The clock has begun to tick on passage of the Trans-Pacific Partnership trade agreement with 12 Pacific Rim nations, of which Japan is the most important for US beef trade.
The Japan-Australia Economic Partnership Agreement took effect Jan. 1. It provides tariff reductions for Australian beef that are phased in over a 15-year period. A USDA Economic Research Service study said, “assuming that no other events intervene to influence trade, the scenario indicates that imports of Australian beef would rise by $100 million over baseline values, while imports of US beef would fall by about $100 million.
“US imports would absorb a significant loss in potential trade, unless tariffs facing US beef are also lowered,” the ERS study said. “If Japan opens up its beef market to the United States as it did with Australia under JAEPA, projections indicate a $130 million net gain for US beef, about 8% o9f current US beef exports to Japan.”
Estimates of Japan’s beef import demand by country of origin confirmed that significant price competition exists between beef imports from Australia and the US. Australia supplies the overwhelming majority of Japan’s needs for ground beef while the US supplies a large portion of Japan’s beef offal imports.
Otherwise, the US and Australia compete aggressively for this market.
CONGRESSIONAL TPP SUPPORT UNCERTAIN
The US House passed the trade portion of the TPP on Dec. 11, but support among Republicans and business groups has been described as “tepid.” So much so, that a vote on the whole package could be delayed until the final weeks of President Obama’s presidency, according to the Wall Street Journal.
In November, Obama said he was confident of its final passage.
With a large population and limited agricultural land, Japan is one of the world’s largest importers of food products, including beef. In 2014, Japan imported nearly $3.5 billion of beef and beef products, making it the third largest importer in the world.
The US and Australia together represented about 90% of those imports in terms of quantity and value. Australia had the larger share, with 51.8% of the total quantity of beef and offal imports and 46.8% of the value. The US share, at 38.2% of quantity and 43.6% of value, has recovered steadily since 2004-06 when Japan banned imports of most US beef in response to the discovery of Bovine Spongiform Encephalopathy, or Mad Cow Disease.
However, Japan’s US beef and offal imports remain below pre-ban years. The country has resumed its position as the largest foreign market for US beef at $1.6 billion in 2014, representing more than 20% of all US beef exports.
Those US exports are in spite of high trade barriers on beef and beef products as Japan includes beef among her five “sensitive sectors” for which it has consistently sought exemption from full trade reforms agreed to under the World Trade Organization and bilateral trade agreements.
Japan has reduced tariffs with some smaller beef suppliers that don’t make a lot of difference in the total Japanese beef market. The JAEPA now gives Australia a decided advantage in this highly competitive market. Some industry experts have projected that Australia’s beef exports to Japan could even double over the next 20 years.
CASH CATTLE QUIET
Cash markets Monday were quiet after trading about $4 higher at $138 per cwt on a live basis late Friday. Nebraska’s dressed market traded at $210 to $212, up $8 to $10 from the previous week.
The USDA reported mixed wholesale beef prices Monday, with choice up $1.76 per cwt at $220.52, and select down $1.47 at $215.66. The choice/select spread widened to $4.86 from $1.36 Friday, and there were 73 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $160.58 per cwt, down $0.66. This compares with Mar’s Monday settlement of $157.77, up $0.52.