Report Highlights:

MY 2014/15 wheat consumption is forecast at 4.45 million tons, an increase of nearly 150,000 tons from the current marketing year. MY 2013/14 corn consumption is expected to rise to 9.6 million MT, up approximately 1.1 million MT from the previous year mainly due to greater demand in feed corn. Corn imports for MY 2013/14 are expected to increase to 9.5 million MT, up 1.3 million tons from the previous year due to increased feed corn imports. In MY 2013/14, U.S. corn exports to Korea are expected to rebound to 3 million tons, or more than 30 percent of total Korean corn imports. MY 2014/15 rice production is forecast to remain around 4.15 million tons (MMT) – down 2 percent from 4.23 MMT in 2013/14 – based on five year average yield.

Wheat

Production:

MY 2014/15 wheat production is forecast to rebound to 33,000 tons, up 43 percent from the previous year due to increased planting area as the result of a direct payment program which includes wheat crops cultivated in rice paddy fields. The Korean government made a decision to pay 400,000 Korean Won (US$366) per hectare to farmers who grow winter crops in their paddy fields from the year 2014 onward.

Consumption:

MY 2014/15 wheat consumption is forecast at 4.45 million tons, an increase of nearly 150,000 tons from the current marketing year due to an anticipated increase of available supply of competitively priced feed wheat, with milling wheat consumption remaining stable. 

MY 2014/15 milling wheat consumption, including flour and pasta trade on a wheat basis, is forecast at 2.45 million tons, a slight increase from the current marketing year. 

In MY 2013/14, total wheat consumption is expected to stay around 4.3 million tons, down 17 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 2.4 million tons, which includes imports of flour and pasta, almost the same as the previous year.

Trade:

MY 2014/15 wheat imports are projected at 4.6 million tons, of which 2.6 million tons is for milling (including flour and pasta imports on a wheat equivalent basis) and 2.0 million tons for feed. The import estimate hinges to a large extent on the continued availability of feed wheat with milling wheat remaining steady. 

MY 2013/14 wheat imports are expected to reach 4.3 million tons given that imports for feed wheat were lower than the previous year during the first eight months of the current marketing year and pending feed grade wheat contracts for the remaining four months. In MY 2012/13 Romania is the major supplier of feed grade wheat, followed by India, Bulgaria and Canada for the first eight months. Imports of U.S. wheat in MY 2013/14 are expected to stay around 1.2 million tons.

Tariff

In early January 2014, the Ministry of Strategy and Finance (MOSF) released its adjusted tariffs and tariff rate quotas (TRQ) for CY 2014. A TRQ for milling wheat of 0.8 million metric tons was set at one percent duty, down from the base rate of 1.8 percent, for the first half of CY 2014, but up from zero percent applied in the previous year. The out-of-quota duty remains fixed at 1.8 percent. Of note, the feed wheat TRQ and its corresponding duty were eliminated in 2007. The duty on U.S. wheat is zero under the KORUS FTA. 

In CY 2014, the flour import tariff rate is applied at 4.2 percent of the local base rate. Under KORUS FTA, import tariffs for U.S. wheat flour (H.S. 1101.00.1000) are scheduled to eliminate over a 5 year phase out period while tariffs for meslin flour (H.S. 1101.00.2000), the mixture of rye and wheat four immediately fell to zero.

Flour Trade:

MY 2013/14 flour imports are expected to decline to 30,000 tons (wheat equivalent) to meet demand from small-sized restaurants and noodle manufacturers as they are loyal users of cheaper priced flour. Pasta imports are expected to be around 135,000 MT (wheat equivalent) based on imports for the first eight months of the marketing year. Annual flour exports are approximately 60,000 tons (wheat equivalent), while pasta exports remain around 120-130,000 MT (wheat equivalent).

Corn

Production:

Corn production is negligible and accounts for less than one percent of total consumption. Planted area for MY 2014/15 is expected to remain steady at around 16,000 hectares, while production is forecast at 78,000 MT based on the preceding five-year average yield.

Statistics Korea (KOSTAT) recently released data on 2013 planting area at 15,905 hectares, down 6.4 percent over the previous year due to decreased local corn prices. Post estimates Korea’s corn production at about 78,000 metric tons based on the preceding five-year average yield. The government will release the 2013 official production figures in April 2014.

Consumption:

MY 2014/15 corn consumption is forecast to decline to 9.1 million MT, down 0.5 million MT from the current marketing year estimate, due to an anticipated decrease in demand for feed corn as Korea’s animal inventories are expected to adjust down to cope with the surplus of meat that have made beef and pork prices bearish. Cattle and swine growers are expected to reduce their inventories to stabilize the domestic meat market in CY 2014. Feed corn consumption is projected to decrease to 7 million MT, down 0.5 million MT from the estimated current marketing year level in large part due to an anticipated decrease in compound feed production for both the swine and cattle sectors. However, food, seed and industrial (FSI) corn consumption is expected to stay around 2.1 million MT to meet a constant demand for high fructose corn syrup (HFCS) and corn products from Korean food industries. 

MY 2013/14 corn consumption is expected to go up to 9.6 million MT, up approximately 1.1 million MT from the previous year mainly due to increasing consumption of feed corn to meet a greater demand which mainly offset the decreased consumption of feed wheat for compound feed production. Processing corn is expected to stay around 2 million tons. FSI corn consumption will be at 2.1 million MT included food corn for snacks, remaining unchanged from the previous year.

Feed

Compound feed production is expected to continue declining to 18.3 million tons in MY 2013/14 and 18.0 million tons in MY 2014/15, respectively, as a result of animal growers’ efforts to reduce animal inventories for both beef cattle and swine throughout 2013. However, feed corn is expected to be the major ingredient used in compound feed, accounting for around 40 percent of total ingredients for both marketing years. High availability of feed wheat drove feed corn use ratio to 34 percent in MY 2012/13 and even 31.6 percent in MY 2011/12, the lowest level since MY 1994. This ratio is expected to fluctuate due to price comparisons between corn and feed wheat in the future.

Food

Corn processors continue using GM corn and non-biotech IP corn as well as traditional corn to produce corn starch, HFCS and corn flour. GM corn imported from the United States, South American countries and Ukraine has been used for starch and HFCS. Non-biotech IP corn imported from the United States and Brazil and traditional corn imported from Hungary, Serbia, Romania and South Africa have been used for corn starch, HFCS and corn flour. The perceived public concern over biotech continues to exert pressures on imported processing corn, especially biotech corn that is used to manufacture cooking oil and HFCS. Many food processing companies have been reluctant to use ingredients sourced from biotech corn. Some food processing companies utilizing corn starch products have sourced ingredients imported from China since these items are reportedly derived from non-biotech corn.

Trade:

With livestock inventories expected to fall, MY 2014/15 total corn imports are projected to decrease to 9 million MT, down 500,000 tons from the current marketing year estimate, consisting of 7 million MT of feed corn to meet the demand for compound feed, and 2 million MT of processing corn to meet relatively stable demand for food processing. 

MY 2014/15 U.S. corn imports are forecast to increase to 4 million MT or about 44 percent of total Korean corn imports, up from the estimated 32 percent of total Korean corn import for the current marketing year. 

Corn imports for MY 2013/14 are expected to increase to 9.5 million MT, up 1.3 million tons from the previous year due to increased feed corn imports that may offset the limited feed grade wheat supply as feed corn prices become more attractive than feed wheat. Feed wheat imports are expected to stay around 1.7 million tons in MY 2013/14 (July/June), down 1.1million tons from the previous year.

In MY 2013/14, U.S. corn exports to Korea are expected to rebound to 3 million tons, or more than 30 percent of total Korean corn imports, up from the previous 6 percent of total corn import in MY 2012/13 due to greater supply of competitively priced U.S. corn. As of early March 2014, Korean buyers completed corn contracts delivering in the first seven months of the current marketing year and partly purchased for portions of the following three months, of about 6.5 million tons total. Most of the contracted purchases to date are for U.S. corn and/or optional origin at seller’s option among South America, South Africa, Europe or the United States with a price range of $230-280 per metric ton CNF for feed corn. Meanwhile, corn processors have contracted for U.S. No. 2 non-GM yellow corn and Eastern European conventional corn with a price range of $247-343 per metric ton CNF for the same period. Most recent buying contracts have been stabilized in the range of $250-260 per ton CNF for feed corn and $ 247-264 for processing corn.

In early January 2014, the Ministry of Strategy and Finance (MOSF) released its adjusted tariffs and tariff rate quotas (TRQ) for CY 2014. The autonomous TRQs cover a variety of agricultural products, including feed and processing corn. The TRQs for these commodities were expanded with feed corn set at 9 million MT with zero percent duty for CY 2014, and processing corn at 1.25 million MT with one percent duty for the first half of CY 2014, respectively. The out-of-quota duty for both feed and processing corn remained fixed at 328 percent. 

Of the annual autonomous TRQs for feed corn, 9 million MT has been allocated to feed millers who are members of the Korea Feed Association (KFA) and Nonghyup Feed Inc. (NOFI). The Korea Corn Processing Industry Association (KOCPIA) is expected to manage the 2 million MT of processing corn TRQ. 

Under KORUS FTA, the duty on U.S. feed corn immediately fell to zero. If imports of U.S. corn claim the KORUS preferential duty, those imports would not count against the global TRQ. Conversely, the duty free volumes for corn for food processing will grow each year with tariffs being completely phased out by 2019.

Rice, Milled

Production:

MY 2014/15 rice production is forecast to stay around 4.15 million tons (MMT) – down 2 percent from 4.23 MMT in 2013/14 – based on five year average yield. According to a recent Korea Rural Economic Institute (KREI) survey of 1,387 rice farmers from February 27-March 5, 2014, area planted is expected to decline to 826,000 HA, down about 0.8 percent from last year. However, high yield varieties will almost offset the lower acreage planted. 

Yield

Rice farmers prefer planting high yield varieties to maximize returns. Consequently, increased yields are expected to offset the effects of declining paddy land. The KREI forecasts rice average yields ranging from 493Kg/10a to 509Kg/10a depending on weather conditions.

Production Policy: 

Rice farmers receive two types of income support payments under the Rice Income Compensation Act (RICA), an area payment and a deficiency payment. In CY 2013, combined support payments of 685 billion Korean Won ($625 million) were received from only area direct payment. An explanation of how these payments are calculated follows. 

Area Payment: This payment is made on a ‘per hectare’ basis and is calculated using the average area of rice production during the base period 1998-2000. The 2013 area payment was at 800,000 won ($731) on average per hectare. Paddy area covered under this support program declined to 855,000 hectare, down 1.3 percent from the previous year. The National Assembly and Korean government have also agreed to raise the area payment for the 2014 crop to 900,000 Korean Won ($822) per hectare, and 1,000,000 Won ($913) for the 2015 crop and beyond, respectively. 

Deficiency Payment:The deficiency payment is 85 percent of the difference between the national-average market price during the 2013 harvest season (2013 Oct.-2014 Jan.) and the 2013 target price, less the area payment. 

In CY 2013, the deficiency payment amounted to zero since the average harvest price of 2,184 won ($2.00) per kilogram (milled) was too close to the target price of 2,350 won ($2.15) per kilogram (milled) to create deficiency payment. The averaged area payment of 800,919 won per hectare is converted to a kilogram equivalent (159 won/Kg) by dividing it by the 1999-2003 Olympic average yields*, which was increased to 5,040 MT per hectare from the previous 4,880 MT in CY 2012. 

Due to strong farm gate prices during the harvest season, farmers received no deficiency payments in CY 2013. The deficiency payment calculation is shown as below. 

[(Target Price W/kg - Average Harvest Price W/kg) x .85] - Area Payment per HA /Avg. National Yield per HA 

[W 2,350 – W 2,184] x .85] – W 800,919/5,040 MT = minus W 18 per kilogram

Note: *Olympic average yields: an average during a 5-year period, dropping the highest and lowest values. 

Government Rice Purchase Program under the Public Food Grain Stockholding Program (PFSP): 

The government purchases rice to ensure food security and price stability. Under the Public Food Grain Stockholding Program (PFSP), the Korean government procures domestic paddy rice during the harvest season (October-December) at the average market price and later sells it during the non-harvest periods at the prevailing domestic market price. For October - December 2013, the Korean government purchased 367,000 MT (milled basis) of paddy rice, or 9 percent of the 2013 rice production under PFSP. The government procurements almost achieved the initial target of 370,000 MT, paying high enough prices to farmers thanks to bullish market trends under the program.

Consumption:

MY 2014/15 consumption is forecast at 4.6 million tons, slightly down 0.4 percent from the estimates of the current marketing year. Imported rice constitutes about 9 percent of total consumption. 

Korean consumers prefer short grain table rice and 88 percent of domestic production (all short grain) was consumed as table rice in MY 2012/13. Per capita table rice consumption continues declining as eating habits change due to rising incomes and the growing popularity of Western foods. Annual per capita table rice consumption reached its peak at 136.4 Kg in 1970 and has gradually declined. FAS/Seoul forecasts per capita table rice consumption at 66.2 Kg in MY 2014/15 based on declining consumption trends for table rice. 

Although processing accounts for only about 12 percent of total rice domestic consumption, consumption of rice for processing has grown rapidly in the past few years. In MY 2014/15, Korea’s food processing industry is forecast to make a mild growth up to 640,000 tons of rice (milled). Consumption of food processing is expected to continue to grow in the coming years as the government continues its efforts to globalize Korean cuisine, which includes rice cakes and other rice-based snacks.

Trade:

Korea imports rice as part of its WTO Minimum Market Access (MMA) agreement. Import volumes will continue to grow according to the predefined MMA schedule until the end of 2014. The government’s decision to import earlier under the 2014 MMA is to help stabilize domestic rice prices and meet its obligation of MMA rice imports within the calendar year. While tenders for MMA commitments are awarded in the MMA calendar year, some portion of actual MMA rice imports may roll over in the following year. 

The Korean government is expected to notify its rice tariffication to the WTO prior to the end of September 2014 as it is expected to open the rice market starting in 2015. 

Imports:

MY 2014/15 rice imports are forecast at about 410,000 tons (milled). Under the 2015 MMA, Korea is scheduled to purchase 408,700 tons (milled) of rice under Most Favored Nation (MFN) quota allocations because Country Specific Quotas (CSQ) are supposed to convert to Most Favored Nation (MFN) quota upon liberalization of the rice market. 

MY 2013/14 rice imports are expected to reach 410,000 tons (milled) under both the 2013 and 2014 MMA commitments. As of the middle of March 2014, the Korean government started purchasing 408,700 MT under the 2014 MMA. 

2014 MMA Rice Purchasing Plan: 

Under the 2014 Minimum Market Access (MMA) purchasing plan, Korea will purchase 408,700 MT of rice (milled basis), up 20,347 MT or about 5 percent up from last year, comprised of 203,472 MT under the global quota (GQ) and several country specific quotas (CSQ) totaling 205,228 MT. The United States is expected to command 120,000 to 130,000 MT, or roughly 29- 32 percent of the total MMA volume. The anticipated U.S. share is calculated by adding the 43,270 MT allocated to medium grain and some portion of optional varieties allocated under GQ to the 50,076 MT of U.S. CSQ. 

2014 MMA Tendering Process:

Under the 2014 MMA quota thus far, Korea has bought 106,153 MT, or 26 percent of the total 2014 MMA, consisting of 59,153 MT from Thailand, 29,000 MT from Vietnam, 9,000 MT from India and 9,000 MT from China.

2013 MMA Tendering Results: 

Korea's contracts for rice imports under the 2013 WTO Minimum Market Access (MMA) system expanded market access opportunity for U.S. rice suppliers. Korea purchased a total of 388,353 metric tons (MT) of rice from the United States, China, Thailand, Australia, Vietnam and India. The U.S. share was 30 percent, with contracts totaling 114,600 MT (milled) worth US$89 million. In addition to the U.S Country Specific Quota of 50,076 MT, the United States successfully contracted 64,524 or 34.3 percent of the total Global Quota (GQ) of 188,251 MT. 

Auctions:

Korea Agro-Fisheries & Food Trade Corporation (aT) sells table rice shipments through a public auction system, while the Ministry of Agriculture, Food and Rural Affairs (MAFRA) distributes processing rice to end-users such as food processors and alcoholic beverage producers at a set price throughout the year.

Exports:

Korea has exported negligible amount of rice to other countries. In CY 2013, Korea exported 1,517 MT of milled rice with Australia importing 648 MT or 43 percent of total rice imports followed by 36 other countries. The U.S. imported 86 MT of Korean rice for the period.

Stocks:

MY 2014/15 ending stocks (at the end of October 2015) are forecast to decline to about 0.75 million tons or 16.2 percent of total consumption assuming that rice production returns to normal conditions. MY 2013/14 stocks (at the end of October 2014) are forecast at 0.78million tons or 16.8 percent of domestic consumption