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Japan to stop importing U.S. beef, negative reaction from market expected

With Japan announcing on Friday the closing of its border to U.S. beef imports because of possibly finding a shipment of material considered at risk for mad cow disease, the U.S. live cattle futures market is expected to react negatively. USDA says an investigation is underway.

Dan Vaught, AG Edwards livestock analyst, told Agriculture Online on Friday the unexpected nature of this embargo will effect the market significantly.

"How badly we will break down here is open to question. At first glance you might think we'll see much of a market reaction with a lack of reaction when the Japanese re-opened its market in December," Vaught said. "But, that event was anticipated and traders had factored those developments into their thinking. That's not the case in this scenario."

Japan, previously the biggest customer for U.S. beef exports, bought 1,300 metric tons of U.S. beef between January 6 and January 12. That compares with 2,100 metric tons for the entire period from December 12 to January 5, according to USDA's weekly export sales.

USDA Secretary Mike Johanns said in a press release that this matter with Japan is being taken very seriously. "We are conducting a thorough investigation. Under U.S. regulations, the backbone, or vertebral column, that was exported to Japan is not a specified risk material because it was in beef under 30 months. However, our agreement with Japan is to export beef with no vertebral column and we have failed to meet the terms of that agreement," Johanns said.

Johanns added, "The processing plant that exported this product has been de-listed and therefore can no longer export beef to Japan. We will take the appropriate personnel action against the USDA Food Safety and Inspection Service employee who conducted the inspection of the product in question and approved it to be shipped to Japan.

A team of USDA inspectors has been dispatched to Japan to work with Japanese inspectors to reexamine every shipment currently awaiting approval, to confirm compliance with the requirements of our export agreement with Japan."

"I have directed that additional USDA inspectors be sent to every plant that is approved to export beef to review procedures and ensure compliance with our export agreements and I am requiring that two USDA inspectors review every shipment of U.S. beef for export to confirm that compliance," Johanns stated. "I have also ordered unannounced inspections at every plant approved for beef export."

Johanns added, "We are in communication with Japanese officials and we will continue that dialogue to assure them that we take this matter very seriously and we are acting swiftly and firmly. "These additional inspection requirements in the U.S. will be applied to all processing plants approved for beef export and all beef shipments designated for export from the U.S."

Meanwhile, this Japanese news comes at a time when the cattle market experiences a seasonal slide from a weak period for the wholesale beef market, Vaught said.

"This may add to the generally bearish developments from the Japan news," Vaught said.

The nearby CME Feb live cattle contract is seen being effected the most by Friday's border news, Vaught said.

"The deferred contracts will hold up better on ideas that the U.S. will be able to playcate the Japanese in the foreseeable future. As far as the Feb contract this is not good news at all," Vaught said.

Cattle futures are called to open 100 to 200 lower. March Feeders are called to open limit down, according to Allendale Inc.

USDA will release its Cattle on Feed report on Friday at 2 pm.

With Japan announcing on Friday the closing of its border to U.S. beef imports because of possibly finding a shipment of material considered at risk for mad cow disease, the U.S. live cattle futures market is expected to react negatively. USDA says an investigation is underway.

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