Report Highlights:

In 2015, consumption of domestic beef declined while imports of more competitively priced beef imports increased. A shortage in domestic beef production in 2016 is expected to provide an opportunity for increased beef imports. Domestic pork production increased in 2015 and is projected to increase further in 2016. Likewise, pork consumption grew over 9 percent and is expected to continue in 2016. Pork imports increased as EU countries continued to supply pork they were not able to sell to Russia. In 2016, imports are expected to drop slightly but still remain at a high level.

Animal Numbers, Cattle

Production:

Total Korean beef cattle inventory continues to drop gradually as many farmers with small-sized operations, consisting mostly of breeding farms, give up raising cattle. The total number of farm households dropped 9.1 percent (9,477 households) in 2015, due to the retirement of many aged farmers and government direct payments to marginal income farmers as an incentive to quit farming. Also, despite the current high cattle prices, farmers are very hesitant to expand their herd size given uncertainty of cattle prices in 3-4 years, when calves being bred now will be old enough for slaughter. The following factors reflect this uncertainty: 1) Hanwoo semen sales were the same in 2015 compared with the 2014 level; and 2) The percent of cows slaughtered dropped slightly from 48.9 percent in 2014 to 48.7 percent in 2015. These factors reflect the fact that farmers will hold onto their cattle herd to replenish stocks until they become more confident of a future increase in live cattle prices. A gloomy economic forecast for the near future has resulted in the comparatively more expensive Hanwoo beef being less competitive against imported beef. It will take two to three years before the total cattle inventory can begin to climb upwards due to the uncertainty of Hanwoo cattle prices, hesitancy to increase herd size, low beef-cow beginning stocks, and the 10-month time lag for increased semen sales to be reflected in calf production numbers. The ratio of farmers' intentions to maintain the current herd size in 2015 was much higher than the past 2013-2014 period, supporting the fact that farmers are currently in a wait-and-see mode.

Calf crop numbers in 2015 have been increased to reflect increased semen sales in 2014 of 7.4 percent over the 2013 sales level. The slight increase in semen sales in 2015 has been reflected in 2016 calf crop numbers. Dairy cow numbers are gradually dropping as farmers liquidate low-performing dairy cows due to the oversupply in milk production in Korea. As the birth rate of Korea continues to drop to 1.24 children per married couple in 2015, milk consumption has also dropped, creating an oversupply of milk production.

According to data released by the Korea Institute of Animal Products Quality Evaluation, farmers made a profit on over 92 percent of all cattle slaughtered in 2014 and 2015. This trend is expected to continue in 2016 due to high carcass prices coming from lower slaughter numbers; but, as the cattle supply rises in two to three years, farmers producing lower grade (Grade 2 and lower) are at risk of losing money again. The major factors attributed to this increased profit rate are a higher live cattle price and increased consumer demand for leaner cuts.

Animal Numbers, Cattle

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Cattle Beg. Stks

3342

3342

3190

3190

3058

3088

Dairy Cows Beg. Stocks

304

304

305

305

305

293

Beef Cows Beg. Stocks

1166

1166

1123

1123

1100

1099

Production (Calf Crop)

900

900

865

914

860

917

Total Imports

0

0

0

0

0

0

Total Supply

4242

4242

4055

4104

3918

4005

Total Exports

0

0

0

0

0

0

Cow Slaughter

509

509

476

490

450

467

Calf Slaughter

0

0

0

0

0

0

Other Slaughter

533

533

511

516

510

490

Total Slaughter

1042

1042

987

1006

960

957

Loss

10

10

10

10

10

10

Ending Inventories

3190

3190

3058

3088

2948

3038

Total Distribution

4242

4242

4055

4104

3918

4005

(1000 HEAD)

Meat, Beef and Veal

Production:

In 2014 a lower cattle inventory led to a lower slaughter number and resulted in a drop in beef production. Since August 2014, farmers have begun to inseminate more cows to increase their inventory and have begun to hold onto their cow stocks, but it will take two to three years to impact total herd size, given gestation time and the time it takes to raise calves for slaughter. Consequently, beef production is expected to continue to drop in 2016. The number of cattle over 1-year old in December 2015 was 1,890,000 head, compared to 1,975,000 head in December 2014. The decrease in the number of cattle in this age group will result in a lower number of cattle put up for slaughter in 2016.

Consumption:

High domestic Hanwoo beef prices in 2015 coupled with low production resulted in reduced consumption of domestic beef. Increased beef imports made up for the shortage in domestic beef supply. The outlook for beef consumption in 2016 is not bright due to the following: 1) the Hanwoo beef supply will continue to drop in accordance with the low Hanwoo cattle inventory; 2) Hanwoo prices will be higher as a result of the short supply; 3) less meat will be consumed due to health concerns; and, 4) the economy will remain sluggish in conjunction with the worldwide economic downturn. The Korea Institute of Finance is projecting that the unemployment rate for the first half of 2016 will increase to 3.7 percent from 3.6 percent in 2015. Additionally, a dampening of real estate prices and increase in household loans are preventing consumption from picking up in 2016.

On the other hand, the shortage of Hanwoo beef supplies will enhance the price competitiveness of imported U.S. beef. The average Hanwoo beef price was 1.33 times higher than U.S. beef prices in 2015, compared to 1.27 times in 2014. Based on the USDA-ERS projection that U.S. live steer prices will drop from an average of $3.27/kilogram in 2015 to $2.91~$3.13 per kilogram in 2016, the price competitiveness of U.S. beef is projected to increase in 2016, encouraging increased consumption of U.S. beef.

It is interesting to see that the consumer purchase intentions, which indicate a willingness to pay a premium for Hanwoo beef tenderloins, were actually much higher than the actual price difference in Bulgogi cut beef. However, consumers are less willing to pay a premium for Hanwoo beef over imported beef. This, in conjunction with the gradual increase in market share for U.S. beef imports, is promising for the future of U.S. beef consumption.

Trade:

The shortage in domestic beef production is expected to provide an opportunity for increased beef imports in 2016. Also, the increased price competitiveness of imported beef, coupled with lower duties coming from Free Trade Agreements with major beef trading nations, will further enhance the competitiveness of imported beef in 2016. The consumer confidence level in U.S. beef has been stable, as is indicated by the market share of U.S. beef, which has remained at 36 percent since 2014. USMEF is now focusing its efforts on expanding the use of U.S. beef beyond grilled use to soup use in order to further increase the market share of U.S. beef. It is also aggressively introducing new cuts for BBQ use to increase the market size for U.S. beef. It remains to be seen if the exchange rate of the Korean won against the U.S. dollar will depreciate further as this would have a dampening effect on U.S. beef demand.

Korea: Beef Imports (Thousand dollars and metric tons)

Country

Annual 2013

Annual 2014

Annual 2015

Value

Volume

Value

Volume

Value

Volume

Australia

758,386

147,198

847,850

152,427

974,429

167,788

United States

529,351

92,158

706,371

101,774

749,003

106,492

New Zealand

96,010

25,343

102,705

22,100

78,780

18,230

Mexico

669

232

515

198

314

144

Canada

9,748

2,147

13,140

2,302

7,562

1,305

Others

2,566

660

4,885

1,109

8,157

1,741

Total

1,396,730

267,738

1,675,466

279,910

1,818,245

295,700

Comparison of Beef Import Duties Among Free Trade Agreements

Commodity

KORUS FTA

Korea – Australia FTA

Korea – Canada FTA

Beef

Content of Free Trade Agreement

Duty phased out in 15 years plus Agricultural Safeguard (Already in 5th year of phase out)

Duty phased out in 15 years plus Agricultural Safeguard (Already in 3rd year of phase out)

Duty phased out in 15 years plus Agricultural Safeguard (In its 2nd year of phase out)

Base duty

40%

40%

40%

Applied duty in 2015

26.6%

32.0%

34.6%

Meat, Beef and Veal

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

1042

1042

987

1006

960

957

Beginning Stocks

80

80

59

50

21

13

Production

335

335

317

323

310

308

Total Imports

392

392

400

414

454

456

Total Supply

807

807

776

787

785

777

Total Exports

3

0

5

0

5

0

Human Dom. Consumption

745

757

750

774

755

767

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

745

757

750

774

755

767

Ending Stocks

59

50

21

13

25

10

Total Distribution

807

807

776

787

785

777

(1000 HEAD) ,(1000 MT CWE)

Animal Numbers, Swine

Production:

The effect from reducing sow numbers that began in the second half of 2013 has allowed for swine carcass prices to increase in 2014 and into 2015. A PED outbreak during the first half of 2014 coupled with a Foot and Mouth Disease (FMD) outbreak in December of 2014 that continued until May 2015 has resulted in the culling of around 170,000 head of swine under the FMD eradication program. Farmers have increased the size of their swine herds in 2015 to enjoy the high swine carcass prices. According to the Korea Animal Improvement Association, a total of 178,400 head of candidate sows were purchased by swine farms in 2015, a 20.2 percent increase over the level in 2014. These efforts to expand herd size have resulted in an increase of 95,000 head for swine less than 6-months of age in December 2015, compared with the same period in December 2014. This increase in young swine numbers, along with an increase in sow numbers of 21,000 head during the same period, will result in an increase in total herd size in 2016. Given the 10-month lag between the time farmers begin to increase the size of their herd up to the point of slaughter, the increased inventory will have a dampening impact on swine carcass prices in 2016, which has already begun to drop from December 2015.

Korea has already had two cases of FMD in swine farms since coming into 2016. Although, it is not spreading massively due to the vaccination program and Korea's eradication program, it remains to be seen how much the FMD outbreak will have an impact on total herd size in 2016.

Animal Numbers, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Beginning Stocks

9912

9912

10090

10090

10200

10187

Sow Beginning Stocks

895

895

937

937

950

958

Production (Pig Crop)

16812

16812

17100

17600

17350

17995

Total Imports

2

2

2

2

2

2

Total Supply

26726

26726

27192

27692

27552

28184

Total Exports

0

0

0

0

0

0

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

15686

15686

16000

15907

16250

16200

Total Slaughter

15686

15686

16000

15907

16250

16200

Loss

950

950

992

1598

1002

1484

Ending Inventories

10090

10090

10200

10187

10300

10500

Total Distribution

26726

26726

27192

27692

27552

28184

(1000 HEAD)

Meat, Swine

As total swine inventory continues to rise in 2015 and into 2016, total swine slaughter has increased 1.4 percent in 2015 over the previous year's level. As a result, pork production in 2015 also increased by 17,000 MT over the 2014 level. Pork production is projected to increase further in 2016 due to increased swine inventory. However, as swine carcass prices have begun to come down as of December 2015 due to increased supply as well as lower consumption in restaurants due to the economic slowdown, it remains to be seen if farmers will continue to increase the pork supply throughout 2016.

Consumption:

Pork consumption in 2015 increased by over 9 percent due to higher domestic production and increased price competitiveness over Hanwoo beef and imported beef. The ratio of Korean pork prices over chilled U.S. beef prices dropped from 0.73 in 2014 to 0.71 in 2015. During the same period, Korean Hanwoo beef prices jumped from 1.27 times to 1.33 times over Korean pork. Price competitiveness over both domestic and imported beef, coupled with increased supply, allowed for pork consumption to go up over 9 percent in 2015. This increase trend in pork consumption is expected to continue in 2016, as beef supply becomes tighter and the overall economic environment declines, which will induce consumers to seek a lower priced protein source.

Korean consumers are turning more and more towards imported pork as a substitute for domestic pork. Whereas preferences for substituting domestic pork for domestic meats (chicken, Hanwoo beef and duck meat) have all declined, consumers have increased their preference for imported beef and pork.

Trade:

Pork imports increased in 2015 despite a slight increase in domestic production as EU countries continued to supply pork they were not able to sell to Russia. Imports from major EU countries, such as Germany, Spain and Denmark have increased over 42 percent in 2015 over the 2014 level. As domestic pork production increases in 2016, imports are expected to drop slightly but still remain at a high level as the EU will continue to push their oversupply of pork into Korea. Although the most popular pork cut in Korea is pork belly, the supply for this cut in the United States is tight and prices are high. Therefore, USMEF will put effort into marketing in order to increase pork imports for processing use by providing technical support to Korean meat processing companies. This will allow Korean meat processors to use more U.S. pork in producing domestic processed meat products, such as sausages, etc. U.S. pork prices will be more price competitive against the EU pork price in 2016, largely due to lower FTA duties.

Korea: Pork Imports Unit: Thousand dollars and Metric Tons

Country

Annual 2013

Annual 2014

Annual 2015

Value

Volume

Value

Volume

Value

Volume

United States

289,880

103,899

372,590

111,706

428,269

139,753

Canada

72,839

39,676

77,144

34,854

86,332

41,083

Chile

101,751

30,367

93,293

25,169

122,832

31,560

Austria

37,999

10,632

60,639

16,739

61,313

19,301

France

29,796

7,262

43,853

10,529

37,679

9,464

Netherlands

37,133

9,191

40,118

10,027

49,011

14,854

Spain

42,267

18,446

113,247

38,136

164,729

62,966

Belgium

28,815

8,213

37,668

10,562

36,483

11,645

Germany

112,928

32,338

217,147

65,512

231,934

80,816

Denmark

29,394

11,564

30,735

11,843

59,127

20,761

Hungary

8,691

3,216

18,471

6,089

14,450

4,297

Poland

28,480

9,818

18,680

5,826

74

22

Mexico

19,651

7,067

34,356

8,880

34,087

10,158

Others

15,319

6,908

35,910

13,011

34,780

14,047

Total

854,943

298,597

1,193,851

368,883

1,361,100

460,727

Source: KITA

Product Weight Equivalent basis

Includes: HS 020311, 020312, 020319 (fresh/chilled), HS 020321, 020322, 020329 (frozen), 021011, 021012,021019, 160241, 160242, and 160249 (processed pork products)

Meat, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

15686

15686

16000

15907

16250

16200

Beginning Stocks

100

100

41

118

29

118

Production

1200

1200

1210

1217

1230

1240

Total Imports

480

480

600

599

625

590

Total Supply

1780

1780

1851

1934

1884

1948

Total Exports

2

1

2

1

2

1

Human Dom. Consumption

1737

1661

1820

1815

1857

1852

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

1737

1661

1820

1815

1857

1852

Ending Stocks

41

118

29

118

25

95

Total Distribution

1780

1780

1851

1934

1884

1948

(1000 HEAD) ,(1000 MT CWE)