The Market's Fine Print

Long before China became the poster child for meat export potential, there was Japan. In fact, I think it's fair to say that this rich, densely populated island essentially invented the critical category of foreign demand for the U.S. livestock industry.

That's not to say Japanese stevedores were the first ever to unload meat-related cargo from this country. To the contrary, the latter half of the 19th century saw thousands of live Yankee longhorns routinely cross the Atlantic to be slaughtered and consumed in England.

Yet Japan become our first truly blue-sky market following the essential maturity of domestic demand. Since topping in the early 1980s, significant expansion in down-home meat consumption has been pretty much limited to population growth (though the mix of beef and chicken has clearly shifted). As the 21st century began to rise on the horizon, the importance of foreign demand and exports seemed increasingly crucial for the long-term health and vitality of the U.S. meat industry.

Japan's exploding post-war economy promised to be exactly what our demand doctor ordered. Not only did Japanese consumers have more and more yens burning holes in their kimonos, they seemed to share a manageable streak of hedonism with their American counterparts (i.e., thumbs-up to the good life).

Between 1972 and 1992, beef exports to Japan jumped from under 2 million pounds to 630 million. Barring no late-year speed bump (e.g., the hiked tariff on frozen product), exports to Japan this year should total close to 750 million pounds. Of course, such a performance will make Japan the top customer for U.S. beef, nearly doubling the volume of either Canada or Mexico.

From 1985 to 2005, pork exports to Japan surged from 30 million pounds to 850 million. Currently, 2017 pork shipments to that country appear on track to total 1.2 billion. This will make Japan the second-largest consumer of U.S. pork, bested only by Mexico in terms of volume.

At this point, you're probably saying something like "Nice, but tell me something new." Why the gratuitous hymn to Japanese meat demand?

I guess this brief skip down memory lane has been prompted by at least two reasons.

First, I'm troubled by the awkward combination of ongoing meat expansion cycles that necessitate aggressive export business on one hand, and conventional trading channels threatened by dubious efforts of reform by the Trump administration on the other. In short, producers and politicians seem to be simultaneously breeding cobras and trapping mongooses.

Regardless whether you agree with the president's categorical hatred of trade deficits (forget about ag trade surpluses) or think he seriously underestimates the general benefit of global business per se, few thoughtful players in ag markets can applaud the rejection of TPP ("a continuing rape of our country"), the disparaging of NAFTA ("the worst deal ever"), the challenging of KORUS ("horrible") and the delay in free trade agreements, all in one clumsy swoop.

But the second reason is more specific-driven, one presented earlier this week in a Politico article by Adam Behsudi entitled "Japan exasperated by Trump's trade policies" published on Oct. 10, 2017. (The full article can be found at http://www.politico.com/…)

It's a sobering story about the lingering resentment of Japanese officials at the demise of Trans-Pacific Partnership and the damning role played by the U.S.

Here is an excerpt from that article:

"The need to counter the growing clout of China is an all-consuming priority in Tokyo, and Japanese officials felt that with the TPP they were on the verge of a genuine breakthrough, tying the United States, Canada, Vietnam, Mexico, Chile and other large nations on both sides of the Pacific into an economic alliance greater than anything China could muster."

"Seeking to fill the void left by the TPP, China has accelerated the pursuit of its own mega-deal with other Asian nations, called the Regional Comprehensive Economic Partnership, or RCEP.

"The United States leaving TPP 'created a vacuum in the region, that's for sure,' an official said. 'It's why RCEP is gaining momentum. That is why the government is asking the U.S. to come back to the TPP. We keep continuing to say so.'"

While Vice President Mike Pence and Ag Secretary Sonny Perdue have tried hard to make nice and smooth ruffled feathers among Japanese negotiators, their cheerleading for a free-trade agreement in lieu of TPP has not stirred much pep, as can be seen in the following excerpt from the same Politico article:

"In interviews with Politico, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump's seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China's rising influence."

Furthermore, resistance to make the Japanese market look more attractive in a non-TPP way may come from the very top. Prime Minister Shinzo Abe spent a tremendous amount of political capital trying to make the TPP as attractive as possible to U.S. concerns (e.g., essentially reducing beef and pork tariffs to zero over time), and he is not likely to go down that costly road again anytime soon, according to the following excerpt from the Politico article:

"Under TPP, Abe committed to the painful process of challenging Japan's politically powerful farming industry by forcing open the country's notoriously closed agriculture markets in a way that no Japanese leader had ever done before. Abe's approval ratings have largely recovered since they plummeted to a low point of 20 percent this summer after several scandals. It's unlikely he will further risk his position on negotiations with the United States, even after an October 22 general election in which his Liberal Democratic Party is expected to retain a dominant position in parliament.

"'The Japanese government has no mind of going back to the table for a bilateral negotiation,' said another senior official. 'TPP was risky for Abe; a bilateral will require an even bigger leap.'"

Finally, Politico reported in the following excerpt that the recent coughing and gagging of U.S. trade negotiators may be causing Pacific Rim meat buyers to raise the question of long-term reliability:

"'They're watching NAFTA and, frankly, in East Asia, they're saying if the United States is so stupid as to screw up its agreements with its continental powers in Canada and Mexico, what can we in East Asia expect from these guys?' said Robert Zoellick, who served as President George W. Bush's chief trade negotiator and later as World Bank president. 'That's a realistic question.'"

Those of you who have been a captive of long family car trips where the kids scream, the dog barfs, and you run out of gas know that almost anything can be tolerated as long your partner manages to hold her good humor.

When it comes to the always-challenging road rally of U.S. meat exports, if Japan ain't happy, ain't nobody happy. Well, Japan ain't happy.

Now does anyone know what to do with that critical piece of information?

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

(AG)

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