Highlights

Japanese cattle and swine numbers follow downward trajectories as aging operators continue to exit without successors. As consumption remains relatively flat, fierce competition between proteins for consumer spending and between foreign suppliers for market share should continue through 2017. As total imports of Australian beef contract on tighter supplies, U.S. shippers should reclaim significant market share through 2017. European Union pork suppliers are forecast to continue to dominate the Japanese market for frozen pork cuts, as the United States expands shipments of higher value chilled cuts. Japanese imports of U.S. chilled beef and pork are projected to rebound strongly in 2016, as U.S. year-on-year figures recover from the disruption of the 2015 West Coast ports labor slowdown.

Executive Summary

Continued declines in Japanese beef cattle and dairy cattle numbers are forecast to restrict Japanese domestic beef supplies in 2016 and 2017. Post projects total beef imports from Australia, the largest supplier of beef to Japan, to decline over the next 18 months as lower Australian production drives offer prices upward, outweighing Australia's significant tariff rate advantage over U.S. beef (currently 11 percentage points on frozen cuts, and 8 percentage points on chilled cuts). With U.S. beef production projected to expand through 2018, the United States is poised to claw back market share ceded in 2015. As major importers work through accumulated frozen reserves in 2016, higher chilled imports will drive modest import and consumption growth.

Lower breeding stock numbers point to a continued contraction of the Japanese swine herd in 2016 and 2017, despite a projected uptick in 2016 pork production as Japan shakes off the worst impacts of PEDv. Ample supplies of North American pork should maintain downward pressure on prices, driving imports of U.S. chilled cuts higher in 2016. As the Japanese processed pork sector replenishes depleted stocks of frozen raw material cuts, the EU share of the frozen pork market is expected to soar on continued abundant exportable supplies of EU-origin pork. Higher imports of EU frozen cuts are forecast to continue crowding out North American frozen products in 2016 and 2017.

Production, Supply and Demand Data Statistics:

Cattle PS&D

Animal Numbers, Cattle201520162017
Market Begin YearJan 2015Jan 2016Jan 2017
JapanUSDA OfficialNew PostUSDA OfficialNew PostUSDA OfficialNew Post
Total Cattle Beg. Stks386038603765382403800
Dairy Cows Beg. Stocks7507507357520750
Beef Cows Beg. Stocks5855785755880590
Production (Calf Crop)118512101160121501220
Total Imports998500
Total Supply505450794933504405020
Total Exports000000
Cow Slaughter5165165105000495
Calf Slaughter665505
Other Slaughter5955955905800575
Total Slaughter111711171105108501075
Loss1721381681590145
Ending Inventories376538243660380003800
Total Distribution50545079493350440502

Beaf And Veal

Meat, Beef and Veal201520162017
Market Begin YearJan 2015Jan 2016Jan 2017
JapanUSDA OfficialNew PostUSDA OfficialNew PostUSDA OfficialNew Post
Slaughter (Reference)111711171105108501075
Beginning Stocks1851851851850162
Production4814814754650460
Total Imports7077087257150730
Total Supply137313741385136501352
Total Exports222303
Human Dom. Consumption118611871190120001200
Other Use, Losses000000
Total Dom. Consumption118611871190120001200
Ending Stocks1851851931620149
Total Distribution137313741385136501352

Swine

Animal Numbers, Swine

Market Begin Year

Japan

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Total Beginning Stocks

9440

9440

9600

9313

0

9150

Sow Beginning Stocks

890

855

890

845

0

855

Production (Pig Crop)

17150

16500

17200

16700

0

16500

Total Imports

1

1

1

1

0

1

Total Supply

26591

25941

26801

26014

0

25651

Total Exports

0

0

0

0

0

0

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

16105

16105

16300

16400

0

16250

Total Slaughter

16105

16105

16300

16400

0

16250

Loss

886

523

811

464

0

451

Ending Inventories

9600

9313

9690

9150

0

8950

Total Distribution

26591

25941

26801

26014

0

25651

Pork

Pork, Swine

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Slaughter (Reference)

16105

16105

16300

16400

0

16250

Beginning Stocks

246

246

200

200

0

203

Production

1254

1254

1280

1275

0

1265

Total Imports

1270

1269

1320

1320

0

1320

Total Supply

2770

2769

2800

2795

0

2788

Total Exports

2

2

2

2

0

2

Human Dom. Consumption

2568

2567

2590

2590

0

2585

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

2568

2567

2590

2590

0

2585

Ending Stocks

200

200

208

203

0

201

Total Distribution

2770

2769

2800

2795

0

2788

Beef

2016 Market Situation Summary and Outlook

Japanese Cattle Numbers, Slaughter Fall Again

The 2016 year-beginning national cattle inventory revealed a successive year of contraction in the total number of cattle and dairy farms, down five percent (to 51,900 farms) and four percent (to 17,000 farms) respectively. The year-beginning total beef cattle inventory was down one percent to 1.642 million head for beef breeds and 871,100 head for Holsteins and F-1 cattle. The total number of dairy cows, a leading indicator for future supplies of Holstein and F-1 cattle, fell two percent to 1.345 million head. A one percent rise in the number of cows for breeding (up to 588,100 head), the first increase in many years, provided an indication of Wagyu beef cattle herd rebuilding.

In response to the dramatic increase in feeder calf prices since 2013, Japanese cattlemen have increased Wagyu cow retention and further expanded artificial insemination of Holstein cows with Wagyu semen to produce F-1 crossbreeds, which command higher prices than Holstein steers. As a result, Holstein steer feeder calves, which constitute the primary source of Japanese domestic lower-priced beef, have become increasingly scarce, more than doubling in price since 2012.

Japan's monthly cattle slaughter trended down six percent across all breeds in the first half of 2016 to 502,087 head, primarily due to calf crop shortfalls in 2013 and 2014. Total beef production was down five percent to 219,722 metric tons (MT).

Post anticipates that declining Japanese cattle slaughter rates will moderate in the second half of 2016 as increases in F-1 cattle slaughter partially offset declines in Wagyu and Holstein slaughter. Japan's 2016 total cattle slaughter is projected down three percent from 2015 to 1.085 million head, and total beef production is forecast to fall three percent to 465,000 MT.

Consumption Ticks Upward as U.S. Chilled Beef Rebounds

Driven by relatively solid demand for imported beef, especially U.S. chilled cuts, Post projects Japanese total beef consumption to show positive growth in 2016, reaching approximately 1.20 million MT. However, beef will continue to face intense competition for consumer protein spending as ample supplies of pork and poultry (both domestic and imported) limit prospects for narrowing the price gap between imported beef and other proteins.

The steady decline of Japanese domestic beef production year-over-year continued to drive up average wholesale carcass prices in the first half of 2016. Mid-grade Wagyu steer carcass prices showed the steepest increases, with relatively less marbled A-2 and A-3 average prices up 21 and 19 percent respectively over 2015 levels. Wagyu heifer, F-1 and Holstein carcass prices remained at or near 2015 highs.

After several years of relatively higher prices for U.S. beef (on tighter U.S. supplies and a relatively weaker Yen), sources indicate that retail outlets have increased U.S. chilled beef offerings in the first half of 2016 as prices have moderated (due to expanded U.S. production and a relatively stronger Yen). Industry sources confirm that while Korean-style barbecue chain restaurants remain the leading end-user of U.S. chilled beef (primarily rib and plate cuts), the expansion of specialty steak and barbecue restaurant outlets in urban centers is driving increased consumption of U.S. chilled cuts, including higher value cuts.

Industry sources and the latest Ministry of Agriculture Forestry and Fisheries (MAFF) data point to the unwinding of accumulated stocks of frozen cuts (including a large volume of U.S. plate cuts) and to reduced retail demand for ground beef to explain much of the sharp decline in frozen import volumes. While Western-style fast food outlets (a segment dominated by hamburger chains) appear to be turning a corner after nearly two years of steady sales declines, sources indicate that major chains are drawing down existing stocks through 2017 as supplies of Australian frozen trimmings remain tight. Higher price offers for imported grass-fed frozen trimmings could create an additional challenge for hamburger chains.

Imports Up as United States Reclaims Market Share Lost in 2015

As expanding imports of U.S. beef practically cancel out reduced imports of Australian beef, total Japanese imports should grow slightly in 2016 to 715,000 MT, with 699,000 MT of beef cuts (including a small volume of carcasses) and 16,000 MT of prepared products. Post projects that Australia will cede seven percentage points of market share to the United States in 2016, as the Australian share falls to 53 percent (378,000 MT) and U.S. share rises to 39 percent (273,000 MT). As major importers draw down existing reserves, 2016 year-ending stocks are projected to fall by 12 percent to 162,000 MT.

Total imports1 in the first half of 2016 fell three percent to 328,107 MT, with lower imports of frozen cuts (down 13 percent to 177,540 MT) more than offsetting an increase in chilled cut volumes (up 11 percent to 150,576 MT). U.S. chilled cut imports surged 53 percent higher in the first half of 2016, recovering from the substantially lower 2015 levels associated with the West Coast port labor slowdown. As imports of Australian grain-fed (both short- and long-fed) chilled cuts fell seven percent (to 82,234 MT) and Japanese beef prices remained high on short supplies, U.S. market share through June rose six percentage points on relatively solid demand from retail and food service segments

Reflecting previously described food service consumption trends, imports of U.S. frozen plates were down seven percent (to 54,431 MT) and Australian frozen cow trimmings were down 14 percent (to 67,721 MT) over the first half of 2016.

2017 Market Outlook

Post projects current trends to continue through 2017, with tight supplies of Japanese domestic and imported Australian beef expanding opportunities for U.S. beef in the Japanese market. While total beef consumption remains unchanged at 1.20 million MT, Post forecasts total imports to grow by two percent in 2017 to 730,000 MT, as increased imports from the United States and others continue to fill the supply gap created by shortfalls of imported Australian and Japanese domestic beef.

Japanese slaughter and production are projected to follow recent downward trends, falling to 1.075 million head (or total beef production of 460,000 MT) on slightly lower calf crops in 2014 – 2015 falls further from 2016 levels. In the face of relatively flat Japanese beef consumption, Post projects that the United States will continue to gain market share in 2017.

On sustained solid retail and food service demand for U.S. chilled cuts and static demand for imported frozen cuts through 2017, Post projects year-ending stocks to fall further in 2017 to 149,000 MT (down eight percent).

Pork

2016 Market Situation Summary and Outlook

Swine Numbers Fall, but Slaughter, Production Climb as PEDv Impacts Fade

The 2016 year-beginning national swine inventory data confirms the continuing consolidation of Japanese swine production and the downward trend in overall swine production. Between 2014 and 2016, total swine farm numbers fell by eight percent (to 4,830 farms) as small- and medium-scale operators exited the industry without successors. Over that same period, total swine numbers fell two percent to 9.313 million head as the average swine farm size grew seven percent, rising to 1,928 head. While the continuing effects of porcine epidemic diarrhea virus (PEDv) were evident in lower year-beginning breeding stock numbers (sows down five percent to 844,700 head, and breeding males down 10 percent to 42,600 head), significantly larger feeder piglet numbers (up 17 percent from 2014 to 692,500 head) indicate that the worst effects of PEDv are over and support the observed recovery of hog slaughter in the first half of 2016.

As noted in Post's March 2016 Livestock Semi-Annual Report Japan's reported cases of PEDv and subsequent piglet losses peaked in the fall of 2014 and have fallen significantly since then. According to the latest MAFF data, reported cases and swine lost to PEDv continued to decline in 2016, while sporadic cases persist. From September 2015 to July 4, 2016, there were 105 reported cases of PEDv in 16 prefectures, in which 21,733 head of out of 89,747 total infected animals died.

Japan's hog slaughter rose three percent to 8.142 million head (representing total production of 638,678 MT, also up three percent) in the first six months of 2016, as the effective recovery from the worst impacts of PEDv began in the fourth quarter of 2015. Post forecasts a slight increase in hog slaughter in the second half of 2016, as flat growth in fourth quarter year-on-year numbers counter anticipated third quarter expansion. Post projects 2016 total hog slaughter to climb two percent to 16.4 million head (or 1.28 million MT of total production) on higher year-beginning feeder piglet numbers and continued moderation of feed grain price pressures.

Consumption Rises Slightly as Imported Chilled Cuts Gain Ground

Post projects 2016 total pork consumption to increase slightly from 2015 to 2.59 million MT, as ample global supplies of chilled and frozen pork suppress upward price pressures improving pork's competitiveness for consumer protein spending. Accordingly, year-ending stocks are forecast to remain roughly flat at 203,000 MT.

Industry sources indicate that relatively higher domestic pork prices in the second quarter contributed to increased handling of imported chilled cuts at retail outlets, driving household pork consumption moderately higher in the first half of 2016 Food service and institutional operators serving pork dishes (such as pork cutlets) are also driving growth in imported chilled cut utilization (rather than domestic and imported frozen cuts) in 2016 EU Dominates Trade in Frozen Cuts, North America Recovers Chilled Market Volumes.

Post projects Japan's 2016 total pork imports to rise by five percent to 1.32 million MT, with pork cuts (including a small volume of carcasses) at 1.079 million MT and 241,000 MT of prepared products.

Total imports recovered in the first half of 2016, rising up 13 percent to 557,436 MT, with chilled cuts surging (up 20 percent to 228,120 MT) and frozen cuts rebounding smartly (up eight percent to 329,315 MT). Trade data suggest a relatively strong demand for imported chilled cuts, with imports of U.S. chilled cuts through June 2016 expanding 25 percent, regaining market share lost to the effects of the West Coast port labor slowdown. Imported chilled cuts from Canada, which made considerable inroads during the first half of 2015, increased by another 17 percent to 86,026 MT.

Higher imports of frozen cuts through June 2016 were largely driven by Japanese processors' stock replenishment efforts (following a significant drawdown in 2015), rather than strong demand for processed products. Imports of frozen cuts from EU suppliers surged up 31 percent to 209,670 MT, adding an additional 10 percentage points of market share in the first half of 2016 to reach a dominant 64 percent share. U.S. frozen cut exports plummeted (down 45 percent to 33,112 MT) alongside Canadian exports (down 15 percent to 26,372 MT). Continued high production levels in major EU pork suppliers and continued Russian bans on imports of EU pork have significantly expanded exportable supplies of EU pork. According to trade sources, a number of Japanese processors began expanding frozen raw material imports from EU suppliers at the expense of U.S. suppliers in 2014, following North American PEDv outbreaks and associated higher prices.

Imports of prepared pork products (including seasoned ground pork from North America and other cooked product, such as ready-to-eat dumplings from China) fell to 12,644 MT, down slightly from a year ago According to trade sources, the high pace of import growth through June 2016, especially of chilled cuts, is expected to slow down in the second half. A seasonal increase in the supply of domestic Japanese pork in retail outlets in the third quarter will mitigate the pricing differential between Japanese and imported cuts, reducing the flow of North American chilled cuts Imports of frozen raw material cuts should also abate in the second half of 2016, as Japanese processors conclude stock replenishment activities following robust imports of frozen cuts from EU sources and as Japanese consumption of processed pork products remains flat.

2017 Outlook

The continued collapse of small- and medium-scale swine farms as aging operators exit the industry without successors could mitigate prospects for production recovery in the Japanese swine industry in 2017. Even assuming slightly higher 2017 year-beginning sow stocks, year-beginning feeder piglet inventories could effectively limit annual slaughter potential in 2017. Post projects Japan's total hog slaughter to fall slightly in 2017 to around 16.250 million head (or 1.265 million MT of total production).

Assuming continued tight overall beef supplies and relatively higher beef prices as well as continued competition from ample poultry supplies, Post predicts Japan's total pork consumption in 2017 to remain roughly unchanged from 2016 at 2.585 million MT. Post anticipates that market forces affecting retail, food service, institutional, and processing market segments will remain unchanged in 2017.

Post projects Japan's 2017 total pork imports to remain unchanged from the projected 2016 level at 1.320 million MT, with chilled cuts (almost exclusively supplied by the United States) and frozen cuts (EU suppliers continuing to control a sizable market share) comprising similar shares as in 2016