Report Highlights

Japan’s use of fluid milk for processing in 2008 is projected to increase by 2% to 3.465 million MT. Beverage milk consumption is projected down by 1% to 4.485 million MT. Japan’s current dairy access commitment for Japan Fiscal Year (April-March) (JFY) 2008 will likely be used mainly to import butter. Due to increased investment, Japan’s domestic cheese production is expected to grow by 15% in 2008.

2008 Outlook for Fluid Milk, NFDM, Butter and Cheese

Processing demand for Fluid Milk to Grow in 2008

In 2008, processing demand for milk to manufacture domestic cheese and butter is expected to grow. Beverage milk consumption by consumers is expected to remain weak but, overall, there is a higher domestic price outlook for fluid milk, which should help to partially offset the impact of high feed prices. This will in turn give incentives to dairy producers to build their herds.

Longer-term, Japan’s fluid milk output is anticipated to bounce back over next couple of years. For 2008, post projects a slightly higher national fluid milk output, up 0.5% to 8.03 million MT.

Japan’s use of fluid milk for processing in 2008 is projected to increase by 2% to 3.465 million MT. Beverage milk consumption is projected down by 1% to 4.485 million MT.

Tight Butter Supply to Continue in 2008

Tight butter supplies are expected to ease somewhat during 2008 as more fluid milk for processing become s available. 2008 domestic production of butter is projected to increase, up 3% to 80,000 MT. Production of NFMD is expected to be 180,000 MT for NFDM. However, in order to meet Japan’s annual demand for butter, estimated at 89,000 MT, Japan’s current dairy access commitment for Japan Fiscal Year (April-March) (JFY) 2008 will likely be used mainly to import butter.

Despite the above, 2008 year ending butter stocks should still remain tight at and estimated 20,000 MT. Surplus NFDM stocks, due to reduced domestic production, were depleted in 2007 and 2008 year ending stocks are expected to hold remain steady at an estimated 60,000 MT. Japan’s imports of NFDM are estimated to remain unchanged from last year at 32,000MT.

Substantial Increase of Domestic Natural Cheese Production Forecast in 2008

Japanese demand for cheese has been steadily growing over the past decade to 270,000 MT level (on total supply basis in CY 2007), with the imported cheeses garnering 85% of the total. As touched upon in JA 7038, Japan’s build up of domestic natural cheese production capacity is expected to generate substantial demand for processing milk. Over the next several years, domestic cheese production is expected to expand to 70,000 MT – 80,000 MT a year as these new factories. For 2008 production, post is projecting 47,000 MT, up 15% from last year.

Japan’s added domestic capacity to manufacture natural cheeses will likely impact Japan’s future imports of cheeses in 2008. In addition, the recent elimination of dairy subsidies in the EU, coupled with a strong Euro against the yen, will continue to erode Europe’s share of the cheese market. Oceania, the United States and Argentina will continue to make inroads into the market for high-value cheeses, which have long been held by Europe.

2007 Situation Summary and Outlook for Fluid Milk, NFDM, Butter and Cheese

Note: Post’s PS&D figures from the last semiannual report JA 7038 are revised based on the latest production, trade and stock data available

Lower National Fluid Milk Production Forecast for 2007

Japan’s milk output in CY 2007 is projected to be 7.99 million MT, down by 2% from last year. This is manly due to dairy farmers responding to lackluster beverage milk consumption and surplus supplies of dairy commodities. At the same time, farmers have responded to high market prices for F-1 cross breed (Wagyu and Holstein) in the beef market by producing F-1 calves for beef for the last couple of years.

Reflecting lackluster consumption of beverage milk, utilization of fluid milk in 2007 is projected to be 4.515 million MT, down by 3% from last year, which leaves available fluid milk for processing lower than last year, projected down by 0.4% to 3.395 million MT. Thus, post projects Japan’s 2007 production of butter at 77,000 MT and NFDM at 175,000 Mt, each down by 3% from last year respectively.

Solid Demand for Butter Causes the Volume Safeguard to Trigger

Reduced NFDM output has helped to restore the demand and supply balance in 2007, which has long been surplus due to weak ingredient demand. On the other hand, solid household consumption of butter combined with relatively firm sales to the baking sector caused supplies to become short in 2007. In response, Japan has increasingly allocated its current access (CA) to purchase butter and diary spread (DS) for JFY 2007 (See JA 7038).

As Japan’s total butter imports for JFY 2007 (April 07– March 08) exceeded the CA limit year. Japan has been applying the volume safeguard has since November 1s t for the reminder of the fiscal year (higher duty are applied, but not for CA butter). As a result, for CY 2008 Japan’s butter imports are expected all time high reaching at around 8,000 MT. Meanwhile, soaring international prices for NFDM and butter have been making the domestically produced products price competitive.

Japan’s Cheese Demand to Stay Firm in 2007

Japan’s total cheese imports in 2007 are projected to rise modestly, up by 4% from last year to 215,000 MT, 2007 mainly supported by solid household consumption. The U.S. cheeses, which have been aggressively promoted by USDEC, have been doing well. Food service and cheese ingredient use will likely reach all time high of 7,000 MT in 2007.

Further Reading

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List of Articles in this series

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January 2008