Report Highlights:

Japanese beef production is projected to continue its downward trend through 2016, as Japanese pork production rebounds in 2015 from the worst impacts of Porcine Epidemic Diarrhea virus (PEDv). Tight global beef supplies should maintain upward pressure on beef prices in 2015 and 2016. After reaching record highs in 2014, Post projects that pork prices will continue to moderate through 2016, ratcheting up the competition for consumer spending on animal proteins. The Japanese market should continue to unwind significant stocks of frozen beef and frozen pork, tampering import growth in 2016.

Executive Summary:

Australia is projected to seize additional beef market share, as tariff advantages from Japan Australia Economic Partnership Agreement (JAEPA) take effect and continued Australian herd liquidation maintains exportable supplies through 2015. While imports of U.S. beef have been set back in 2015 by high price offers and the west coast port labor issue, the United States should begin to reclaim lost market share in 2016 as the U.S. cattle herd begins to expand and projected tapering of Australian liquidation tightens exportable supplies. Consumers are expected to continue to spend more on pork and poultry in 2015 and 2016, as high prices continue to erode beef's share of the consumer protein consumption. As Japan and North America emerge from Porcine Epidemic Diarrhea virus (PEDv) related production challenges, record price pressures are easing. Total pork imports are projected to decline significantly in 2015 and again in 2016, as Japanese domestic chilled pork is increasingly competitive in the retail sector and as processed products struggle to overcome high prices. Imports of U.S. pork are projected down sharply in 2015 on reduced chilled pork shipments as a result of the west coast port labor issue. The unwinding of Japanese stockpiles of frozen pork and large exportable volumes of European pork will sustain downward price pressures.

Quantities listed in the text are made on the basis of Carcass Weight Equivalent (CWE) unless specified otherwise. Some numbers in the 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

Cattle PS&D

Animal Numbers, Cattle

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Japan

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Cattle Beg. Stks

3962

3962

3850

3860

0

3765

Dairy Cows Beg. Stocks

773

773

765

750

0

740

Beef Cows Beg. Stocks

595

595

590

580

0

575

Production (Calf Crop)

1195

1217

1185

1185

0

1150

Total Imports

11

11

10

9

0

8

Total Supply

5168

5190

5045

5054

0

4923

Total Exports

0

0

0

0

0

0

Cow Slaughter

534

534

523

523

0

513

Calf Slaughter

7

7

7

7

0

7

Other Slaughter

616

616

600

595

0

585

Total Slaughter

1157

1157

1130

1125

0

1105

Loss

161

173

165

164

0

163

Ending Inventories

3850

3860

3750

3765

0

3655

Total Distribution

5168

5190

5045

5054

0

4923

(1000 HEAD)

Beef and Veal PS&D

Meat, Beef and Veal

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Japan

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

1157

1157

1130

1125

0

1105

Beginning Stocks

171

171

185

185

0

203

Production

502

502

485

490

0

480

Total Imports

739

739

720

740

0

727

Total Supply

1412

1412

1390

1415

0

1410

Total Exports

1

1

2

2

0

2

Human Dom. Consumption

1226

1226

1228

1210

0

1215

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

1226

1226

1228

1210

0

1215

Ending Stocks

185

185

160

203

0

193

Total Distribution

1412

1412

1390

1415

0

1410

(1000 HEAD) ,(1000 MT CWE)

Swine PS&D

Animal Numbers, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Japan

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Beginning Stocks

9537

9537

9520

9440

0

9590

Sow Beginning Stocks

885

885

885

890

0

895

Production (Pig Crop)

17100

17050

17050

17150

0

17200

Total Imports

1

1

1

0

0

0

Total Supply

26638

26588

26571

26590

0

26790

Total Exports

0

0

0

0

0

0

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

16202

16203

16400

16270

0

16600

Total Slaughter

16202

16203

16400

16270

0

16600

Loss

916

945

671

730

0

580

Ending Inventories

9520

9440

9500

9590

0

9610

Total Distribution

26638

26588

26571

26590

0

26790

(1000 HEAD)

Pork PS&D

Meat, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Japan

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

16202

16202

16400

16270

0

16600

Beginning Stocks

195

195

246

246

0

239

Production

1264

1264

1280

1270

0

1290

Total Imports

1332

1332

1255

1260

0

1240

Total Supply

2791

2791

2781

2776

0

2769

Total Exports

2

2

2

2

0

2

Human Dom. Consumption

2543

2543

2541

2535

0

2530

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

2543

2543

2541

2535

0

2530

Ending Stocks

246

246

238

239

0

237

Total Distribution

2791

2791

2781

2776

0

2769

(1000 HEAD) ,(1000 MT CWE)

Beef

2015 Market Situation Update Summary and Outlook

Domestic Cattle Numbers, Slaughter Continue to Fall

Due to consecutive shortfalls in Japanese calf production in 2012 and 2013, the number of cattle of all breeds reaching finishing age in 2015 is expected to be modestly lower. The average finishing age is about 30 months for Wagyu steers, 20 months for Holstein steers, and 24 months for F1 cross breeds.

At 532,035 head, Japan's total domestic cattle slaughter was two percent lower in the first half of 2015 compared to the same period of 2014 (see Note 1). Post projects slaughter for the second half of 2015 to fall further, resulting in a three percent decline in total annual slaughter for 2015, down to 1.125 million head (representing total beef production of 490,000 MT).

Note 1: The breakdown of Japanese cattle slaughter by major breeds was:

  • Wagyu heifer/cow (109,836 head, -4%),
  • Holstein/F-1 heifer/cow (84,668 head, +2%),
  • Holstein/F1 steers (102,944 head, -3%), and
  • Wagyu steer (115,812 head, -3%).

The modest rise seen in the slaughter of Holstein/F-1 heifer/cow suggests that dairy farmers are liquidating their herd in response to relatively high wholesale market prices for spent dairy cows. These prices have increased since 2014 and have risen even higher in the first half of 2015.

High Prices, Tight Supplies Drive Beef Consumption Slump

As total supplies remain tight and market prices exceed 2014 levels, Japan's beef market is expected to record a third successive year of declines in total beef consumption in 2015, down more than one percent to 1.210 million MT in 2015 due to weaker than anticipated retail sales and shrinking food service utilization.

Market prices for medium grade Japanese beef cuts for all breeds for the first half of 2015 climbed above 2014 levels as result of tighter Japanese beef supplies. Market prices for beef imported from Australia and the United States also exceeded 2014 levels as average import prices climbed higher. Elevated prices, partly due to further weakening of the Yen against other major currencies in 2015, have caused more consumers to trade down from high-priced beef to relatively less expensive pork and chicken.

In the first half of 2015, food service and institutional utilizers, who typically feature imported beef cuts in their menu lineups, were reportedly buying less beef across the board with the exception of 'yakiniku' chains (Korean style barbecue). Since a series of 2014 food safety scandals marred consumer confidence in quick serve hamburger chains, the segment has struggled against stagnating sales, resulting in lower overall demand for imported frozen beef trimmings. Japanese beef bowl chains (which largely utilize U.S. short plate cuts) have recently posted higher revenues in 2015, but the improved economic performance has been the result of higher menu prices rather than increased sales volumes. The lone bright spot in the food service firmament, Japanese 'yakiniku' chains continued to post higher same-store sales in 2015, offsetting some of the reduced demand in other food service segments.

The Agriculture and Livestock Industry Corporation (ALIC) estimates that Japan's total beef consumption in the first half of 2015 fell five percent lower than the same period in 2014 (see Note 2). Lower consumption and modest import increases drove beef ending stocks up 31 percent from last June to 202,262 MT, 93 percent of which was imported frozen cuts. Australian beef trimmings and U.S. short plate cuts reportedly constituted the bulk of June ending stocks. According to trade sources, the market price of U.S. short plate cuts, which rose substantially in the second half of 2014, began to ease in the second quarter of 2015 due to reduced shipments of U.S. beef to other Asian beef-importing countries. Increased availability of U.S. short plate cuts may place downward pressure on offer prices, further improving utilization by Yakiniku and beef bowl chains in the second half of 2015. Such an improvement could help to offset slumping first half consumption figures, narrowing the decline in total Japanese beef consumption in 2015.

However, as U.S. cow retention numbers are expected to continue rising through 2016, Post projects the United States should continue to import large (and potentially growing) volumes of Australian beef trimmings throughout 2015, keeping upward pressure on Australian price offers for the same cuts in the Japanese market. Despite the reduced tariff on Japanese imports of Australian beef, higher offer prices and weaker performance by quick serve restaurants could temper the Japan's imports of Australian beef trimmings in 2015.

High Market Prices Keep 2015 Imports Flat, Stocks Higher

Post projects Japan's total 2015 beef imports at 740,000 MT, on par with 2014 imports. Beef cuts, including a very low volume of bone-in carcasses, are projected to be roughly flat at 725,000 MT, while imports of prepared products (still a very small segment of the market) are forecast to rise 14 percent. Conditions in the Japanese beef market in 2015 have increasingly favored Australian beef, as imports from Australia have benefited from continued high exportable supplies, geographic proximity, a more favorable exchange rate (relative to the dollar-yen exchange rate) and preferential duties under the JAEPA deal (see Notes 2 and 3). By contrast, U.S. origin beef has struggled to overcome relatively high offer prices associated with tight supplies and strong domestic demand and the continued strength of the U.S. dollar against the Japanese yen during the first half of 2015. All of those factors have contributed to an erosion of U.S. beef competitiveness, driving total imports of U.S. beef down seven percent to 245,000 MT and imports of Australian beef up five percent to 413,000 MT. The decline of beef imports from the United States was more pronounced for chilled cuts than for frozen cuts, as supplies of U.S. chilled cuts were temporarily restricted by the west coast port labor dispute, which was resolved in late February 2015.

Total beef imports in the first half of 2015 were more than two percent lower than the same period of 2014 at 347,067 MT. Beef cuts (including a very low volume of bone-in carcasses) were down two percent to 339,812 MT, and prepared products were up six percent to 7,255 MT. Though down overall, there was significant movement within the beef cuts category in the first half of the year. Imports from Australia and Mexico were up 12 percent (to 202, 835 MT) and 92 percent (to 9,218 MT) respectively. That growth however did not offset reduced imports from the United States and New Zealand, which were down 12 percent (to 105,630 MT) and 21 percent (to 15,096 MT) respectively.

Post anticipates that patterns observed in the first half of 2015 will continue through the remainder of the year, further expanding Australian market share at the expense of imports from the United States.

Note 2: Following two successive years of record high output driven by herd liquidation, Australian beef production was previously forecast to fall substantially in 2015, especially in the second half of the year. However, according to the latest production estimates from industry, Australian beef production is forecast to remain strong throughout 2015 as persistent drought conditions spur continued liquidation. Australian beef exports in 2015 are forecast to remain moderately higher than 2014 levels, on solid international demand from the United States, Japan, EU, Korea, and China. 2015 U.S. beef production, on the other hand, is forecast slightly lower from 2014, with tighter exportable supplies and higher cattle prices projected throughout the year. Japan's imports of Australian beef accelerated after April 2015, as the duties on Australian frozen and chilled beef were reduced again following the initial reductions enacted in January 2015. Industry sources indicate that imports of frozen cuts in the first half of 2015 were well in excess of running demand, as buyers looked to build stocks ahead of an anticipated reduction in Australian beef production and possible further deterioration in the terms of trade with the United States. That pattern reportedly explains a significant portion of the high June ending stocks, which mainly consist of Australian beef trimmings and U.S. short plates).

Note 3: Following the initial reduction of import duties on Australian beef in January 2015, duties were further reduced on April 1, 2015, to 28.5 percent for chilled beef and 31.5 percent on frozen beef.

2016 Market Outlook

Post anticipates that domestic beef supplies will be even tighter in 2016, driving already high domestic beef prices higher still and creating opportunities for high value-imported chilled cuts. While beef will face stiff competition from pork and chicken for consumer demand, Post projects that the moderation of U.S. beef price offers and the unwinding of significant 2016 year-beginning stocks should result in marginal beef consumption growth in 2016 to 1,215 million MT, while total domestic output and total imports are projected moderately lower.

For four successive years, total domestic cattle slaughter in 2016 is forecast to fall, projected down by two percent to 1.105 million head (or total beef production of 480,000 MT) primarily on continued calf production shortfalls from 2013 – 2014 (see Note 4). Total imports in 2016 are also projected down by two percent from 2015 last year to 727,000 MT (beef cuts down two percent to 713,000 MT; prepared product unchanged at 14,000 MT).

For imported beef cuts, Post projects that 2016 imports will shift from Australian beef to U.S. beef as Australian cattle slaughter eventually tapers on reduced cattle inventory and U.S. beef output is forecast to begin a moderate expansion.

Note 4: According to the national livestock inventory publicized in July, 2015, the total year-beginning inventory of cattle raised in Japan was at 3.860 million head, down three percent from 2014. Breakdown by major breeds were:

Beef breeds (mostly Black Wagyu plus limited numbers of Red Wagyu, Japanese Short Horn and so on) down three percent at 1.661 million head from 2014 with the decline occurring for six years in a row since 2010. The total number of beef breed cows raised for calf rearing also fell three percent from 2014 to 580,000 head, suggesting difficulties in rebuilding the beef breed herd as older ranchers continue to cash in and discontinue their operations. Continued contraction in the number of small-scale cow-calf operations, due to a lack of successors, remains the primary cause for successive years of beef calf shortfalls in Japan.

Dairy Cows/Heifers (the dairy herd provides the breeding stock for Holstein steers and F-1 cross breeds [Wagyu crossed with Holstein] for domestic beef in Japan) down two percent at 1.371 million head. Japan's dairy herd is suffering from the challenges facing the beef breed sector, resulting in a similar supply short fall of Holstein steer calves. The combined total number of F-1 Cross Steers/Heifers and Holstein Steers raised at the year beginning of 2015 was three percent lower at 828,000 head (F-1 cross breed flat at 482,000 head; Holstein steer down six percent at 345,000 head]. The total number of Holstein cows placed for milking at the year beginning of this year was down three percent to 750,000 head from 2014, signaling continued shortfalls of Holstein steer and F-1 calves in coming years.

Pork

2015 Market Situation Update Summary and Outlook

Japanese Pork Production Begins to Recover

Japan's total domestic hog slaughter in 2015 is projected marginally higher than 2014, at around 16.27 million head (pushing total pork production up to 1.27 million MT) on weaker than anticipated recovery projected for the second half of the year.

While domestic hog slaughter in the first half of 2015 was modestly lower due to the lasting effects of 2014 piglet losses (down about three percent to 7.910 million head), the Ministry of Agriculture, Forestry and Fisheries' (MAFF) August forecast estimates that slaughter in the second half of 2015 will only increase by three percent over the same period in 2014 (see Note 5). Year-on-year, the domestic hog slaughter increase will remain marginal.

Note 5: Japan's reported cases of PEDv and subsequent piglet losses peaked in the fall of 2014. According to MAFF's monitoring record, for the period between October 1, 2013 and August 31, 2014, there were 817 reported PEDv outbreaks in 38 out of 47 prefectures, in which 419,852 head out of 1,289,090 total infected animals died. For the period between September 1, 2014 and August 16, 2015, there were 232 reported PEDv outbreaks in 28 prefectures, in which 71,023 head of out of 287,475 total infected animals died.

However, sporadic outbreaks reportedly persisting through the summer of 2015 are expected to temper the anticipated pace of slaughter recovery for the second half of 2015 (a slower recovery was reflected in Post's 2015 PS&D projection). In the absence of national livestock inventory data for swine at the beginning of 2015, Post assumed Japan's 2015 year beginning national sow inventory to be roughly at the same level as 2014 (at 890,000 head). (Note: MAFF did not report data for swine and poultry in the recently published 2015 National Livestock Inventory. MAFF will conduct its once-every-five-years National Agricultural Census in 2015. MAFF does not report swine and poultry data in census years, but does report beef and dairy cattle data.)

2015 Total Pork Imports, Prices Decline from 2014 Highs

Post projects Japan's total pork and products imports in 2015 down five percent from 2014 to 1.260 million MT on anticipated recovery in Japanese domestic production and the unwinding of significant 2015 year-beginning stocks (up 26 percent from 2014 at 246,000 MT). Pork cuts (including a very low volume of bone-in carcasses) are projected to fall four percent to 1.034 million MT. Prepared products (mostly North American and some Chinese seasoned ground pork) are projected 11 percent lower at 226,000 MT. 2015 year-ending stocks are projected moderately lower at 239,000 MT.

Total pork and pork product imports fell five percent in the first half of 2015 compared to the same period in 2014, reaching 616,516 MT. Pork cuts (including a very low volume of bone-in carcasses) are revised down four percent to 494,254 MT. Prepared products (mostly North American seasoned ground pork) are revised down 16 percent at 122,262 MT.

In the first half of 2015, imports of chilled pork, which mainly supply the Japanese retail market for in-home consumption, were four percent lower at 190,620 MT largely driven by a significant decline in imports from the United States (down 16 percent to 107,579 MT) as a result of the west coast port labor issue and high offer prices. In the face of tight domestic and U.S. chilled supplies, increased imports from Canada (up 16 percent to 73,649 MT) and Mexico (up 30 percent to 9,355 MT) prevented a more pronounced shortfall in chilled retail cut supplies (see Note 6).

In the first half of 2015, imports of frozen pork, which are mainly used to manufacture processed/prepared pork products and to a lesser extent by the food service sector, were also modestly lower, down four percent to 303,633 MT. The decline was attributable to a significant drop in imports from the EU (down 12 percent to 160,746 MT), in part due to the large amount of EU pork in stocks carried over from 2014. Increased imports of frozen pork from the United States (up 21 percent to 69,490 MT) and Mexico (up 2 percent to 34, 945 MT) were insufficient to offset lower imports from the EU (see Note 7).

Following the losses suffered during widespread PEDv outbreaks in 2013 and 2014, U.S. hog production has recovered strongly (reportedly up six percent in the first half of 2015). With higher projected Japanese domestic pork output in the second half of 2015 and ample exportable supplies globally, Japan's retail market is expected to have sufficient supplies of domestic and imported chilled cuts, placing downward pressure on retail prices for the rest of the year. Total imports of frozen raw material cuts are projected lower through the rest of 2015 as demand for processed meat products remains sluggish and as manufacturers continue to unwind their considerable carryover stocks from 2014.

Note 6: In 2014, the prices for U.S. frozen picnic and shoulder cuts (the principle raw materials for manufacturing sausage and other ground processed pork products in Japan) reportedly soared to an unprecedented level, driving the price of seasoned ground pork (which is subject to a 20 percent ad valorem duty) to similar heights. According to trade sources, the increase in imports of U.S. frozen cuts in 2014 may be partially due to increased import of “unseasoned ground pork," which may have been used to balance the cost of shipments under the gate price system. Import levels in the first half of 2015 suggest that the situation remains relatively unchanged from 2014 with total imports of U.S. frozen cuts up 21 percent to 60,135 MT and imports of U.S. seasoned ground pork 25 percent lower at 74,136 MT.

Note 7: Russia's wide-ranging food import ban (in place since August 2014, in retaliation for Ukraine-related sanctions) has created sizable exportable supplies of EU pork, a large portion of which found its way into Asian markets in 2014, including Japan's market for frozen raw material cuts. For the first half of 2015, China and Korea were reportedly the leading EU pork export markets, with a notable increase in imports from Germany. The pace of Japan's imports from the EU, however, has slowed considerably. Although Russia's food import ban was due to end in August 2015, Russia recently announced an extension of the import ban through August 2016, in response to continued economic sanctions against Russia.

Total Pork Consumption Marginally Lower

Post projects Japan's total pork consumption in 2015 to decline slightly from the 2014 level to 2.535 million MT as improved retail consumption is expected to be offset by continued stagnation of processed meat product consumption.

By the start of the second half of 2015, Japan's chilled pork supply had improved considerably, emerging from the constraints of Japan's earlier, domestic PEDv outbreaks and the prolonged labor dispute that affected U.S. west coast ports. At the same time, relatively high market prices for both domestic and imported chilled pork that had persisted through the first quarter of 2015 finally began to soften, sustaining retail consumption of fresh/chilled pork. Meanwhile, processed meat product price hikes implemented in 2014 – 2015 (the result of increased raw material procurement costs for imported frozen raw material cuts) further dampened household demand for processed meat products in the first half of 2015.

ALIC estimates Japan's total pork consumption in the first half of 2015 at 1.057 million MT, slightly lower than the same period last year. As such, June pork stock levels were up modestly to 245,331 MT, with imported frozen cuts accounting for 91 percent of stocks. Supplies and distribution of chilled retail pork (domestic as well as imported) are expected to continue to improve in the second half of 2015 due to improved domestic output and increased chilled pork imports projected for the period (largely driven by U.S. production recovery). However, as processed meat product retail prices are forecast to remain high (as processors look to recover the cost of procuring frozen raw material cuts in 2014 at record high prices), lower processed meat product consumption is expected to continue for the rest of 2015, effectively offsetting the growth in chilled pork retail consumption in the second half of 2015.

Assuming food service demand for pork remains roughly unchanged from 2014 levels, Post projects Japan's total pork consumption in 2015 to be slightly lower than in 2014.

2016 Outlook

Post expects the price of pork relative to beef to drive the 2016 outlook for Japanese pork consumption. As beef prices are projected to remain high through 2016, Japan's retail demand for fresh/chilled pork is expected to remain strong as consumers opt for relatively low-priced pork and chicken. The composition of pork demand should largely be determined by chilled pork retail prices relative to processed product prices (which are determined by imported frozen raw material pork cut prices). The recovery of Japan's hog slaughter that began in mid-2015 is projected to expand Japanese fresh/chilled pork supplies in 2016, driving domestic retail pork prices lower relative to 2015. Despite increased supplies of chilled pork on the global market (owing in large part to the U.S. production recovery), a stable supply of low-priced domestic pork cuts may cut into the growth of imported chilled cuts in 2016.

Furthermore, the market demand for processed meat products in 2016 is expected to remain flat, as manufacturers face sluggish consumer spending on high priced food items. The persistence of this trend would further dampen Japan's demand for imported frozen raw material cuts, despite projections of ample international supplies.

In light of the above, Japan's total domestic hog slaughter in 2016 is forecast to rise moderately from 2015, projected up by two percent to 16.60 million head (or total pork production of 1.290 million MT) as the national sow inventory posts a modest recovery. Total imports in 2016 are projected down by two percent to 1.240 million MT from 2015 on softened import demand for retail cuts and weaker demand for raw material frozen pork and seasoned ground pork from the U.S. and Canada. Pork cuts (including a very low volume of bone-in carcasses) are projected down two percent to 1.019 million MT. Prepared products are projected slightly lower at 221,000 MT. Post projects Japan's total pork consumption in 2016 to remain marginally lower than 2015 levels at around 2.530 million MT as reduced total pork imports are more only partly offset by a projected increase in domestic output. Year-end stocks are projected at roughly the same level as 2015 at 237,000 MT.