U.S. beef exports have been tracking close to year-ago levels for much of the summer, even as shipments to top markets such as Mexico Canada and South Korea have been lower than a year ago. Based on U.S. weekly beef export data, shipments to Mexico for the period May-August were down 10% from the same period a year ago while shipments to Canada during the same reference period were down 11%. Canada and Mexico remain two of the top markets for U.S. beef although they represent a much smaller share of total exports than what they once did (see chart).



Indeed, in the last two months, Japan has overtaken Mexico in terms of weekly volume. And based on recent media reports, Japan will likely emerge as a much more prominent market for U.S. beef in 2013. According to the Yomiuri Shimbun newspaper, “an expert panel of the (Japanese) Cabinet Office's Food Safety Commission has decided to relax restrictions on U.S. beef imports.”

It’s expected that Japan will no longer require that beef exports to Japan come only from cattle 20 month or younger. Rather the age limit of cattle eligible for export will likely be increased to 30 months or younger, consistent with such requirements from other markets. It is unclear as to when the expert panel’s recommendation will come into effect as it appears to be part of a larger negotiation as Japan seeks to join negotiations over the Trans-Pacific Partnership Free Trade Agreement.

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Should Japan relax its rules over the age of cattle eligible for exports, it will provide an immediate boost to the amount of U.S. beef going to this market. While higher beef prices and a strong U.S. dollar remain a concern, the expectation is that Japanese end users will quickly gravitate to U.S. beef offerings at the expense of some of their current suppliers. The US shipped about 138,915 mt of beef (shipped weight) to Japan in 2011. This compares to about 298,034 mt of beef shipped to this market in 2003.

Some of the volume lost in the last 10 years won’t be recovered as other suppliers have been able to establish relationships and service Japanese needs. However, we would expect U.S. beef shipments to increase by 50,000-75,000 mt if Japan relaxes its rules for U.S. beef. Such an increase could boost total U.S. beef exports in 2013 (assuming 2012 volume at 875,000 mt) by as much as 8.5%.

However, keep in mind that as U.S. beef prices continue to climb, it will be difficult to sustain export volumes to a number of smaller markets. Russia, Vietnam, the Philippines and especially Egypt, all have contributed to offset the reductions in exports to Mexico, Korea and Canada. Indeed, U.S. beef exports to these smaller markets now account for the largest share of U.S. beef shipments.

This is a sign of strength, as the U.S. beef industry has become much more diversified. The increase in export demand, be this from Japan, Taiwan or even Mexico (they now also have a smaller herd), combined with a smaller U.S. beef production volume will continue to pressure prices higher in the U.S. market in 2013 and beyond.