Report Highlights:

The Japanese broiler market is forecast to be weak in 2007 due to oversupply and large carry over from last year. Japanese import demand will continue to be influenced by avian diseases overseas. Imports from Brazil, the predominant supplier of broiler meat, is projected down by 5% to 335,000 MT. Import growth of prepared products is expected to slow in 2007, and is forecast up by 1% to 345,000 MT. Oversupply will lead to tough competition between China and Thailand for the Japanese market. U.S. broiler meat (mostly bone-in leg) imports are expected to remain constant, projected at 35,000 MT, helped by solid de-boning demand.

2007 Outlook

Oversupply continues lower imports in 2007
In 2006, due to increased domestic production and imports, Japan’s total broiler meat supply exceeded demand. As a result, monthly ending stocks of uncooked broiler meat have risen and prices have declined. Although total imports (consolidated imports of generic meat and prepared and processed products) are expected to lower in the second half of 2006, substantially high year ending stocks will likely be carried over well into 2007. Due to surpluses, we forecast a relatively weak Japanese poultry market in 2007. A recovery hinges on cutting back the total supply because total consumption is only projected grow marginally, helped by still relatively weak market prices over to beef and pork. It is anticipated that the impacts of the return of U.S. beef on overall chicken consumption in Japan will be limited.

Consistent with our forecast, Japan’s import demand for Brazilian generic broiler meat will remain weak in 2007. The continued surplus in Japan is expected to cap import growth of processed and prepared products (cooked products) while creating increased competition between Thailand and China in the food service and ready-to-eat market segments. Japan’s import demand for U.S. broiler meat (mostly bone-in leg) is expected to stay constant in 2007, running around 35,000 MT a year. The primary source of demand for U.S. broiler meat will be food service and domestic de-boning operations. Meanwhile, a shift is occurring from imports of generic meat to prepared and processed products. Prepared and processed products are over 40% of the total imports and are expected to continue grow in 2007.

Bird flu Continues to Cloud Japan’s Prospective Production and Imports

Asian type H5N1 highly pathogenic avian influenza (HPAI) will remain to be the biggest factor affecting the world poultry demand and supply in 2007. Any major outbreaks in both exporting and importing countries will likely disrupt the trade causing uncertainties for Japanese meat trade to secure the necessary supply. This is particularly true for bulk meat trade, which accounts about 20% of Japan’s total supply. Brazil is the predominant supplier at present.

Japanese meat traders are regaining confidence in Thai cooked poultry products. New traceability and sanitary programs and procedures could make Thailand a marketing advantage over China, which is currently Japan’s top supplier of prepared and processed products.

Japan’s total broiler consumption in 2007 is projected up only slightly to 1.915 million MT from last year’s level (generic broiler meat: unchanged at 1.57 million MT and imported prepared and processed products: up by 1% to 345,000 MT). Total imports are projected down by 3% to 725,000 MT (generic broiler meat: down by 5% to 380,000 MT and prepared and processed products: unchanged at 345,000 MT.). Brazilian generic broiler meat imports (mostly boneless leg) are projected down by 5% to 335,000 MT.

Weak market prospects will trim domestic output in 2007
Contrary to our earlier projection (see JA 2006), domestic broiler production in 2006 kept increasing, which added to sharply rising stocks and contributed to weak market prices. There are mixed views among meat trade about when and to what extent domestic producers are going to trim their output in 2007. No apparent cutbacks in domestic production are underway. Producers may be speculating that there will be trade disruptions due to HAPI outbreaks abroad.

However, a worsening stock situation and deteriorating market prices will likely lead domestic producers to respond to the real situation by trimming their outputs at some point in time in 2007. Thus, we forecast that Japan’s broiler meat production will fall by 1% to 1.185 million MT. Nevertheless, relatively large year-end stocks of generic poultry meat will remain, projected at 140,000 MT. This is only a slight decline from the beginning of the year.

2006 Situation Summary Update and Outlook

Revised broiler PS&D figures (broiler meat and the prepared and processed products imports combined) for CY 2006 are constructed based on preliminary production, trade and stock data available to date.

Oversupply to Prevail in 2006
Despite relatively solid household consumption in the first half of 2006, Japan has an oversupply of broiler meat. Increased domestic production (up 5% from the same period last year) and increased imports (up 9%) in the first half point to a weak market outlook in the second half. Soaring monthly ending stocks, which was up 56% in June over the same month of the previous year (See table 4 and 5-a, 5-b and 5-c), are also depressing prices. Average wholesale market prices for domestic broiler meat have declined. This was especially evident in CY 2006 2nd quarter (April – June) when boneless leg meat was down 10% at 520 yen per kilo and breast meat down 8% at 202 yen per kilo (See table 2). Also, the average wholesale price of imported bone-less leg meat (Brazil) has weakened. The price for bone-in leg (U.S.) has strengthened reflecting solid demand by domestic de-boning operators. Demand for deboned meat, which is mainly used for Japanese style fried or grilled chicken, is strong (See table 3).

Given the oversupply, we forecast that price pressure will start to mount during the second half of the year and lead to lower total imports. In light of the above, the total supply in 2006 is projected up by 3% from last year to 2.055 million MT. Overall market prices are expected to stay weak for both domestic and imported broiler meat throughout 2006.

Disease Uncertainties Abroad Trigger Increased Domestic Production

An overriding factor behind increased domestic production during the first half this year is uncertainty over avian flu and Newcastle’s disease. The number of parent stocks introduced in the previous year and the number of chicks placed on feeds to date points to modestly increased domestic output in 2006, projected up 2% to 1.195 million MT. Domestic producers appear to be responding to growing uncertainties over diseases abroad by increasing their production. This is helped by relatively solid household consumption for the last couple of years (See table 1).

Prevailing low prices (relative to beef and pork) will likely sustain solid consumption of domestic broiler meat for the rest of the year. (Note: According to MAFF statistics, household consumption takes over 30% of Japan’s generic meat consumption while domestic broiler meat, particularly boneless leg, accounts for most retail and household consumption. Imported broiler meat, including prepared and the processed products are heavily used in both food service and ready to eat food market.)

Brazil hurt by Reduced Import Demand for Generic Broiler Meat Worldwide in 2006

HPAI (H5N1), which has migrated to EU from Asia in 2006, reportedly caused consumption to decline. In the course of this development, this year’s prospects for Brazil seems to have changed as their first half exports of generic broiler meat to the world reportedly dropped 11%, particularly to EU, Russia and the Middle East. The situation has reportedly led to oversupply in Brazil. To make the matter worse, due to a Newcastle’s disease outbreak in one of Brazil’s major poultry producing states reported in May, many countries put in place import restrictions. In Japan’s case, the ban is limited to a 50 kilometers radius from the disease outbreak epicenter.

According to trade sources, some Brazilian boneless cuts have been making inroads into Japan through overseas brokers at substantial discounts. This contributed to increased imports from Brazil during the first half of the year. Prevailing surplus and overwhelming stocks are accumulating and Japan’s imports from Brazil will likely be cut back in the second half. We also noted that Brazil started to make serious efforts to increase their exports of some cooked products to the EU and other countries.

In Asia, Thailand and China reported reoccurrences of HPAI outbreaks in the summer, which has diminished their chances of coming back into generic poultry meat trade in Japan in 2007. For the time being, both countries will have to concentrate their efforts on cooked products for exports.

In view of this, Japan’s total broiler consumption in 2006 is projected to increase by 1% to 1.908 million MT. Slightly lower total imports are projected, down 1% (generic broiler meat: up by 1% to 1.568 million MT and imported prepared and processed products: up by 3% to 340,000 MT). Imports of U.S. broiler meat (mostly bone-in leg) are projected to grow by 9% from last year to 35,000 MT, helped by solid demand for bone-in leg for domestic de-boning. Due to an overall surplus, import growth of the prepared and processed products is anticipated to slow during 2006. Ending stocks are expected to rise substantially, up by 21% to 145,000 MT.

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