Korea. Livestock and Products Annual. Aug 2014 Aug. 19, 2014
Domestic beef production fell in 2014 while imported beef increased to make up the shortfall. Higher prices for US beef were somewhat offset by preferential duty under the KORUS FTA, but overall beef consumption will not rise rapidly due to a number of domestic factors including a sluggish economy, decreased dining out, and diminished price gap between US and domestic beef price. However, imported beef is expected to increase in 2015 as domestic production continues to fall.
Pork imports are expected to increase in 2015 as domestic production falls. However, US suppliers will have to overcome price competition from the EU as the US supply is expected to be very tight due to the PED outbreak. Pork imports increased by 7.3 percent in the first half of 2014, but imports from the US dropped 1.9 percent during the same period.
Animal Numbers, Cattle
Total Korean beef cattle inventory continues to drop slowly but gradually as many farmers with small-sized operations, consisting mainly of breeding farms that could not afford high feed prices and coupled with the government plan to compensate farmers that stopped raising cattle. The total number of cattle farms dropped over 16 percent in one year from 136,898 farms in June 2013 to 114,128 farms in June 2014. However, due to increased calf prices that continued an upward trend since September 2013 and escalated since May 2014, farmers began to retain their cow herd for breeding purposes. The percentage of cow slaughter dropped from 52.8 percent in 2013 to 49.8 percent during the first seven months of 2014. This somewhat slowed the decline in inventory, but was not sufficient to change it to an upward trend. This trend was reflected in a survey conducted by the Korea Rural Economic Institute (KREI), where the indicator for farmers’ intent to increase herd size continues negative up to June 2014. Another estimate by KREI shows the potential for herd size of calves under 1 year old in 2014 is more negative than that of 2013. Both of these projections are reflected in the number of Hanwoo cattle semen sales. Although semen sales have picked up slightly since April 2014 due to high calf prices, it is far less than the level in 2012 when cattle inventory was almost at its peak. KREI is also projecting that the cattle inventory will continue to gradually drop in 2014 until it reaches its bottom level in 2017.
The calf crop in 2015 will drop due to both lower cow inventory and the decrease in sales of semen for artificial insemination. Consequently, as total inventory drops, the 2015 slaughter numbers are projected to fall by over 7 percent. Year-end inventory for 2014 is projected to be slightly higher than Post’s earlier estimate of 3.1 million head as farmers are expected to rebuild their inventory in 2014 due to higher live cattle prices. Another factor that will limit the increase in cattle inventory is some provincial governments are paying 550,000 won (about $550) per head for cow sterilization through removal of the ovaries. Sterilized cows are being fed for beef purposes.
Based on semen sales data, the Korea Rural Economic Institute (KREI) projected that the potential production of calves will continue to drop through December 2014 compared to the same period in 2013. However, as calf prices continue to go up in 2014, some farmers are looking into the possibility of increasing their herd size. The semen sales data for the first 6 months of 2014 is 2.8 percent higher than the same period in 2013.
According to data released by the Korea Rural Economic Institute and the Korea Institute of Animal Products Quality Evaluation, about 37 percent of all cattle slaughtered in 2011 were sold at a loss by farmers. This percentage increased to 49 percent in 2012 as farmers sent lower quality cows for slaughter due to high feed prices and low cattle prices. This trend improved to 38 percent in 2013 as the ratio of steers increased. Farmers recognized the need to improve the quality of their beef cattle in order to avoid monetary losses.
Meat, Beef and Veal
As farmers continue to reduce calf production in 2014, and as some farmers try to retain their cows for breeding purposes due to increased calf prices, total slaughter is projected to continue its downward trend in 2015. As a result of the drop in slaughter numbers, total 2015 beef production is projected to decrease by 7.4 percent over the 2014 level. The number of cattle under 1 year old in June 2014 was 742,000 head, compared to 842,000 head in June 2013. The decrease in the number of cattle in this age group will result in lower herd size to be sent for slaughter in 2015.
As total slaughter began to drop in 2014 due to lower cattle inventory, domestic beef prices have increased. The average price for domestic Bulgogi cut during the first seven months of 2014 increased by 4.7 percent and 5.2 percent for Grade 1 and Grade 3 over the 2013 average price for the same cut. The increase in the price of Grade 3 is due to continued promotional activities by the producer group which lifted the price for this grade. The substitute demand for beef resulting from the HPAI outbreak in March 2014, and high pork prices caused by PED, also attributed to the increase in domestic beef prices. However, despite the substitute demand caused by HPAI and PED and the producer organization’s aggressive promotion of domestic beef consumption, higher prices and a stagnant economy will keep domestic consumption from rising rapidly for the remainder of 2014 and into 2015. The ferry accident that took over 294 lives in April 2014 has kept overall consumption of all consumer goods at a low level.
The gloomy atmosphere caused by the ferry accident and a sluggish economy kept U.S. beef consumption from increasing in 2014 as people are not dining out as often where the bulk of U.S. beef is consumed. Over 60 percent of U.S. beef is consumed in hotel, restaurant and institutional use. Another factor that has kept U.S. beef consumption low is that the price advantage of U.S. beef over Korean beef has diminished as U.S. beef prices continued to increase in 2014 whereas local beef prices remained stable due to oversupply. Consumption of imported beef is projected to increase in 2015 as domestic production drops further in 2015.
Comparing beef prices among competing products, U.S. beef prices were squeezed by both lower domestic prices and a greater price gap with other imported beef in addition to domestic pork. In fact, the price of lower quality Hanwoo beef (Grade 3) was lower than U.S. chilled beef prices. Such low domestic beef prices are more appealing to consumers than imported beef as consumers generally prefer domestic beef if the price is affordable.
As domestic beef production dropped in 2014, beef imports increased to make up for the shortage in supply. The higher prices for U.S. beef were offset to some extent by the lower preferential duty from KORUS FTA. U.S. beef is subject to a 32 percent duty compared with a 40 percent duty for beef coming from major competitors. Australia signed a Free Trade Agreement with Korea on February 10, 2014. However, it still has to undergo legal review and ratification by the National Assembly before it goes into effect. As the FTA with Australia calls for a 15 year phase out for beef import duties, the United States will continue to benefit from the lower duty until it comes down to zero. Canada and Korea also reached an agreement on an FTA between the two countries on March 11, 2014. This FTA also calls for a 15 year phase out in beef import duty and has to undergo similar legal processes as the FTA with Australia before becoming effective.
The ban by Russia on U.S. agricultural exports will have little impact on the Korean market due to the following reasons: 1) Beef was not being exported to Russian because of ractopamine, and 2) There were two pork plants that were shipping minimal amount of pork to Russia under the “Ractopamine free program.” However, the amount is minimal to have any impact on Korea.
Animal Numbers, Swine
Efforts by Korean swine producers to reduce sow numbers in 2013 were only in effect the second half of 2013. However, coupled with lower piglet production caused by PED, the reduction of sow numbers began to have an impact on the carcass prices since the beginning of 2014. Swine carcass prices have continued to rise from 3,629 won/kg in January 2014 to 6,173 won/kg in June 2014 (equivalent to about $3.51 and $5.97). Prices dropped slightly in July as processed meat producers reduced their production and allowed some of their carcass inventory to be sold in the wholesale market.
The impact from higher carcass prices in increasing the herd size in 2014 will be minimal. A KREI survey, conducted in June 2014 on the intention of farmers to gradually increase their herd size in 2014, shows that it will increase by less than 1 percent by the end of 2014. The more accurate factor that shows the change in the inventory is compound feed sales for piglets under 20 kilograms. Compound feed sales for piglets under 20 kilograms (new born and weaner), which is an indicator for the slaughter number 5 months afterwards, dropped 3.7 percent during the first 6 months of 2014 compared to the same period in 2013. Also, PED is projected to reduce inventory by 5-8 percent over the 2013 level during the second half of 2014. According to KREI, PED broke out in 26.8 percent of the sample farms and reoccurred in 41.2 percent of the farms where they had a previous case. The following is the PED outbreak trend in sample swine farms. The 2015 piglet production numbers reflect the loss due to PED.
Another factor that may have a major impact on swine production in Korea is the recent finding of an FMD positive case in a swine farm located in North Kyungsang province on July 23, 2014. A second suspected case of FMD was reported on August 6 in South Kyungsang province. Depending on whether Korea can contain the disease from spreading or not will be a major variable in the outlook for 2014 and 2015 swine inventory. As there has only been one confirmed positive case, the impact from FMD is not reflected in the PS&D.
The decrease in the number of swine farms will also be a factor in lowering the total inventory in 2015. The number of swine farms dropped from 6,067 in June 2013 to 5,315 in June 2014. The farms that could not overcome the financial burden of meeting the stricter environmental standards and high feed prices have gone out of business.
As total inventory dropped due to PED and lower sow numbers in 2014, the number of slaughtered swine declined, and as a result, overall pork production dropped. This trend is projected to continue into 2015 as PED continues to lower piglet numbers. The decline in total slaughter in 2015 will mitigate somewhat as swine farms begin to rebuild herd size by increasing sow numbers, but it will not be enough to stem the downward trend in total slaughter numbers. Also, dependent upon whether or not FMD spreads will be a variable in determining the total slaughter number for the second half of 2014 and 2015.
Pork consumption in 2014 is projected to drop slightly, due to 1) high pork prices; 2) poor economy; 3) dining out less often due to nationwide mourning over the ferry accident that cast a cloud over the whole nation for over 3 months and; 4) lower price competitiveness compared to imported beef prices. The average domestic pork price that was 69 percent of the average price for imported chilled U.S. beef in 2013 has increased to 72 percent of average imported chilled U.S. beef price during the first 7 months of 2014. Lower substitute demand coming from the fishery products that was caused by the Japanese nuclear accident is also a contributing factor.
As can be seen from the following consumption pattern, the amount of single rib bellies, which traditionally has been the most favorite and most expensive cut, is gradually dropping. Even the consumption of pork ribs, collar butts, and loin that have been increasing over the past couple of years, have all dropped due to the reasons outlined above.
Pork imports are projected to increase in 2015 as domestic pork production drops. However, the United States will have to overcome price competitiveness with EU suppliers as U.S. pork supply is expected to be very tight this year as a result of the PED outbreak in the United States. This can be seen from the fact that although total pork imports increased by 7.3 percent to 172,625 MT during the first half of 2014 compared to the same period in 2013, imports of U.S. pork dropped 1.9 percent to 63,608 MT during the same comparison period