Report Highlights:

Korea's production of beef is expected to decrease in 2015 and 2016 due to reduced cattle supplies. At the same time consumption will increase slightly allowing for greater imports including U.S. beef. Total pork production will continue to increase into 2016, as pork prices remain high. Consumption will also increase slightly. The United States has increased its pork exports to Korea by over 20 percent during the first half of 2015.

Executive Summary:

While domestic Hanwoo beef prices have remained high, Korea's production of beef is expected to decrease in 2015 and 2016 due to reduced cattle supplies. At the same time consumption will increase slightly allowing for greater imports including U.S. beef, which although down slightly in market share for the first half of 2015 is expected to rebound in the latter half of the year.

Total pork production is projected to continue its upward trend into 2016, as pork prices remain high. Pork consumption in 2015 will increase slightly despite high pork prices, as consumer demand at restaurants and for use at home remains strong, and will lead to a 4 percent increase in imports in 2015 over 2014. The United States has increased its pork exports to Korea by over 20 percent during the first half of 2015, compared to the same period in 2014 due to increased price competitiveness over EU suppliers.

Animal Numbers, Cattle

Production:

Korean cattle inventories in 2015 will remain at a reduced size decreasing slightly and continuing to drop in 2016. The downward trend is projected to last for the next 2-3 years and then climb upwards. This trend is partially because many farmers with small-sized operations, consisting mostly of breeding farms, are exiting the cattle business. The total number of farm households dropped 5.1 percent (5,293 households) during the first half of 2015. The low cattle inventory was also affected by government efforts to reduce herds through incentives for slaughtering heifers and cows provided in 2012 and 2013. A total of 200,000 head of cows were slaughtered from early 2012 to May 2013 under the “cattle reduction program," which was enforced to increase the live cattle price. An additional 30,000 to 40,000 head were slaughtered as a result of the government support program to provide direct payment to farmers who stopped raising cattle in 2014. These incentive programs are showing results 40 months later as live cattle prices have soared to record high levels.

However there are efforts to replenish current stocks and longer term efforts to increase stocks. The percentage of cows slaughtered has dropped from 52.8 percent in 2013, to 48.9 percent in 2014, and 48.3 percent for the first 7 months of 2015, reflecting the fact that farmers are holding on to their cattle and replenishing stocks as live cattle prices have begun to increase. Additionally, Hanwoo semen sales have picked up since August 2014 although increased inseminations will not have an immediate impact on Korea's total herd size for approximately 40 months, including 10 months gestation and 27-30 months of feeding before the cows are ready for slaughter. Most research institutes are projecting that the inventory will slowly begin to pick up in 2017.

According to a survey conducted by the Korea Rural Economic Institute, 79.6 percent of farmers hire specialists to artificially inseminate their cows, 20.0 percent of farmers conduct the artificial insemination on their own, while only 0.3 percent of farmers depend on natural breeding.

According to data released by the Korea Institute of Animal Products Quality Evaluation, Korean farmers profited on over 92 percent of all cattle slaughtered in 2014. As cattle prices increased further in 2015, farmers have made profits regardless of the carcass grade. However, the negative effect coming from such high cattle prices is that more farmers are selling lower grade cattle. In order to sell their cattle while the prices are high, farmers are reducing the feeding period and bringing their herd to the slaughter market. This has increased the percentage of lower carcass grades (Grade #2 and #3) from 31.0 percent in 2014 to 36.5 percent during the first 7 months of 2015.

Animal Numbers, Cattle

2014

2015

2016

Market Begin Year

Jan-14

Jan-15

Jan-16

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Cattle Beg. Stks

3342

3342

3190

3190

0

3058

Dairy Cows Beg. Stocks

304

304

305

305

0

305

Beef Cows Beg. Stocks

1166

1166

1123

1123

0

1100

Production (Calf Crop)

900

900

910

865

0

860

Total Imports

0

0

0

0

0

0

Total Supply

4242

4242

4100

4055

0

3918

Total Exports

0

0

0

0

0

0

Cow Slaughter

509

509

446

476

0

450

Calf Slaughter

0

0

0

0

0

0

Other Slaughter

533

533

544

511

0

510

Total Slaughter

1042

1042

990

987

0

960

Loss

10

10

10

10

0

10

Ending Inventories

3190

3190

3100

3058

0

2948

Total Distribution

4242

4242

4100

4055

0

3918

(1000 HEAD)

Meat, Beef and Veal

Production:

Beef production will drop in 2015 as lower cattle inventories result in a lower number of cattle slaughters. Beef production is expected to continue to drop in 2016. The current increase in semen sales indicates there will be increases in herd size in two to three years. Furthermore, the number of cattle under 1-year old has increased from 758,000 head in March 2015 to 776,000 head in June 2015. Although the increase in the number of cattle in this age group is a positive indicator that a greater number of cattle will be put up for slaughter, these animals will not be ready until 2017. Therefore, the total slaughter number in 2016 will continue to decline until 2017.

Consumption:

Beef consumption is expected to increase slightly in 2015 and again in 2016, despite higher prices for both domestic beef and imported beef. Hanwoo beef prices are currently high due to a number of factors: 1) reduced Hanwoo cattle inventory and higher cattle prices, 2) increased demand from market promotion and an increase in butcher shop style restaurants, and 3) substitute demand coming from high pork prices. In May 2015, a scare associated with the outbreak of Middle East Respiratory Syndrome (MERS) in Korea impacted the restaurant business for about a month but sales recovered to the previous level after August as no more positive cases were detected.

Promotional activities have helped to maintain demand for beef. Roughly 5 percent of Hanwoo beef is sold through promotions. In addition to promotional activities, livestock cooperatives have continued to increase butcher-shop style beef restaurants to provide consumers with less expensive beef. Consumers at this type of restaurant purchase beef at retail price and are exempt from the 10 percent value added tax. They pay a service charge for cooking the beef at the restaurant located in the same facility, but are able to enjoy beef at a lower price than they would at a regular restaurant.

The Hanwoo Cattle Growers Association announced that it would intensify its market promotion activities during the second half of 2015 to attract consumers to eat more Hanwoo beef, despite high prices. The association will increase its financial support to retailers by 720 million won (about $700,000) so that the retailers can provide discounts on the price of Hanwoo beef.

The price competitiveness of U.S. beef over Korean beef has diminished as U.S. beef prices increased in 2015 at a faster rate than local beef prices. The price of U.S. chilled and frozen beef increased by 6 percent and 8 percent, respectively, in 2015 over the 2014 level. In addition to record high Hanwoo cattle prices, Hanwoo beef prices continued to increase by 5 percent and 6 percent for Grade 1 and Grade 3 during the same period. It remains to be seen if U.S. beef prices will be more competitive as U.S. cattle stock increases in 2015 and 2016. Korean consumers generally prefer local beef if the price is affordable, so U.S. beef will face stiff price competition in the frozen beef market and will need to enhance its marketing efforts in the chilled beef sector to increase its market share.

Trade:

As consumer confidence in U.S. beef rises, the market share for U.S. beef has also increased from 34.4 percent in 2013 to 36.4 percent in 2014. However, U.S. market share dropped to 33.5 percent during the first half of 2015. While the labor strikes at U.S. west coast ports allowed Korean importers to sell off inventories of U.S. beef purchased at higher prices than the current export price, at the same time, it resulted in Korea importing less U.S. beef. As Korea increases its imports in 2015 to make up for the drop in domestic beef production, U.S. beef imports are expected to rebound during the second half of 2015. However, U.S. beef will have to face competition with Australian beef, which is now enjoying a lower duty under the FTA with Korea. Canada also has a FTA with Korea, but due to a BSE finding on February 13, 2015, imports have been suspended.

Korea: Beef Imports (Thousand dollars and metric tons)

Country

Annual 2013

Annual 2014

January – June 2015

Value

Volume

Value

Volume

Value

Volume

Australia

758,386

147,198

847,850

152,427

478,413

80,829

United States

529,351

92,158

706,371

101,774

357,451

46,714

New Zealand

96,010

25,343

102,705

22,100

45,843

10,019

Mexico

669

232

515

198

164

61

Canada

9,748

2,147

13,140

2,302

6,931

1,137

Others

2,566

660

4,885

1,109

4,037

813

Total

1,396,730

267,738

1,675,466

279,910

892,839

139,573

Meat, Beef and Veal

2014

2015

2016

Market Begin Year

Jan-14

Jan-15

Jan-16

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

1042

1042

990

987

0

960

Beginning Stocks

80

80

59

59

0

21

Production

335

335

320

317

0

310

Total Imports

392

392

400

400

0

454

Total Supply

807

807

779

776

0

785

Total Exports

3

3

3

5

0

5

Human Dom. Consumption

745

745

740

750

0

755

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

745

745

740

750

0

755

Ending Stocks

59

59

36

21

0

25

Total Distribution

807

807

779

776

0

785

(1000 HEAD) ,(1000 MT CWE)

Animal Numbers, Swine

Production:

Total sow numbers have continued to increase since December 2013. The continued upward trend in total inventory has been possible due to high pork carcass prices. The swine industry perceives carcass prices of 4,000 won/kg as the breakeven point. The carcass price has well exceeded this level since March 2014. The continued high price of pork carcass is projected to increase the total inventory further for the second half of 2015 as well as 2016. As can be seen from the following table, the intention of farmers to gradually increase their total herd size as well as sow numbers during the second half of 2015 is high, compared to the same period in 2014.

The effect from increased sow numbers that began in March 2014, and has continued to increase up to June 2015, will result in an increased total swine inventory in 2016, following the 4 month gestation period and about 6 months needed to raise the piglets. This high inventory will manifest in increased slaughter numbers in 2016. In addition, compound feed sales for piglets during the May-July, 2015 period has increased 4.1 percent over the same period in 2014. These piglets will be slaughtered during the period from September to December, 2015, allowing for the total 2015 slaughter to increase by 2 percent over the 2014 level.

The profit level for swine producers has continued to increase after suffering a loss in 2013 when carcass prices dropped below the breakeven point of 4,000 won/kg. The average carcass price in 2014 was 5,022 won/kg. in 2014, and is maintaining an average of 5,380 won/kg. as of August, 2015. Such high profits will induce farmers to increase their herd size during the second half of 2015, and the increased herd size will also impact the total herd size in 2016 with a continued increase.

Animal Numbers, Swine

2014

2015

2016

Market Begin Year

Jan-14

Jan-15

Jan-16

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Beginning Stocks

9912

9912

10090

10090

0

10200

Sow Beginning Stocks

895

895

937

937

0

950

Production (Pig Crop)

16812

16812

17600

17108

0

17350

Total Imports

2

2

2

2

0

2

Total Supply

26726

26726

27692

27200

0

27552

Total Exports

0

0

0

0

0

0

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

15686

15686

16200

16000

0

16252

Total Slaughter

15686

15686

16200

16000

0

16252

Loss

950

950

1000

1000

0

1000

Ending Inventories

10090

10090

10492

10200

0

10300

Total Distribution

26726

26726

27692

27200

0

27552

(1000 HEAD)

Meat, Swine

Production:

Pork production is projected to continue to increase into 2016 as a result of high total swine inventories. The effect on total pork production from the FMD outbreak that began on December 3, 2014, is minimal so far with the total number of swine culled up to August, 2015 limited to 117,000 head from 185 farms. Considering that the average daily slaughter number is around 60,000 head and total swine inventory is over 10 million head, the culled number has not dampened total pork production in 2015. As swine carcass prices continue to maintain a level that attracts producers to increase their herd size, the total pork production is projected to continue its upward trend into 2016. One potential threat presented by increased production is a possible drop in carcass prices if stocks increase to the point of an oversupply. However, demand for domestic pork is projected to remain strong, due to a camping/barbequing boom, higher income consumer preferences for domestic pork, the speedy eradication of MERS and resumption in eating out along with the seasonal demand in late November/early December when consumers boil pork to enjoy with freshly made winter kimchi.

Consumption:

Pork consumption in 2015 increased slightly despite high pork prices. There are several reasons for increased pork consumption including: 1) substitute demand in place of duck and poultry consumption as over 30 percent of the duck inventory was culled due to HPAI; 2) popularity of television programs featuring families camping has spurred consumption of pork for BBQ purposes; 3) policy allowing butcher shops to produce and sell processed meat products since October 30, 2013 has increased the demand for unpopular cuts such as picnic, ham and tenderloins; 4) promotional activities by the Korea Swine Association to increase the consumption of cuts other than pork belly, thereby increasing the overall consumption of pork; 5) increased use of pork by the catering industry and processed pork products.

As can be seen from the following table, the market share of pork sold at butcher shops has dropped significantly from 37 percent in 2012 to 26 percent in 2014, and has switched to huge discount stores and supermarkets that have the financial capability to conduct aggressive promotional activities, such as free tasting, discounted prices, etc.

The amount of single-rib bellies, which traditionally have been the most favorite and most expensive cut, is gradually dropping, whereas consumption of pork ribs, collar butts and loin are increasing. This phenomenon is due to the promotional activities of the Korea Swine Association to increase consumption of other cuts and increased use for processed pork products.

Trade:

Pork imports increased by 35 percent during the first half of 2015 compared to the same level in 2014. High domestic pork prices have caused importers to increase pork imports during the first half of 2015 but have resulted in increased stock of imported pork as the level of increased pork imports exceeded the level of increased consumption. The high inventory of imported pork is expected to reduce pork imports during the second half of 2015, resulting in an overall increased import of 4 percent over the 2014 level.

The United States has increased its pork exports to Korea by over 20 percent during the first half of 2015, compared to the same period in 2014. This is attributable to the increase in its price competitiveness over EU suppliers as U.S. pork supply increased by 5.1 percent in 2015. Low feed costs in the United States have allowed for higher carcass weights. The following table shows that U.S. pork prices will be more price-competitive against EU pork price in 2015, largely due to lower FTA duties.

Category

Country

Unit

2014

2015

2019

2024

Exchange rate

Won / US dollar

1,053

1,095

1,035

1,038

Import price

U.S.A.

U.S. dollar / Kg.

3.08

3.03

3.03

3.07

EU

3.38

3.32

3.32

3.37

Other

2.55

2.50

2.50

2.54

Import duty

U.S.A.

Percent

8.0

4.0

0.0

0.0

EU

15.0

13.0

3.0

0.0

Other

25.0

25.0

25.0

25.0

Purchase price by wholesaler

U.S.A.

Won / Kg.

4,034

3,976

3,623

3,681

EU

4,697

4,699

4,067

4,035

Other

3,834

3,917

3,706

3,765

Korea: Pork Imports

Country

Annual 2013

Annual 2014

January - June 2015

Value

Volume

Value

Volume

Value

Volume

United States

289880

103899

372590

111706

254092

76554

Canada

72839

39676

77144

34854

47101

22559

Chile

101751

30367

93293

25169

59550

14626

Austria

37999

10632

60639

16739

31834

9128

France

29796

7262

43853

10529

20132

5051

Netherlands

37133

9191

40118

10027

25826

7450

Spain

42267

18446

113247

38136

79956

29573

Belgium

28815

8213

37668

10562

18073

5481

Germany

112928

32338

217147

65512

121807

39488

Denmark

29394

11564

30735

11843

24333

8276

Hungary

8691

3216

18471

6089

8695

2460

Poland

28480

9818

18680

5826

74

22

Mexico

19651

7067

34356

8880

16030

4621

Others

15319

6908

35910

13011

18950

7360

Total

854943

298597

1193851

368883

726453

232829

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-14

Jan-15

Jan-16

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

15686

15686

16200

16000

0

16252

Beginning Stocks

100

100

41

41

0

23

Production

1200

1200

1240

1224

0

1243

Total Imports

480

480

510

500

0

510

Total Supply

1780

1780

1791

1765

0

1776

Total Exports

2

2

2

2

0

2

Human Dom. Consumption

1737

1737

1750

1740

0

1750

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

1737

1737

1750

1740

0

1750

Ending Stocks

41

41

39

23

0

24

Total Distribution

1780

1780

1791

1765

0

1776

(1000 HEAD) ,(1000 MT CWE)