Japan - Livestock and Products Semi-Annual

The outbreak of Foot and Mouth Disease (FMD) in Miyazaki is unlikely to have a significant impact on national cattle and pig production this year due to the fact that the disease was contained by the end of July without spreading further to neighbouring prefectures and other major livestock-producing regions in Japan, according to the latest Beef and Pork Market Outlook from the USDA Foreign Agricultural Service.
calendar icon 11 September 2010
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USDA Foreign Agricultural Service

Summary

Miyazaki FMD (April – July) Brief Assessment

This report will give a preliminary impact assessment for the 2010 and 2011 market outlook following the outbreak of FMD (April – July, 2010) in Miyazaki, the nation’s top livestock producing prefecture.

In nutshell, the Miyazaki outbreak will not likely have a significant impact on national cattle and pig production this year due to the fact that the disease was contained by the end of July without spreading further to neighboring prefectures and other major livestock producing regions in Japan (see note).

As outlined in the relevant sections of this report, the Miyazaki case is expected to result in a small decline for both domestic beef and pork output respectively; estimated to be in the 1 – 2 per cent range on a yearly basis. Nevertheless, a delayed response to the initial outbreaks came at a price. Although the total amount has yet to be calculated the outbreaks reportedly cost the government of Japan (GOJ) tens of billions JP yen for various control measures to deal with the emergency and compensation paid for damage and losses to cattle and hog producers.

The market demand for beef and pork so far this year has been somewhat lethargic primarily due to the state of the Japanese economy (deflationary trend, jobless rate over 5 per cent, and less consumer spending for goods and services). Taking those factors into consideration, post projects static market growth for both beef and pork in 2010 and 2011.

One bright spot in the picture is strong sales of American beef this year, which testifies to its increasing popularity with Japanese consumers. Post expects strong demand for American beef through the current year and beyond despite the fact that the exportable volume is constrained by age restrictions under the Export Verification (EV) programme and consumer preferences for certain cuts. Progress on bilateral talks will be essential to the realization of full market potential and would put US beef exports on a growth path.

Note: On 27 July 2010, GOJ lifted movement and shipment restrictions from the last area in Miyazaki that had FMD outbreak after an exhaustive fight against this highly infectious livestock disease that lasted over four months. In total, nearly 290,000 head of animals (68,300 head of cattle and 220,000 head of swine) were slaughtered to contain the disease.

For the first time, GOJ vaccinated animals, albeit on a limited scale, to prevent further spreading of the disease from the specified areas, where outbreaks were mostly concentrated in Miyazaki. The initial outbreak was thought to have been detected on 9 April 2010, but the latest GOJ investigation concluded that several outbreaks had already occurred as early as March with the first case thought to be at a farm with a small herd of buffalos.

Beef Market 2010 Situation Update and Outlook (Revised)

Lower Consumer Spending Continues to Limit a Recovery in Beef Consumption

Since the last report there have not been any indications that the deflationary economy in Japan has reversed (JA 0007). A relatively high level of unemployment (5.3 per cent as of June 2010), static income growth, and tight consumer spending is expected to persist through the rest of the year and most probably will carry on to the next year.

Therefore, post has slightly lowered projections for Japan’s total beef consumption in 2010 from the semiannual report, and now is forecasting the same level as the previous year at 1.208 million MT.

In the first half of this year, lower beef market prices pushed household consumption up slightly (up 2 per cent in volume and down 7 per cent in expenditure) above the same period of the last year (See the supplemental table I). However, the above gain in the retail is expected to be evenly offset by sluggish sales in the food service sector. Intense price cut competitions among food service chains, including beef bowl chains, has reportedly not increased beef consumption. For example, major fast food hamburger chains are reportedly having remarkable sales results on their chicken menu campaigns this summer, affecting the sales of beef hamburgers.

Market sources concur that overall demand for domestic beef is expected to remain static this year and expect sales to concentrate on lower value cuts from medium to lower grade carcasses rather than high grade Wagyu and imported beef that will mostly be of lower value cuts.

US Beef to Replace Some Aussie Share in 2010

Given the above, Japan’s total 2010 beef imports have decreased slightly from previous outlook and now are projected at 695,000 MT (beef cuts: unchanged at 672,000 MT and prepared/processed products: also unchanged at 23,000 MT respectively from last year).

In the first half of 2010, American beef outperformed rival Aussie beef, boosted up 35 per cent (or CWE 48,355 MT) with the big jump mainly attributed to greater consumer acceptance and increased affordability favored by strong yen (See tables 2-a, 2-b, and 2-c). Looking at Aussie beef export data for Jan – July to Japan, US grain fed cuts appear to have replaced some of chilled Aussie grass (down 8 per cent)/grain fed cuts (down 9 per cent) as some end user clients switched to American grain fed cuts partly because of high prices prevailed for Aussie cuts during the first half this year (See table 1).

Trade sources reported that some US loins were low priced in the first half and picked up steak restaurant demand (average CIF down 3 per cent at US$ 5.4). The same source reported that the second half outlook is not so positive in terms of the price competitiveness since US offer prices have been on the rise in recent months. This may slow Japanese purchases of American beef in the second half. On an annual basis, American beef may well top 100,000 MT level to a record high in 2010 post-BSE restrictions with an estimated share to the total imports at 16 per cent. One additional concern expressed by the trade is that after the summer the availability of age verified animals (20 months or below) is bound to decline due to a seasonal factor, which would limit the further import growth for this year.

On the other hand, in the second half, outlook for Aussie beef is not so bad. They may narrow a 7 per cent decline (or CWE 235,966 MT) suffered in the first half because of high prices (average CIF: up 15 per cent at US$ 4.4), coupled with relatively strong Aussie dollar against JP yen. This price situation has reportedly reversed in recent months with second half imports projected to bounce toward the end of the year, thus making a projected annual decline for Aussie beef at 2 – 3 per cent or 497,000 MT for the year with an estimated share to the total imports at 74 per cent.

Miyazaki FMD to Bear No Significant Impact on National Beef Supply

Beef calf production data for the past several years still points to a high level of Wagyu slaughters holding through this year and the next. The cattle losses in Miyazaki will likely start to show some effect on monthly Wagyu slaughters during the second half of this year and beyond, but will not have any significant impact at the national level.

The loss of cattle, including precious Wagyu generics, in Miyazaki due to the FMD outbreaks, comprises 2 per cent of total beef cattle nationally (2.9 million head) at the year beginning 2010 (See supplemental table VI).

Meanwhile, total cattle slaughter in the first half fell only slightly, down 1.2 per cent to 574,000 head. This was mainly due to reduced slaughter of Holstein and F1 cross breed whereas that of Wagyu was actually up by 3 per cent in the same period.

Thus, Japan’s 2010 annual cattle slaughter is projected down by 1 per cent from last year to 1.21 million heads with the total beef production also projected at 510,000 MT on preliminary basis upon incorporating the Miyazaki losses.

Lastly, Miyazaki is known to have a major Wagyu cow calf rearing/feeder calf basin for high quality brand Wagyu beef production in the country. However, it may take a while for the prefecture to re-establish this important basin while other Wagyu producing regions are expected to partially fill Miyazaki’s role.

Further Reading

- You can view the full report by clicking here.

September 2010

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