Report Highlights: 

Total Korean beef cattle inventory continues to gradually drop and as a result of the drop in slaughter numbers, total 2014 beef production is projected to decrease by 7.3 percent over the 2013 level. U.S. beef imports are projected to rebound in 2014 as Korea increases its imports to make up for the drop in domestic beef production. Efforts by Korean swine producers to reduce sow numbers in 2013 bore some results in keeping the total inventory from rising further and will definitely bring down the inventory in 2014. As the effect from lower sow numbers impacts the piglet production in 2014 and with higher losses of piglets due to PED, total slaughter numbers will drop and will result in decreased pork production in 2014. Some of the shortage in domestic production will be filled with increased pork imports.

Animal Numbers, Cattle

Production:

The total Korean beef cattle inventory continues to drop slowly but gradually as a lot of farmers with small sized operations, consisting mostly of breeding farms, that could not afford high feed prices coupled with the prospects of low calf prices up to August 2013, began to give up raising cattle. However, due to increased cow slaughter (accounting for 52.8 percent of total slaughter in 2013) and increased demand for domestic beef, calve prices began to rise from September 2013 and into early 2014. This has somewhat slowed the speed in inventory decline but has not been 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 was negative until September 2013 but turned more positive in December 2013. Despite this change in farmers’ outlook, it did not come early enough to positively impact an increase in total inventory for the end of 2014. This is because although farmers may wish to increase their herd size as cattle prices go up, not enough cows were available following the increased slaughter in 2013 when prices were less favorable. Another factor that will keep total ending inventory for 2014 from rapidly returning to the same level as early 2013 is the fact that total semen sales in 2013 were only 92.8 percent of the 2012 level. 

The total number of calf crop in 2014 will also drop due to both the lower cow inventory and the drop in sales of semen for artificial insemination. Consequently, as total inventory drops, the 2014 slaughter numbers are projected to drop by over 7 percent. Year-end inventory for 2014 is projected to be slightly higher than our earlier estimate of 3.1 million head as farmers are expected to try to rebuild their inventory in 2014 due to increased live cattle prices. Another hindering factor that will limit the increase in cattle inventory is the Korean government’s move to require cattle farms that are larger than 600 square meters to obtain permits as of February 23, 2014. Up to now, only the farms that were larger than 1,200 square meters were required to obtain permits. In order to receive the permit, the farms must be equipped with ventilation facilities, fumigation facilities as disease control facilities to prevent disease from being introduced into the farm. Farmers that cannot finance the cost of installing these facilities either will not be allowed to begin to raise cattle and existing farms will have to stop raising cattle within 1 year if they cannot be equipped with this facility.

Based on the semen sales data, the Korea Rural Economic Institute (KREI) projected that the potential production of calves will continue to drop through August 2014 compared to the same period in 2013. However, as calve prices continue to go up in 2014, some farmers are looking into the possibility of increasing their herd size. Both the government and research institutes are giving out warnings that due to high calf prices and feed prices, it could be difficult to make a profit for another 2 years. It remains to be seen if farmers will follow such warnings or not. The semen sales data since September 2013 is indicating an increase in calf crop.

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 percent 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 not to lose money.

Meat, Beef and Veal

Production:

As farmers continued to reduce the calf production in 2013 and as some farmers try to retain their cow for breeding purposes in 2014, total slaughter is projected to drop in 2014. As a result of the drop in slaughter numbers, total 2014 beef production is projected to decrease by 7.3 percent over the 2013 level. The number of cattle under 1 year old in December 2013 was 801,000 heads, compared to 942,000 heads in December 2012. The decrease in the number of cattle in this age group will result in lower herd size to be put up for slaughter in 2014. 

Consumption:

An abundant supply of domestic Hanwoo beef in 2013 kept domestic beef prices almost at the same level as in 2012. Farmer groups tried to boost consumption through various promotional activities in order to prevent cattle prices from further declining. Such aggressive promotions seems to have brought positive results as local beef prices remained stable in 2013 over the 2012 level, despite an increase of 10 percent in total supply. Substitute demand caused by an Avian Influenza outbreak in poultry and a continued drop in fish consumption following the Fukushima nuclear plant accident 3 years ago also attributed to increasing total beef consumption in 2013 by 4.4 percent. 

The sluggish economy kept U.S. beef consumption from increasing in 2013 as people are not dining out as much where the bulk of the 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 the fact that the price advantage of U.S. beef over Korean beef has diminished as U.S. beef prices continued to increase in 2013 whereas local beef prices remained stable due to oversupply.

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. The lower price of domestic Hanwoo beef was largely due to aggressive promotion by domestic Hanwoo cattle producers but the impact from such promotional activities was big enough to make domestic beef prices more appealing to consumers than the locally produced beef consumers generally prefer if the price is affordable.

Trade:

Although the total import value of U.S. beef to Korea increased in 2013 over the 2012 level, the volume dropped due to a lack of supply from the United States. As Korea increases its imports in 2014 to make up for the drop in domestic beef production, U.S. beef imports are projected to rebound. U.S. beef is subject to only 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 comes 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 2 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.

Animal Numbers, Swine

Production:

The efforts by Korean swine producers to reduce sow numbers in 2013 bore some results in keeping the total inventory from rising further. But as the reduction in sow numbers did not take place until the second half of 2013, it was not effective in reducing the total inventory in 2013. However, the reduced sows will definitely bring down the inventory in 2014. The effect of lowering the sow numbers is expected to begin to have an impact on the total inventory about 10 months later, considering the 4 month pregnancy period and about 6 months needed to raise the piglets. Therefore, the impact of a low conception rate during the 2013 summer coupled with efforts to reduce sow numbers will begin to have an impact on total inventory in 2014. The piglet production and ending inventories in 2014 is based on the drop in sow numbers during the second half of 2013. However, it remains to be seen how long the effect from lower sow numbers will last as compound feed sales for sow in January 2014 increased by 3.9 percent over the level in December 2013.

Swine producers are claiming that carcass prices need to be over 3,700 won/kg in order for producers to avoid a loss. However, the carcass prices have continued to be over that price level during the second half of 2013, except for in October. This may be one of the reasons why sow feed production may have begun to increase in January 2014, as farmers may feel more confident about swine prices in 2014.

Meat, Swine

Production:

As efforts to reduce overall inventory of swine in 2013 through increased slaughters did not occur until the second half of 2013, total pork production remained at record high levels in 2013. However, as the effect from lower sow numbers impacts the piglet production in 2014 and with higher losses of piglets due to PED, total slaughter numbers will drop and will result in decreased pork production in 2014. Another factor that will reduce total pork production is the government’s plan to change the grading system for pork. The grading standard for pork that went into effect as of July 1, 2013 will result in a drop in average carcass weight. The government decreased the 7 different pork grades into 4 grades to help the consumers understand the quality of pork that they are purchasing. The 4 grades are; 1+, 1, 2 and off-grade. The change in grading system also lowered the ceiling for carcass weight to minimize the fat content in single-rib belly. In order to receive a 1+ grade, the range of carcass weight must be between 84~93 kg. Previously, the range for 1+ grade was 83~96 kg. 

Consumption:

Pork consumption in 2014 is projected to increase by less than 1.5 percent as domestic pork prices are anticipated to increase due to lower production. Some of the shortage in domestic production will be filled with increased pork imports. 

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, whereas consumption of pork ribs, collar butts and loin are increasing. Such phenomena are due to promotional activities by the Korea Swine Association to increase the consumption of non-pork belly cuts, thereby increasing the overall profit return to producers. The highest increase was in picnic and ham consumption, indicated by the increase in processed pork products. The government has allowed the manufacturing of sausages and processed pork products within the butcher shops to encourage consumption of processed pork to increase the sale of non-pork belly cuts.

Trade:

Pork imports are projected to increase in 2014 as domestic pork production drops. However, the United States will have to overcome price competitiveness with its EU suppliers as U.S. pork supply is expected to be very tight this year caused by the PED outbreak in the United States