Korea. Livestock and Products Annual. Sep 2013 Nov. 10, 2013
Korean beef cattle inventory has slowly begun to drop as small sized breeding farms are giving up raising cattle due to high feed prices and low calf prices. This will drop further in 2014 due to lower semen sales, increased cow slaughter ratio, and a 11 percent drop in cattle numbers under 1 year old during the first half of 2013. As a result of the drop in slaughter numbers coming from low herd size, total 2014 beef production is projected to decrease by 5.7 percent over the 2013 level. Beef imports are projected to increase slightly in 2014 to make up for the drop in domestic production but will face severe competition from low priced domestic beef.
Swine inventory in 2013 was record high at 10.18 million heads as of June 2013 but due to low conception rate during the hot summer and as farmers continue their efforts to lower the sow numbers to increase swine prices, total swine inventory is projected to come down at the end of 2013 and continue to go lower in 2014. The drop in total piglet crop in 2014 will bring about lower slaughter numbers, which will result in a drop of domestic pork production. The reduction in domestic pork supply in 2014 will be filled with increased pork imports.
Animal Numbers, Cattle
Korean beef cattle inventory has slowly but gradually begun to drop as small sized farmers, consisting mostly of breeding farms, could not afford high feed prices coupled with low calf prices are beginning to give up raising cattle. Over 10,000 farmers that raise less than 50 cattle gave up farming during the first half of 2013. According to a survey conducted by the Korea Rural Economic Institute (KREI), farmers’ intention to increase its herd size was negative for the second half of 2013 up to January 2014. Beef cattle numbers under 1 year old have dropped from 942,000 in December 2012 to 842,000 as of June 2013. Hanwoo cattle semen sales, which is an indicator for future cattle inventory has also dropped during the first half of 2013 to 833,000 straws from 958,000 straws during the same period in 2012. All of these factors will not only have an impact on the ending inventory for 2013, but also when coupled with increased cow slaughter ratio which jumped from an annual average of 50.9 percent in 2012 to 54.3 percent during the first half of 2013, it will be difficult for the industry to increase its herd size in 2014.
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 5 percent.
Year-end inventory for 2014 is projected at 3.1 million head as a result of low calf production in 2013 and small farmers stop to raising cattle. Most of the small sized farms that are operated by elderly farmers are known to account for 90 percent of the total calf production. As these farmers go out of business the foundation for raising Hanwoo cattle could be impacted as people would not have any calves to feed even when cattle prices turn upwards. However, as the government sees the optimum level of Hanwoo inventory to be around 2.6 million heads along with about 420,000 heads of dairy cows, the current level of total cattle inventory which is 3.48 million is thought of being too high. As such, the government plans to compensate the farmers that want to retire by providing direct payment for shutting down their farm so that the inventory can reduce further to the optimum level of 3.0 - 3.1 million heads for total Hanwoo and dairy cattle.
The Korean government and National Agricultural Cooperative Federations (NACF) continued to carry out price discount promotions to boost consumption of domestic Hanwoo beef in 2013. Although such efforts increased consumption, it was not sufficient to halt the decline in live cattle prices throughout the first half of 2013. Fully grown live cow and steer prices in July 2013 dropped to 92 percent and 84 percent respectively of the price level in December 2012. The main reason for the decline in live cattle prices is due to a surplus in local cattle inventories, resulting from a 70 percent increase in domestic herd size over the past decade. In response to the declining cattle prices, the Korean Hanwoo Association held massive demonstrations and asked the government to come up with measures to recover cattle prices. The government announced several of the following measures to address the concern among cattle farmers:
1. Increased discount sales of Hanwoo beef
2. Review the possibility for using check-off funds to compensate catering firms for the price difference between Hanwoo beef and imported beef if they use Hanwoo beef. NACF estimates that the amount of imported beef used by catering business in 2012 was about 46,000 MT (equal to 380,000 heads of live cattle).
3. Increase the amount of domestic beef supply to the military from 1,284 MT in 2012 to 1,544 MT in 2013.
4. Provide support for purchase of trucks to be used in direct sales as well as the establishment of local food shops.
5. Increase butcher shop style restaurant that had become very popular in the past years due to its competitive price. The government plans to increase the number of such restaurants from the current 321 to 600 by 2017.
6. Increase the amount of guarantee ceilings by Agricultural Credit Guarantee Corporation for feed purchase from 100 million won to 200 million won.
7. Increase the planted area for forage from 270,000 hectare in 2012 to 350,000 ha. in 2013 and 370,000 ha. in 2014.
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 that were slaughtered in 2011 resulted in a loss to 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 slightly 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
As farmers continue to reduce the calf production and as a result, total inventory drops in 2014, total slaughter is projected to drop. As a result of the drop in slaughter numbers, total 2014 beef production is projected to decrease by 5.7 percent over the 2013 level. The number of cattle under 1 year old in June 2013 was 842,000 heads, compared to 942,000 heads in December 2012. The decrease in the number of cattle in this age group will result in lower beef slaughter numbers in 2014.
An abundant supply of domestic Hanwoo beef and continued beef promotional activities by Korean farmer groups and hypermarkets is projected to increase consumption by 2.5 percent in 2013. A further increase in beef consumption is restrained by the abundant supply of domestic pork and a slow economy that is forecast to increase by only 2.5 percent in 2013. Consumption in 2014 is projected to increase marginally, as domestic beef supply drop slightly due to lower slaughter numbers.
The sluggish economy will have a bigger impact on U.S. beef consumption 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 at hotel, restaurant and institutional use. Also, home use of beef is also declining. According to a survey conducted by KREI, the average monthly beef purchase amount during the first 4 months of 2013 was lower than that of 2013. It dropped from 1.49 Kg. /month during the first 4 months of 2012 to 1.41 Kg. /month in 2013. Although, consumption picked up somewhat during the summer camping/BBQ season and as the Korean Chusuk holidays approaches in September, beef purchase is projected to increase. Consumers’ reluctance to consume fish due to the fear over contamination caused by the Fukushima nuclear plant accident is shifting the consumption of fish to meat products.
As domestic beef production drops in 2014, imports are projected to increase slightly to make up for the drop in domestic beef supply. However, the increase in imports will be mitigated due to the smaller price gap between Hanwoo beef and imported beef. Domestic beef prices will continue to drop as the government and industry conducts aggressive marketing through discounted prices, whereas, imported beef prices are stable or in some cases the prices have gone up higher than Hanwoo beef since 2012. The price ratio over U.S. beef prices against competing products have dropped during the first 7 months of 2013 against the same period in 2012. Price competitiveness will be one of the major factors in determining the market share of U.S. beef.
The U.S. beef industry is expected to also have difficulty in increasing market size in 2013 and into 2014 due to a projected 3.3 percent drop in U.S. beef production and higher prices in reaction to external factors, including further opening of the Japanese market to beef from ‘Under Thirty Month (UTM)’and higher premiums paid by China due to an improved economy.
In February 2013, Chile exported beef to Korea for the first time since its FTA was implemented in 2004. The TRQ set for duty free import of Chilean beef is 400 MT, composed of 200 MT for frozen beef and 200 MT for chilled beef. Thus, the impact coming from Chilean beef will be minimal. The impact of the KORUS FTA has been minimal as the duty drop in 2013 from 40 percent to 34.6 percent was offset by the factors mentioned in the above paragraph.
Animal Numbers, Swine
The 2013 piglet production has been adjusted upwards to reflect the high sow numbers that only dropped by 10,000 heads during the first half of 2013. The swine farmers had agreed in March 2013 to voluntarily reduce the sow numbers by 10 percent (equivalent to about 100,000 sows) in order to reduce the total inventory and raise the price of swine ready to be harvested. However, due to the lack of cooperation by individual farmers, sow numbers had dropped only 2.2 percent from the previous quarter as of June 2013. Accordingly, total inventory number continued to increase up to 10.18 million heads as of June 1, 2013. The Korea Rural Economic Institute is projecting that the total inventory will go up even higher in September, 2013 to 10.2~10.3 million heads before coming down to 90.0~10.0 million heads at the end of 2013. As farmers continue their voluntary efforts to lower the sow number and due to low conception rate during the hot summer season, total swine inventory is projected to come down at the end of 2013.
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 low conception rate during the 2013 summer coupled with efforts to reduce the 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 projection that the sow numbers will gradually come down during the second half of 2013.
Also, the Maximum Sustainable Yield (MSY) that was brought about by the disinfection process after the 2010/2011 FMD outbreaks, as well as the lower mortality rate of piglets, is projected to slightly drop in 2014 as the disinfection effect fades out. MSY is projected to drop from 16.9 heads in 2013 to 16.6 heads in 2014. The lower MSY rate will also result in lower piglet production in 2014.
The government announced various measures for the second half of 2013 to help the swine producers that are having difficulty due to over-supply of domestic pork production. The following measures are what the government is planning to implement for the remainder of 2013:
• Increase pork consumption by developing new cuts for grilling purposes, such as Boston butt and a cut where the loin and belly is attached together. If such efforts are successful, it will increase the consumption of loins which is not a popular cut in Korea as well as lower the excessive demand for singled rib belly and collar butt.
• Increase export of processed pork made from lean meat, which is not popular in Korea. The government plans to increase the export of these processed pork cuts as heat-treated products.
• The government will provide a budget to procure and store 10,000 MT of ham during the second half of 2013.
It will also continue to support promotional activities to increase the consumption of pork.
Month-on-month comparison of slaughter numbers between 2012 and 2013 show that the slaughter level was about 26 percent higher in 2013 over the same period in 2012. Given the high inventory level and the aforementioned measures by producers and the government, the high slaughter rate is projected to continue into the second half of 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 been under such price level during the first quarter of 2013. Although, prices have increased since April 2013 due to the seasonal barbeque demand, as demand drops in fall the price is projected to drop again.
The 2013 pork production number was adjusted to reflect the updated slaughter projection numbers. The drop in total piglet crop in 2014 will bring about lower slaughter numbers, which will result in a drop of domestic pork production. In addition the drop in slaughter number, a change in 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 had reduced 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. The thickness of the shoulder fat has also been adjusted lower from 17~27 mm to 17~25 mm. As farmers that want to receive higher grades will be harvesting their swine at a smaller weight, overall pork production will drop accordingly. The average live weight of swine slaughtered in 2012 was 115 kg (about 73 kg. on a carcass basis). If the carcass weight drops by 1 kg., it would mean that total pork production would drop by 15,800 MT in 2014.
Pork consumption in 2013 has been adjusted to reflect the decreased domestic supply. Pork consumption in 2014 is expected to grow slightly but the growth rate will be constrained by lower supply of domestic pork.
Korean consumers’ favorite pork cut is single-rib-belly, where as only a small portion of loin and tenderloin was consumed. Such a discrepancy in preference over certain pork cuts is reflected in the cuts that are imported into Korea. Nearly half of pork imports are composed of single-rib bellies. This discrepancy is also the unpopular cuts to increase the total inventory in 2013.
Pork import numbers for 2013 have been revised to reflect the updated import statistics. The reduction in domestic pork supply in 2014 will be filled with increased imports. As domestic production drops, there will not only be demand for price competitive imported pork for processing but also imports of popular cuts used for barbeque purposes, such as single-rib-bellies, will increase to make up the shortage in domestic supply.
The tariff on frozen hams and shoulders fell from 16.7% in 2012 to 8.3% in 2013. The duty for this product will go down to zero in 2014. These are the cuts that are mostly used for meat processing and the United States’ market share was 92 percent for these imported cuts during the Period January to July 2013. Overall, about 45 percent of Korean sausages and ham are made from U.S. pork. The phase out on chilled is much slower, but that category is not as commercially significant.
Due to lower pork imports in 2013 over the 2012 level caused by increased domestic production, the likelihood of chilled boneless pork imports from the United States exceeding the trigger level for safeguard which is set at 8,745 MT in 2013 is not foreseeable. During the first 7 months of 2013, a total of 3,478.02 MT of chilled pork from the United States had cleared quarantine inspection. If the total chilled boneless pork imports from the United States exceed the trigger amount, the KORUS duty that has dropped to 18 percent for chilled boneless pork will jump back to 22.5 percent for the amounts that exceed the trigger level.
Korea has discontinued providing zero duty tariff-rate-quota (TRQ) for pork imports in 2013 to cope with low domestic swine prices