Report Highlights: 

Corn imports rebound after reaching lows not seen since MY 2002/03. Korea has announced its intent to open its rice market. Tariff level for out-of-quota rice to be determined by WTO formula.

WHEAT 

Production: 

The Korean government recently released official numbers for wheat production at 27,130 MT in MY2013, down 27 percent from the previous year due to a decrease in planting area caused by winterkill last winter and an area shift to barley from wheat. Wheat requires a longer growing period than barley and hinders timely rice transplantation as a double crop after wheat cultivation. Additionally, wheat prices remained flat, resulting in decreased wheat area as well, while barley prices increased by 24.5 percent from the previous year. 

According to a governmental acreage survey conducted from May 16-30, 2014, wheat cultivated area in 2014 declined to 7,180 hectares, down 2.6 percent or 193 hectares from the previous year. Wheat cooperatives increased the purchase price by 16.7 percent from the previous year, offsetting the pace of decreasing wheat area. 

Consumption: 

MY 2014/15 wheat consumption is forecast at 4.3 million tons, a decrease of nearly 130,000 tons from the earlier forecast due to lower than expected demand by millers. Feed wheat consumption forecast remains at 2 million tons. 

In MY 2013/14, total wheat consumption was around 4.26 million tons, down 18 percent from the previous year due to lower demand for feed grade wheat which has been less competitive than corn since November 2012. Milling wheat consumption is expected to be 2.3 million tons, down 2.5 percent from the previous year, which includes the imports of flour and pasta, remaining mostly unchanged from the previous year. 

Trade: 

MY 2014/15 wheat imports are slightly revised down to 4.5 million tons from Post’s earlier forecast, of which 2.5 million tons are for milling (including flour and pasta imports on a wheat equivalent basis) and 2.0 million tons for feed. Milling wheat processing is expected to stay around 2.3 million tons. 

MY 2013/14 wheat imports totaled 4.3 million tons, down 21 percent from the previous year due to substitution of the more competitive corn in the global markets. Feed wheat imports for MY 2011/12 reached records in Korea. 

Flour Trade: 

MY2013/14 flour imports declined to 23,781 tons (32,532 tons wheat equivalent), down 17 percent from the previous year due to slackened demand from small-sized restaurants and noodle manufacturers. Flour exports were 47,160 tons (62,880 tons wheat equivalent), almost unchanged from the previous year. Pasta imports and exports increased by 11 percent and 8 percent from the previous year’s trade respectively. 

CORN 

Production: 

The Korean government recently released official numbers for corn production at 80,465 MT in MY2013, down 3 percent or 2,745 MT from the previous year with higher yield offsetting further decline caused by area reduction. 

Consumption: 

MY 2014/15 corn consumption is revised to 9.5 million tons, up 0.4 million tons, or 0.4 percent from the Post’s earlier forecast due to a greater demand of feed grade corn than expected. Government efforts to reduce animal inventories under the animal inventory reduction programs have hit a snag as meat prices recover. 

MY 2013/14 corn consumption is also revised up to 9.8 million tons, up 0.2 million tons, 2 percent from the Post’s earlier estimate of 9.6 million tons, to meet a greater demand from poultry sector coupled with less reduction of swine and cattle inventories than expected as pork and beef prices have recovered the second half of 2013. 

On the basis of the first eight months, MY 2013/14 compound feed production is expected to stay around 18.5 million tons due to continued demand from the poultry sector to meet a greater demand for fried chicken during the World Cup event. This is coupled with less reduction of swine and cattle inventories than expected, though duck inventories were heavily damaged by AI, resulting in a sharp decline of other feed production. 

Trade: 

MY 2014/15 total corn imports are forecast at 9.4 million tons, slightly lower than USDA official forecast, up 0.4 million tons from post’s earlier forecast due to expected high level of animal inventories despite the government inventory reduction program. Processing corn imports should remain stagnant at 2 million tons. 

Based on the imports for the first eight months, corn imports for MY 2013/14 are expected to increase to 9.7 million tons, up 0.2 million tons from Post’s earlier estimate of 9.5 million tons due to a stronger animal feed demand than expected from all animal sectors except for ducks damaged by AI. Accordingly, U.S. corn exports to Korea are expected to rebound to 4.3 million tons, up nine times from the previous year, recovering from a low not seen since MY 2002/03. 

By the end June 2014, Korean buyers completed corn contract deliveries for MY 2013/2014 (Oct/Sep), and continue to make new contracts for delivery in December 2014 and even January 2015 under MY 2014/15 (Oct/Sep). Most of the contracted purchases to date are optional origin at seller’s option among the United States, South America, or Europe including the Black Sea followed by U.S. origin and South American (SOAM) origin. 

RICE, Milled 

Production: 

Production remains unchanged from the previous report. 

Consumption: 

The Korean government recently revised down rice consumption to 4.88million MT (MMT) from the previous statistics of 4.9 MMT for MY 2011/12. In MY 2012/13, total rice domestic consumption declined to 4.49 MMT, down 8 percent from the previous year. Per capita consumption (table rice basis) in MY 2012/13 also declined to 67.2 Kg, down 3.7 percent from the previous year. 

Trade: 

The aT, the government’s state trading arm, manages the purchasing of all imported rice through a tendering process and subsequent auctions off imported table rice. 

2014 MMA Tendering Process: 

The Korean government has been purchasing 408,700 MT under the 2014 MMA since February 2014. As of July 21, the aT, the state trading arm of the Korean government, has purchased 165,630 metric tons (milled), about 40 percent of the entire 2014 MMA import commitments. 

The United States was awarded 6,188 metric tons of medium grain brown rice (or 5,569 milled) under CSQ but no opportunities to sell under GQ due to lack of competitiveness driven by a severe drought in California. The Korean buyer has taken a ‘wait and see’ attitude looking for an opportunity to buy U.S. rice under CSQ. Therefore Post has revised down the forecast of U.S. rice export to Korea to 70,000 MT from the previous forecast due to a lack of feasible rice contracts for MY 2013/14. 

Auctions: 

The aT sells table rice shipments through a public auction system. On the other hand, the Ministry for Agriculture, Food, and Rural Affairs (MAFRA) distribute processing rice to end-users such as food processors and alcoholic beverage producers at a set price throughout the year. The aT started auctioning off U.S. milled rice imported under the 2013 MMA in July 2013 to meet a greater demand for U.S. milled rice than other origins. The auctioned prices of U.S. medium grain milled rice are higher than the Chinese short grain milled rice, reflecting a greater consumer’s confidence than other origins. The progress of auctioning for other origins has been comparably slow. Auctions for Thai milled rice are still pending under the 2012 MMA. 

Tariffication 

As Korea’s Special Treatment for import of rice from the World Trade Organization (WTO) under minimum market access (MMA) commitments outlined in Annex 5 of the Agreement on Agriculture is scheduled to end in 2014, Ministry for Agriculture, Food, and Rural Affairs (MAFRA) announced on July 18, 2014 that Korea has decided to go for ordinary customs duties on rice under the WTO beginning January 1, 2015. 

Korea delayed its rice tariffication for ten years from 1995~2004 during the Uruguay Round(UR) agricultural negotiations of 1994, and later through the re-negotiations on rice in 2004, extended the grace period for 2005~2014 under the condition that Korea increase the minimum market access(MMA) volume by 20,347 tons each year. In return for the special treatment, Korea has provided minimum access opportunities to WTO members, the volume of which has grown from 51,307 metric tons in 1995 to 408,700 metric tons in 2014 under the MMA tariff rate quota (TRQ). Korea also needs to maintain the TRQ at the current level of 408,700 metric tons after rice tariffication. 

The government will determine the tariff equivalents and tariff rates according to the WTO Guidelines. In addition, considering the concerns raised by farmers regarding the rapid opening of the rice market, the government promised farmers to continue excluding rice from concessions under all free trade agreements (FTA) to be concluded by Korea, including the Trans-Pacific Partnership, should Korea participate. 

The Korean government will submit a draft containing modifications and rectifications to Schedule LX - Republic of Korea to the WTO by the end of September. The government will take necessary measures to implement ordinary customs duties beginning January 1, 2015. 

Exports: 

Korea’s rice exports have been slow for the first five months in CY 2014, with an expectation of slightly less than 2,000 MT. U.S. imports of Korean rice are expected to remain stable for the period. 

Stocks: 

MY 2014/15 ending stocks (at the end of October 2015) are forecast to increase to about one million tons or 23 percent of total consumption assuming that rice production returns to normal conditions with the decrement of per capita table rice consumption continuing. MY 2013/14 stocks (at the end of October 2014) are forecast at 0.94 million tons or 21 percent of domestic consumption