August 5, 2004

 

 

US Beef's Eventual Return To Japan Poses Pork Dilemma

 

Talks between the U.S. and Japan about when the nation would lift its ban on U.S. beef, which was barred because of fears of bovine spongiform encephalopathy, or mad-cow disease, are already fueling speculation about the likely impact to U.S. pork exports that have benefited from the beef ban.

 

A Japanese government official said Wednesday that the country's Food Safety Commission will meet on Friday to discuss the safety of U.S. beef and U.S. safeguards against mad-cow disease.

 

Japan is one of 30 countries that imposed restrictions on U.S. beef in late December 2003, following the discovery of first and only case of mad-cow disease in the U.S.

 

Last week, the U.S. requested Japan lift its ban on U.S. beef imports by the end of the year.

 

According to U.S. Meat Export Federation data, Japan imported 829 million pounds beef and beef variety meat from the U.S. in 2003, making it the largest U.S. beef customer.

 

However from January to May 2004, U.S. beef and beef variety meat shipments to Japan dropped to 1.3 million pounds, compared with 335 million a year ago because of the ban. USMEF officials said this is pre-ban product held in cold storage until it is ready to be sold and used. At this point, it incurs a tariff charge and is counted as imported goods.

 

Japan was the U.S.' top-ranked pork market in 2003, taking in 794.347 million pounds of pork and pork variety meat. From January through May 2004, the U.S. moved 396.230 million pounds of pork to Japan, compared with 368.066 million pounds the year before. Some attributed the slight increase to Japanese consumers switching from beef and chicken to pork because of mad cow and bird flu bans.

 

Despite increased U.S. hog production, strong overseas and domestic pork demand this year pushed cash hog prices at Iowa and southern Minnesota on a dressed weighted average to $81.87 per hundredweight on May 17, compared with $63.21 on May 20 a year ago.

 

Likewise, lead-month daily hog futures charts showed this year's high at $82.70 on May 13, compared with an Chicago Mercantile Exchange Aug futures peak on June 10 at $69.75 last year.

 

Various market factors have caused lean and live hog values to shrink from highs realized a few months earlier. Nonetheless, periodic chatter surrounding discussions between the U.S. and Japan over beef matters resonates throughout the pork industry and is in part reflected in subdued hog futures activity or distant hog contracts that lag in comparison to forward months.

 

An off-floor hog trader suspects the U.S. will open its border to live cattle and specific beef cuts from Canada after Japan lifts its ban on U.S. beef. The U.S. prohibited Canadian cattle and beef from entering this country soon after a case of mad-cow disease was detected there in May 2003.

 

Beef's return to Japan may be bearish for U.S. pork export demand but bullish for hogs, the trader said. If the U.S. allows in Canadian cattle, it could stem the flow of Canadian hogs entering the U.S. that were driven across the border because of cheap beef in Canada, he said. Or, the outcome could be a wash, he added.

 

Dan Vaught, analyst with A.G. Edwards & Sons in St. Louis, said it would take months before U.S. beef actually reaches Japan, making it a non-factor in terms of trading that information on the hog futures market at this time.

 

Pork traders have other pressing market issues to consider such as the pace of retail pork demand, what packers are paying for hogs and seasonal supply factors, said Vaught.

 

"However, the danger for beef futures is that they may set back in anticipation for further news out of Japan," said Vaught.

 

John Lawrence, an Iowa State University economist in Ames, Iowa, said the timeframe when Japan could conceivably allow beef back onto its shores might be even longer taking into account when they would buy beef and take actual delivery of product that might be substantial enough to disrupt pork exports.

 

"As I look at pork exports, it looks like the growth in Japan has been slow at best, so losing some of that gain may not be that big of deal," said Lawrence. "Pork exports to Mexico appear to have registered bigger gains and they (Mexico) are already buying U.S. beef, so pork should have already felt that impact."

 

The amount of U.S. beef and variety meats shipped to Mexico from January through May dropped to 79.9 million pounds, compared with 279.8 million a year ago. Pundits contend the ban that Mexico placed on U.S. beef following the December case of mad-cow disease in the U.S. contributed to the decline. However, the ban was partially lifted in early April.

 

On the other hand, Mexico imported 207.435 million pounds of pork from the U.S. from January through May 2004, compared with 113.396 million a year ago. This was an 83% jump from last year compared to an 8% rise in pork that went to Japan during the same period.

 

Bob Brown, independent analyst in Edmond, Okla., agrees with others that Japan re-opening its border to beef does not bode well for pork. However, he pointed out that pork shipments from the U.S. to Japan are already expected to slow from August through March 2005 after Japan raised its tariff on pork beginning August 1 in response to an April-June quarter spike in imports.