Record U.S. Beef Sales Seen as Japan Reviews Curbs on Cattle: Commodities

U.S. farmers, poised to ship record beef cargoes for a second straight year, may get a further boost as Japan, once their biggest overseas customer, considers easing trade curbs imposed after an outbreak of mad cow disease.

Sales to Japan may jump 43 percent to 202,100 metric tons, the most since 2003, should the restrictions end in the second quarter, Global AgriTrends, a Denver-based research company, estimates. The government may raise the age limit on cattle slaughtered for beef to 30 months from 20 months about the middle of the year, according to Keiko Yamaguchi, executive director of consumer equity research at Nomura Securities Co. in Tokyo.

Increasing sales to Japan would help shore up farm income at a time when the U.S. Department of Agriculture is forecasting a drop in wheat, corn and soybean exports. Cattle futures rose to a record six times this month and traders anticipate higher prices through at least April 2013 after the herd shrank to the smallest since 1973 as of July 1, Chicago Mercantile Exchange data show. A drought in the southern U.S. last year and rising feed costs prompted ranchers to cull livestock.

“We go to 30 months of age again, all of a sudden most of our cattle are eligible,” said Brett Stuart, the co-founder of Global AgriTrends and a former economist for the U.S. Meat Export Federation who was raised on a cattle ranch in Utah. “We go from a restriction that probably was only allowing 30, 35 percent of U.S. cattle to provide cuts for Japan and we take that percentage up to roughly 90, 95 percent.”

Goldman Sachs

Cattle rose 6.4 percent to $1.29175 a pound on the CME this year, beating the 2.2 percent gain in the Standard & Poor’s GSCI gauge of 24 commodities. The MSCI All-Country World Index (MXWD) of equities advanced 5.2 percent as Treasuries lost 0.8 percent, a Bank of America Corp. index shows.

Futures for delivery in April 2013 closed at $1.333 today. The most widely held option confers the right to buy at $1.30 by April, CME data show. Cattle may reach $1.38 by October, said Rich Nelson, the director of research at McHenry, Illinois-based Allendale Inc., who has been studying agricultural markets since 1997.

Japanese imports of U.S. beef shrank to almost zero in 2004, from 298,039 tons in 2003, after the country joined South Korea and China in banning U.S. supply after the discovery of bovine spongiform encephalopathy. The brain-wasting disease was found in three U.S. cows, the last of them in 2006. The U.K. found more than 184,000 cases since 1987, according to the Paris-based World Organisation for Animal Health, or OIE.

Older Livestock

Shipments (BUSEEXPT) to Japan rebounded since the country relaxed its ban in 2005 to allow meat from 20-month-old cattle or younger. The curbs on beef from older livestock meant about $1 billion a year in lost sales, the Denver-based National Cattlemen’s Beef Association said in January 2010. The OIE gave the U.S. a “controlled-risk” rating in 2007, meaning meat from cattle of any age can be traded.

The U.S. may ship a record 974,000 tons of beef in 2012, worth about $5.13 billion, compared with an estimated 914,500 tons in 2011, the Denver-based U.S. Meat Export Federation predicts. Combined farm exports will probably drop 3.9 percent to $132 billion in the 12 months ending in September, retreating from a record, the USDA said in November.

Hedge funds and other large speculators are getting less bullish on cattle. They cut their net-long position, or bets on rising prices, by 39 percent to 66,997 futures and options since Oct. 18, Commodity Futures Trading Commission data show.

Age of Cattle

There is no certainty that Japan will ease the curbs on U.S. beef. The government first proposed raising the limit on the age of cattle to 30 months in 2007 and Japanese officials met with their U.S. counterparts on the topic for the first time in three years in September 2010.

A panel on mad cow disease at Japan’s Food Safety Commission began reviewing potential health risks related to the proposed changes on Jan. 19. Speaking after that meeting in Tokyo, the panel’s chairman, Takeo Sakai, wasn’t able to say when a decision would be taken. The health ministry will only raise the age limit to 30 months if the safety body determines it poses no additional risk to consumers.

The commission probably will take two to three months to complete its review, said Nobuyuki Fujino, the Tokyo-based senior chief economist at the Norinchukin Research Institute, which studies economic trends in agriculture. Should it rule the changes are safe, the government may then take “a couple of months” to modify the regulation, he said.

Import Tariffs

U.S. farmers may also gain from increased shipments to South Korea, which reopened its market in 2008 to beef from cattle up to 30 months old. The two nations signed a free trade pact last year that will reduce import tariffs of as much as 40 percent over the next 15 years.

The U.S. supplied 68 percent of South Korea’s beef imports in 2003, dropping to zero the following year, according to data from the Korea Meat Trade Association. Shipments recovered to 99,047 tons in the first 11 months of 2011, accounting for 37 percent of imports, the data show.

Japan is already buying more U.S. beef, with purchases rising 32 percent to 87,969 tons in the first eight months of the fiscal year that began April 1, agriculture ministry data show. The gains were at the expense of Australia (AUF$BEEF), whose shipments to the Asian nation dropped 5 percent to 229,223 tons. The U.S. dollar weakened 8.4 percent against the yen since April while the Australian dollar appreciated 7.2 percent.

U.S. Competition

Shipments to Japan (BEEFJA00), the largest export market for Australian beef, may drop about 4 percent to 336,000 tons in the 12 months ending June 30, 2012, the Australian Bureau of Agricultural and Resource Economics and Sciences said in a report last month.

The decline will be driven by increasing U.S. competition and stagnant Japanese demand, the government research unit said. The nation’s per capita beef consumption dropped 25 percent in the past decade as pork gained 23 percent and chicken 21 percent. Japanese consumers prefer “higher marbled U.S. beef,” Abares said, referring to the amount of visible fat.

“The relaxation would increase demand from the food- service industry for American meat,” said Yamaguchi of Nomura Securities. U.S. beef is seen as “superior to Australian products in the Japanese market in terms of its taste and convenience for processing.”

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net; Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net; Sungwoo Park in Seoul at spark47@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.