beef. Ground beef items, mainly made out of Aussie grass fed cuts should continue doing well this year with the current popularity of hamburger dishes.

- Total Domestic Production Forecast to Lower in 2010

Post projects domestic beef production to be slightly lower than last year at 510,000 MT (or 1.22 million heads) in 2010. Although a high level of Wagyu slaughters will be sustained at least this year, they will likely be offset by the modestly reduced slaughter of dairy breeds. The prevailing deflationary trend will continue hurting domestic producers this year as market prices for their product is expected to remain weak. The market demand for domestic beef continues to be concentrated in less expensive cuts. Note: The latest data for beginning cattle inventory in 2010, including the past calf crop data, has not yet been announced.

- GOJ to Extend Special Measure for JFY 2010 Beef Safeguard

The triggering of the beef safeguard (for both chilled and frozen) is not foreseen during Japanese fiscal year 2010 (April 1, 2010 – March 31, 2011) at the projected level of imports. Under the new government administration, the GOJ is expected to implement yet another year long extension of the "special measure for the beef safeguard”, which will give a preferential calculation of trigger levels for JFY 2010. Note: Although the extension of the above measure has already been decided at the Cabinet meeting held last December, final approval by the Diet is expected in a session to be held around March this year. Note: the measure initiated in 2006 will help encourage the unfortunately slow recovery of the overall beef market from BSE related turmoil that has taken place since 2003. Note: Imports of US beef continue to be limited by the EV program and a surge of total beef imports is not expected during any specific quarter in JFY 2010 (See Supplemental Table II).

2009 Beef Market Situation Summary (New)

- Lower Market Prices Attributable to Increased Consumption Amid Recession in 2009

Despite the economic recession, Japan’s total beef consumption in 2009 rose three per cent over last year to an estimated 1.21 million MT. This modest expansion was largely supported by lower market prices for beef. The price situation encouraged sales in the retail and the food service sector that have been hit by the recession, particularly the value segment -- fast food service including hamburger and barbecue chains, and convenience stores featuring beef lunch boxes and ground beef paddy dishes. Therefore, the average quantity of beef purchased by households for Jan. – Dec., 2009 increased by four per cent, down three per cent by value from the previous year. Also, the quantity of ground meat (including ground beef) purchased rose five per cent from the previous year while maintaining the same rate by value. (See Supplemental Table I). As for the foods service situation, sales at Western style fast food chains including fast food hamburger chains reportedly increased two per cent from the last year.

- Strong Yen, A Major Factor Attributing to Increased Imports in 2009

A rapid appreciation of Japanese Yen against other major currencies has been a major contributing factor in the import growth of beef in 2009 effectively lowering import prices and partially offsetting the high beef tariff (38.5 per cent). The annual average import price of beef in 2009 fell 12 per cent from the previous year at USD 4.14/Kg. Accordingly, for most imported beef cuts, the average wholesale prices showed double digit declines helping to lift beef consumption in 2009 (See Supplemental Tables IV-b, IV-c).

According to the latest trade data, total Japanese beef imports in 2009 were up six per cent from last year at 697,000 MT (Beef Cuts: up five per cent to 673,000 MT, Processed/Prepared: up 30 per cent to 23,000 MT). The numbers were better than post’s conservative forecast in the last annual report and reached the highest levels since 2004 (See Tables 2-a, 2-b, 2-c, and 2-d).

Specifically for beef cuts, imports of American beef shot up 28 per cent to 96,870 MT and Canadian beef also jumped 81% to 12,790 MT in 2009 from a year ago despite the continuation of strict limitations under the EV program (allowing only beef cuts derived from animals 20 months of age or younger). Japanese clients reportedly were attracted by the lower priced grain fed beef supplied by the United States and Canada primarily focusing on the value cuts - short plate, some chuck items such as chuck rib, and other product - for beef bowl/barbecue chains and retail/convenience chains. Furthermore, in 2009 some hotels and restaurants have started to promote American steaks using the relatively expensive loin cuts.

Aussie beef comprised the majority of imports in 2009 total sharing 76 per cent at 509, 470 MT, up two per cent from last year. According to export data, chilled grain fed beef to Japan in 2009 apparently did very well showing a 10 per cent rise from a year before, but was offset by reduced chilled grass fed cuts (down four per cent), frozen grain fed (down 10 per cent) and frozen grass fed (down seven per cent). A trade source reported that exports lower than the previous year for frozen grass fed cuts was mainly due to a temporary stock adjustments at the beginning of the year due to remaining stocks of Aussie cuts purchased at very high prices in the previous year (See Table 1). Also, the demand for inexpensive frozen grass fed cuts used for manufacturing a low- priced artificial steak (so called dice steak) reportedly shrank in 2009 following a food safety incident (0-157 incident detected from the finished product).

- Domestic Beef Hard Hit by Low Market Prices in 2009

On a preliminary basis, in 2009 the total domestic production in Japan was 517,000 MT (with slaughters at 1.228 million head), down one per cent from the previous year. Increased Wagyu and F-1 cross breed slaughters were slightly more than offset by reduced Holstein slaughters (steers and cows combined). Affected by the state of economy, the market demands for domestic beef also fared well for inexpensive cuts, but stagnated for relatively high priced cuts throughout most of the year resulting in a strong downward pressure on average wholesale market prices across breeds (See Supplemental Table IV-a). A market source reported that sales for the year ending showed a moment of recovery, but was not sustained.

Further Reading

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April 2010