S.Korea's soybean consumption in 2016/17 is forecast at 1.42 MMT, unchanged from 2015/16 April 3, 2016

Report Highlights:

Soybean consumption in MY 2016/17 is forecast unchanged from the current marketing year at 1.42 MMT, while trade is also expected to remain stable at 1.3 MMT of which soybeans for crushing stay at 1MMT. Imports of food grade soybeans in MY 2016/17 are forecast around 290,000 MT with the U.S. expected to retain 70 to 80 percent market share. Soybean meal imports for MY 2016/17 are expected to stay at 1.75 MMT due to static livestock inventories. Meanwhile, soybean oil consumption is expected to remain at 470,000 MT because of stagnant demand in the bio-diesel sector, with rising demand for more cost effective palm oil at 480,000 MT.

Oilseed, Soybean

Production:

Soybeans account for approximately 67 percent of Korea's total oilseed production, while sesame and perilla combine for about 27 percent of the total in MY 2014/15. The remainder largely consists of rapeseed and peanuts. However, the Korean government has not released rapeseed production numbers since CY 2010.

The Korean Rural Economic Institute (KREI) conducted a nationwide planting intention survey of 784 soybean farmers, December 24-31, 2015. According to the survey results, MY 2016/17 soybean area is forecast to increase to 67,880 hectares, up 11,214 hectares (20 percent) from the previous year's harvested area. This increase is due to domestic soybean prices that have been bullishly affected by lower production last year. Using the KREI survey results as a benchmark, Post is forecasting soybean production for MY 2016/17 to increase by 16 percent from the previous year, on a five-year average yield.

In MY 2015/16, soybean production decreased to 103,504 metric tons (MT), down 35,736 MT (25 percent) from the previous year due mainly to declining soybean acreage coupled with lower yield, caused by droughts in the middle part of the Korean peninsula.

In CY2016, government purchases of 2015 soybean crop were approximately 11,200 MT, reaching about 56 percent of purchasing target, as farmers opted to sell their beans through both the government purchase channel and commercial markets because of recent bullish commercial trends in the soybean wholesale market since fall 2015. The bullish commercial market prices caused by smaller production than previous years induced farmers to sell their soybeans more to the commercial markets than the governmental purchase program.

Ministry for Agriculture, Food, and Rural Affairs (MAFRA)

Notes:

1/ FAS/Seoul estimates.

2/ In-shell

3/ Data will be available around May 2016

Consumption:

Soybeans account for the majority of oilseed consumption. Consumption in MY 2016/17 is forecast to remain unchanged from the current marketing year at 1.42 million MT (MMT) amid stagnant domestic production, of which 1.0 MMT will go for crushing and 370,000 MT for food processing use in items like tofu, soymilk and soy sauce with others for feed, seed and waste remaining constant. All domestic production goes to food use. Future growth in overall soybean consumption is expected to be minimal. Consumption for crushing will be constant at the level of one million MT if CJ Corporation, a leading Korean soybean crusher, continues soybean crushing in their flexible crushing facilities, which are convertible by the comparison of crushing margins between rapeseed and soybeans.

In MY 2015/16, soybean consumption is expected to stay around 1.42 MMT due to less consumption of food soybeans caused by declining domestic soybean production, consisting of one million MT for crushing, 370,000 MT for food and 50,000 MT for others, respectively.

In MY 2014/15, because of a greater crushing margin, Korean crushers increased soybean crushing to 1,017,400 MT, up 13 percent from the previous year. Bearish trend of international soybeans prices led to the increase of locally processed soybean for soybean meal for feed.

Source: Korea Agro-Fishery & Food Trade Corporation (aT)

Note: Quantity is on the basis of cleaned soybeans.

1/ Government, military employees and others

2/ Feed

Trade:

Soybeans account for more than 90 percent of total oilseed imports, of which approximately 80 percent are used for crushing in the latest marketing year. Due to constant demand for imported soybeans, MY 2016/17 soybean imports are forecast to remain unchanged from the current marketing year estimate of 1.3 MMT. MY 2015/16 soybean imports are expected to increase four percent from the previous year due to a statistical adjustment of food grade soybeans imports in MY 2014/15. In MY 2014/15, total soybean imports were 1,121,028 MT on customs cleared basis, consisting of 1,005,603 MT for crushing purpose and 115,281 MT for food processing purpose. Korea Customs Service (KCS) investigated importers of food grade soybeans, who were suspected of price manipulation, putting some pending soybeans imported earlier months prior to October 2015, in December 2015, on the basis of customs clearance. FAS/Seoul adjusted the imports of food-grade soybeans to 240,127 MT from 115,284 MT on the customs clearance basis in order to meet actual supply and demand, reflecting the adjusted numbers of imports into PS&D.

Crushing

Imports of crushing soybeans in MY2016/17 are forecast to remain unchanged from the current marketing year's estimate of 1.0 MMT in consideration of crushers' preference to process soybeans rather than rapeseed.

Imports during the first three months of MY2015/2016 (Oct-Dec) reached slightly more than 230,000 MT, with an additional 280,000 MT contracted for delivery during Jan - Jun 2015. Though soybean imports for crushing during the first quarter of MY2015/16 were up eight percent over the same period of MY 2014/15, crushers are expected to import a level similar to the previous year to meet constant demand of soybean meal for animal feed.

The CY 2016 autonomous crushing soybean quota is 1.5 MMT with an adjustable in-quota tariff, which was cut from three percent to zero. Under the KORUS FTA, the duty on U.S. crushing soybeans fell to zero immediately as of March 15, 2012. In MY 2014/15 the majority of crushing beans came from Brazil, followed by the United States and Paraguay.

Source: Korea Customs Service (KCS)

a/ FAS Seoul adjusted imports of food grade soybeans to 240,127 MT from 115,284 MT based on customs clearance because Korea Customs Service reported cumulative numbers of food grade soybeans imports in December 2015.

Source: Korea Customs Service (KCS)

a/ October – December 2014

b/ FAS Seoul's statistical adjustment to minimize difference between actual consumption and customs clearance for food grade soybeans in MY 2014/15.

Food Use

The Korea Agro-Fishery and Food Trade Corporation (aT), the government's state trading arm, controls the bulk of marketing of non-GMO food grade soybeans for food processing under its autonomous WTO TRQ. aT distributes soybeans to end-users and charges a mark-up for margins that support domestic crop production in addition to handling costs and cleaning, which involves removing any foreign material and broken soybeans upon arrival.

Under its CY 2017 anticipated WTO TRQ-based procurement plan, aT contracted for 170,000 MT of soybeans on basis trading contracts at the end of 2015, with delivery during the first half of CY 2017. Accordingly, in MY 2016/17 imports of food grade soybeans are forecast in the range of 280,000 MT - 300,000 MT, under autonomous WTO TRQ and FTA TRQs, with the majority coming from the United States followed by China, Canada, Brazil and Australia. The United States is expected to retain 70 – 80 percent of the import market for food-use soybeans. The gains under the KORUS FTA will further strengthen the U.S. position. U.S. food grade soybeans are primarily used in products like tofu, soybean paste/sauce and soymilk, while China mainly supplies soybeans for sprouting.

Under its CY 2016 autonomous WTO TRQ of 252,000 MT, aT is expected to directly import 240,000 MT of soybeans, of which 210,000 MT is for food processing and 30,000 MT is for sprouting. The import license for the remaining 12,000 MT has been allocated to end-users, who can contract with soybean suppliers directly. In late 2014, aT had already purchased 180,000 MT on basis trading contracts from the United States for delivery during the first half of CY 2016. The remaining 30,000 MT will likely be purchased off the spot market sometime in CY 2016 with delivery during the second half of CY 2016. Under FTA TRQ, Korea is expected to import about 40,000 MT from the United States, China, Australia and Canada who have FTA TRQ agreements. Therefore, total imports of food grade soybeans will be in the range of 290,000-300,000 MT in CY 2016.

In CY 2015, Korea imported 293,092 MT of food grade soybeans, consisting of 261,086 MT of yellow soybeans and 32,007 MT of soybeans for sprouting, under combined autonomous WTO TRQ and FTA TRQ. Under autonomous WTO TRQ, the state trading company imported 231,261 MT and end-users with import licenses imported 11,173 MT, respectively. Under FTA TRQs, Korea imported 25,293 MT from the United States, 476 from Australia and 4,847 MT from Canada, respectively.

aT distributed about 166,782 MT of imported food-quality soybeans (excluding soy by-products and sprouts) at an average price of Korean Won1,020 per KG (or $903/MT, applicable exchange rate (Korean Won per USD): 1,130 on average in 2015), which was unchanged from the previous year. During this period, the average price of imported soybeans for food processing was $706/MT (CIF). Based on these figures, aT made an estimated $33 million in selling imported food grade soybeans to end-users. However, as Korean soybean farmers groups and NGOs have complained about the government selling price of imported soybeans being much cheaper than domestically grown soybeans, aT is anticipated to increase the selling price of imported soybeans in the near future.

Source: Korea Customs Service (KCS)

a/ Canada (7,584) and Australia (4,836)

b/ Canada (6,848) and Australia (1,220)

c/ FAS Seoul adjusted imports of food grade soybeans to 195,737 MT from 70,894 MT based on customs clearance because Korea Customs Service reported cumulative numbers of food grade soybeans imported from the United States in December 2015.

The government set the 2016 autonomous WTO TRQ for U.S. #1 grade soybeans at about 252,000 MT, consisting of approximately 30,000 MT of soybeans for sprouting and 210,000 MT for food processing. The TRQ also includes a 12,000 MT allocation for direct import under an import license quota, consisting of 10,000 MT of soybeans for sprouting and 2,000 MT of food grade soybeans, which will effectively allow end-users or importers to bypass aT and buy from direct sources. The applicable in-quota tariff rate is 5 percent, while the out-of-quota tariff rate is a prohibitive 487 percent, or 956 Korean won (or US$ 0.87) per kg, whichever is greater.

Under the KORUS-FTA, Korea has established a zero tariff rate quota for 10,000 MT of food-grade identity-preserved (IP) soybeans in the first year of the agreement in CY 2012, increasing to 20,000 MT in year two and 25,000 MT in year three. For years four and beyond, the TRQ grows three percent annually in perpetuity.

As 2016 represents year five of the agreement, the quota for this year is 26,523 MT. The TRQ is administered by associations of food-grade soybean processors, which gives U.S. suppliers direct market access to these processing companies. The KORUS FTA TRQ of 26,523 MT in CY 2016 has already been allocated to soybean processors. TRQ fill rate under KORUS FTA has been improved to 98 percent in CY 2015 from 35 percent in CY 2012. In CY 2015, Korean soybean processors successfully imported 25,293 MT, 98 percent of 25,750 MT of the KORUS FTA TRQ by securing IP food grade soybeans through farming contracts in advance.

As the Korea-Canada FTA went into effect on January 1, 2015, Korea established a duty free quota for 5,000 MT of food grade identity preserved soybeans in the first year, increasing by 2,500 MT annually up to 15,000 MT in 2019 for the first five years and continuing to increase by 400 MT annually up to 17,000 MT in 2024, the tenth year. For years eleven and beyond, the in-quota quantity will be fixed at 17,000 MT annually. In CY 2016, Korea is expected to import 7,500 MT of Canadian IP soybeans under the FTA TRQ. In CY 2015, Korean soybean processors imported 4,847 MT from Canada, 97 percent of 5,000MT of the FTA TRQ.

Korea set up a duty-free quota for 500 MT of Australian food-grade IP soybeans in 2014 for the first year when the Korea-Australia FTA took effect on December 12, 2014. An annual increment of 50 MT becomes 550 MT in 2015 for the second year, reaching 1,000 MT in 2024, the eleventh year. The in-quota quantity shall remain fixed at 1,000 MT for years 12 and beyond. In CY 2016, Korea is expected to import 600 MT of Australian IP soybeans under the FTA TRQ. In CY 2015, Korean soybean processors imported 476 MT from Australia, 87 percent of 550 MT of the FTA TRQ.

Korea established a duty free quota for 10,000 MT of Chinese food grade IP soybeans under Korea-China FTA, effective on December 20, 2015, consisting of 7,000 MT for IP soybeans for food processing and 3,000 MT for soybeans for sprouting in perpetuity. However, there was no import from China due to lack of lead time in CY 2015.

Soybean, Oilseed PS&D

Source: Korea Customs Research Institute, Tariff Schedules of Korea.

Note: The Seed Industry Act restricts imports of listed commodities for planting seed purposes.

1/The number in parenthesis is the in-quota tariff rate assessed on 1.5 million tons of soybeans imported for crushing and feed purposes for CY 2016.

2/ An applied duty rate of 5 percent is applied to 250,000 tons of food grade soybeans imported and administered by the Korea Agro-Fishery & Food Trade Corporation (aT) under the WTO TRQ. Soybeans imported out-of-quota by private importers will be assessed a tariff rate of 487 percent or Korean won 956/Kg, whichever is greater.

3/The in-quota amount is 4,907.3 tons on a shelled basis. Peanuts imported out-of-quota are assessed a tariff of 230.5 percent.

4/The number in parenthesis is the in-quota tariff rate assessed on all cotton seed for feed in the CY 2016.

5/The in-quota amount under the WTO TRQ is 6,731 tons. Sesame imported out-of-quota is assessed a tariff of 630 percent or Korean won 6,660/Kg, whichever is greater.

6/ 40 percent or Korean won 410/Kg, whichever is greater.

Meal, Soybean

Meal, Rapeseed

Production: Almost all of the vegetable meal produced in Korea is made from imported soybeans. Soybean meal production in MY 2014/15 increased to 805,781 MT (79.2% applicable extraction rate basis), up 13% from the previous year, to meet a greater demand for feed. There are only two soybean crushers in Korea, namely CJ Corporation and Sajo O&F Co Ltd with a crushing ratio of 65:35 percent. CJ Corp's crushing capacity remained unchanged at 2,100 MT per day, with Sajo O&F remaining unchanged at 1,100 MT per day from the previous year, respectively. MY 2016/17 demand for crushing soybeans will remain flat at 1.0 MMT as crushing margins remain steady. Soybean demand for crushing is steady, equivalent to the country's 1.0 MMT crushing capacity. Soybean meal production for MY 2016/17 is forecast to hold steady at 792,000 MT with an extraction rate of 79.2 percent and crude protein content of 44 percent, remaining unchanged from the current marketing year. MY 2015/16 soybean meal production is expected to stay around at 792,000 MT, a slightly lower level compared to the previous year with better soybean crushing margin than rapeseed continued. In an effort to strengthen their competitiveness against imported meal from South America, these companies have started producing de-hulled Hi-pro soybean meal with 47-percent protein content by blending U.S. and Brazilian soybeans. In CY 2015, production of de-hulled Hi-pro soybean meal with 47-percent protein fell by a half to 23 percent of total soybean meal production as imports of lower-protein soybeans prevented local crushers from producing enough hi-pro meal for export.

The breakdown of production by company and product follows. In CY 2015, CJ produced 47-percent protein dehulled meal and 45-percent protein meal in a ratio of 36:64, decreasing the production of 47-percent protein meal from the previous 67:33 ratio. However, Sajo produced 46-percent and 45-percent protein meal at a ratio of 47:53, increasing the production of 46 percent protein meal in view of the previous 27:73 ratio.

Source: Soybean Crushing Industry

Note: Day=24 hours processing basis for 330 days

a/ of them, 700 MT have been converted to crush for either rapeseed or soybeans depending on crushing margin since December 2012.

Consumption:

Nearly all imported and domestically produced soybean meal is used in compound feed production. Korean feed millers prefer soybean meal since it is more readily available than other oil meals. In MY 2014/15, after corn, soybean meal was the second most widely used ingredient in compound feed production, accounting for about 12 percent of the total compound feed production, up one percent point to account for the decrease of feed-wheat use as a protein resource, as well as offset the decrease of palm kernel meal and rapeseed meal with international price of soybean meal decreasing. In MY 2014/15, feed-wheat use declined to 7.8 percent of total compound feed production from the previous year's 8.7 percent.

MY2015/16 soybean meal consumption is predicted to stay at 2.4 MMT, as the livestock sector continues to maintain high animal inventories for the marketing year as animal operations have kept increasing animal numbers in swine, cattle and poultry sectors. However, ongoing outbreaks of HPAI and FMD may adjust the level of compound feed production later in the year.

MY 2016/17 soybean meal consumption is forecast to remain at 2.4 MMT, unchanged from the current marketing year, as local animal inventories are expected to maintain similar levels as MY 2015/16.

Rapeseed meal consumption for feed in MY 2016/17 is forecast to stay around 500,000 MT. MY2015/16 consumption is expected to increase two percent to 500,000 MT from the previous year, as animal inventories are affected by ongoing current bullish trend of beef and pork prices. In MY 2014/15, feed millers consumed 489,000 MT, down eight percent from the previous year due to substitution of lower-priced soybean meal.

Trade:

Soybean meal imports during MY 2016/17 are forecast to remain at 1.75 MMT, unchanged from the current marketing year as Korean livestock inventories remain stagnant. Despite an increase of 42 percent in soybean meal imports for the first three months over the same period of MY 2014/15, the MY 2015/16 soybean meal import estimate is expected to stay around 1.75 MMT, a slight increase over the same period of previous marketing year. In MY 2014/15, higher beginning stocks limited actual soybean meal imports at 1.74 MMT.

Rapeseed meal imports during MY 2016/17 are forecast at 520,000 MT, unchanged from the current marketing year due to strong demand for feed production. In MY 2015/16, rapeseed meal imports are expected to increase slightly due to constant demand from feed sectors. Korean feed millers imported 499,300 MT of rapeseed meal in MY 2014/15, down 10 percent over the previous marketing year with international soybean meal market continuing bearish trend in CY 2015. India has been the major supplier of rapeseed meal to Korea, and is expected to remain the top supplier for the foreseeable future. Palm kernel meal and copra meal imports are each forecast at approximately 800,000 and 400,000 MT in both MY 2015 and MY 2016, respectively. DDGS imports are also forecast to be strong to meet a greater demand for vegetable protein from feed sectors, if feed wheat supply is limited.

The CY 2016 autonomous soybean meal WTO TRQ was initially set at 2.451 MMT with a zero percent in-quota import duty, unchanged from the previous year. The CY2016 WTO TRQ for DDGS is set at unlimited volume with a zero percent in-quota import duty under FTAs. In order to help the livestock industry, the Korean government has maintained the autonomous zero duty TRQs for other vegetable protein meals such as cottonseed meal and cottonseed hulls. TRQ volumes for copra meal and palm kernel meal were eliminated due to implementing zero duty under the Korean-ASEAN FTA.

Under the Korean-ASEAN FTA, copra and palm kernel meals are imported duty free from South East Asian countries such as Indonesia, Malaysia and the Philippines. Indian soybean meal is imported duty free under the Korea-India Comprehensive Economic Partnership Agreement (CEPA). As part of the KORUS FTA, Korea eliminated import duties on vegetable protein meals such as soybean meal (2304.00.0000), DDGS (2303.30.0000), and cottonseed meal (2306.10.0000) since March 15, 2012.

Export

Korea exports some locally-crushed soybean meal that is less competitive than imported meal. Soybean meal exports for MY 2016/17 are forecast to remain unchanged from the current marketing year's estimate of 100,000 MT. The major markets for Korean soybean meal are Japan followed by Vietnam, Indonesia, Malaysia, and Cambodia.

Soybean Meal PS&D

Soybean Meal Import Trade Matrix

Rapeseed Meal PS&D

Rapeseed Meal Import Trade Matrix

Source: Korea Soybean Processing Association

1/ based on crushers' applicable extraction rate

Korea: Feed Ingredients Use for Animal

(October/September Basis)

Source: Korea Feed Association (KFA), Ministry for Agriculture, Food, and Rural Affairs (MAFRA)

a/ FAS/ Seoul forecast

b/ include ducks, pet food, rabbit, horse, sheep, deer, quail etc.

Source: Korea Customs Service

The figures in parentheses are the autonomous quota tariff rates for CY 2016.

a/ The applied duty is assessed on the unlimited volume of residues of brewing or distilling dregs and waste.

b/ The applied duty is assessed on the first 2.451 million tons of soybean meal.

c/ The applied duty is assessed on the unlimited volume of cottonseed meal for feed and 15,000 tons for mushroom growing.

d/ The applied duty is assessed on the unlimited volume of cottonseed hull for feed and 15,000 tons for mushroom growing.

Oil, Soybean

Oil, Palm

Production:

As CJ Corporation, a leading Korean soybean crusher, returned to soybean crushing from canola seed crushing in the second half of 2013. Due to narrow canola processing margin, MY 2014/15 soybean oil production reached 195,300 MT, up 13 percent over the previous marketing year. Current MY 2015/16 soybean oil production is expected to remain stable at 190,000 MT, a similar level from the previous marketing year unless crushing margins between soybeans and rapeseed are overturned in its flexible crushing facilities. MY2016/17 soybean oil production is forecast to follow the current marketing year.

Consumption:

Soybean oil and palm oil accounted for 73 percent of the country's total oils supply in MY 2014/15. The majority of soybean oil is consumed in the HRI sector and home, and more recently in the biodiesel sector. Food processors and restaurants rely heavily on imported soybean oil while locally processed soybean oil is generally for home use. Palm oil is primarily used for food processing, especially ramen (instant noodle) production, since it is more functional and cheaper than soybean oil. Palm oil has been increasingly used in local biodiesel production.

Soybean oil consumption in MY 2016/17 is forecast at 470,000 MT, unchanged from the current marketing year's estimate because of stagnant demand for bio-diesel production as it is less cost effective than palm oil. Meanwhile, palm oil consumption during this period is forecast at 450,000 MT, unchanged from the current marketing year because of stagnant demand from the bio-diesel sector.

Trade:

The biodiesel sector has been the main driver behind rising edible oil imports since MY 2007/08. MY 2016/17 soybean oil imports are forecast at 300,000 MT, unchanged from the current marketing year's estimate due to limited demand for biodiesel caused by comparatively cheaper palm oil. In MY 2015/16, soybean oil imports are stagnant at 300,000 MT, slightly increasing from the previous year. Soybean oil imported from South America, particularly Argentina, is much more price-competitive than domestically-produced soybean oil made from imported soybeans.

In MY 2016/17, palm oil imports are forecast to increase to 480,000 MT, mainly due to rising demand from the biodiesel industry as Korean government plans to implement revised regulations to raise the mandatory inclusion rate to 2.5 percent from current 2 percent in the second half of 2016. Palm oil imports for biodiesel are expected to reach 270,000 MT, up 13 percent from the current marketing year estimate as it's more competitively-priced than other oil-based feed stocks. Palm oil imports for use in the local soap industry are expected to remain steady at 20,000 MT. In MY 2015/16, palm oil imports are expected to increase to 450,000 MT to meet constant demand for biodiesel purpose than the previous year.

Palm oil has been imported duty free under Korea-ASEAN FTA since June 2007.

Under the KORUS FTA effective since March 15, 2012, Korea's 5.4 percent duty on imports of crude soybean oil is scheduled to be phased out in 10 equal annual reductions, while the 5.4 percent on refined soybean oil will be phased out in five equal annual reductions. Therefore U.S. refined soybean oil is importable at duty free in CY 2016. Korea also eliminated the import duty on palm oil immediately under the KORUS FTA.

Soybean Oil PS&D

Palm Oil PS&D

Source: Korea Customs Research Institute, Tariff Schedules for Korea

1/ In-Quota tariff rate under the WTO TRQ. Quota is 668 tons. The out-of-quota tariff rate is 630 percent or 12,060 Won/Kg, whichever is greater.