Korea. Livestock and Products Semi-annual. Mar 2013 May 3, 2013
Reductions in herd size and increased slaughter will cause calf production and cattle ending inventories to drop in 2013. Despite these efforts, live cattle prices remain low. Beef production is projected to increase almost 8 percent due to lower live cattle prices and increased feed prices. Beef imports are to stabilize but not increase due to high domestic production. Consumption will increase slightly by 3 percent but is constrained by an abundant supply of cheap domestic pork and a slow economy. Meanwhile, the swine industry undertook measures to reduce sow numbers and live slaughter weights to mitigate prices falling below production cost. Pork production will increase over 20 percent due to high swine inventories, imports will decline and consumption will increase due to an oversupply and low prices.
Animal Numbers, Cattle
Korean beef cattle inventory continued to increase in 2012, as the price decline in fully grown cattle ceased after July/August of 2012 and slowly rebounded during the second half. Additionally, increased inventory resulted from farmers selling cows due to low calf prices and shifting to steers that are fed for longer periods than cows. This can be seen from the shift in the ratio of cows that accounted for 50.9 percent of total slaughter in 2012 compared to 40.7 percent in 2011. As a result of increased cow slaughter caused by high feed prices and low calf prices, total calf crop in 2013 is projected to drop from the 2012 level, but still higher than the USDA projection due to high beginning stocks. Semen sales during the period March 2012 to January 2013 that will impact the calf production in 2013, dropped to 80 percent of the level sold during the same period a year ago. This is reflected in the 2013 calf crop numbers. As small sized farmers, consisting of mostly breeding farms, continue to reduce their cow inventory and as steers that were fed for longer periods are brought in for slaughter, total 2013 slaughter numbers are projected to increase over the earlier projection.
Signs of a drop in cattle inventory can also be seen in farmers’ intentions to reduce herd size. In a survey conducted in September 2012 by the Korea Rural Economic Institute (KREI), 7.1 percent of farmers replied that they were planning to reduce herd size - a historically high level. Although this percentage went down in December 2012 to 4.4 percent, and to 1.8 percent in March 2013, it remains higher than the percentage of farmers saying that they will increase herd size during the same period. Such downsizing will be reflected in the market in 2013, as calf production and ending inventories drop.
The Korean government and National Agricultural Cooperative Federations continued to carry out price discount promotions to boost consumption of domestic Hanwoo beef in 2012. Although such efforts increased consumption and slowed the decline in live cattle prices, prices remained far from recovering to the price level prior to FMD. 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.
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.
Meat, Beef and Veal
The production in 2012 was adjusted to reflect the actual slaughter numbers. As farmers try to mitigate the profit loss coming from a continued drop in live cattle prices and higher feed prices, the rush to slaughter more cattle is projected to continue in 2013. As a result of the surge in slaughter numbers, total 2013 beef production is projected to increase by 7.7 percent over the 2012 level. The number of cattle 1-2 years old in December 2012 was 859,000 heads, compared to 782,000 heads in December 2011. The increase in the number of cattle in this age group will result in higher beef slaughter numbers in 2013. Increased demand coming from discount programs of both the agricultural cooperatives and major hypermarkets will somewhat offset the price drop, but may not be sufficient to increase live cattle prices to entice farmers to hold onto their herd.
An abundant supply of domestic Hanwoo beef and continued beef promotional activities by Korean farmer groups and hypermarkets is projected to increase consumption by over 3 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 2.9 percent in 2013.
Prospects for U.S. beef consumption remain high as the percentage of consumers that have tried U.S. beef continues to climb from 22 percent in 2010, to 52 percent in 2012. The hindering factor will be price competitiveness of U.S. beef and stocks that were accumulated after the April 2012 BSEcase. Retail prices of beef short ribs for #3 grade Hanwoo beef that used to be over 50 percent higher than U.S. chilled ribs in January 2011, have continued to come down and are now priced at 86 percent of U.S. short ribs. The price gap between U.S. ribs and #1 grade Hanwoo ribs during the same period dropped from being 2.6 times to 1.5 times higher than U.S. beef. Given the Korean consumers’ preference for domestic beef, the closer the price gap, the more likely the consumers will shift over to domestic beef. As the outlook for U.S. beef prices in 2013is high, whereas there is little prospect for increases in domestic beef prices, it is difficult to foresee an increase in U.S. beef consumption in 2013.
Due to the increase in domestic beef and pork production and slow recovery of the economy in 2013, beef imports are expected to stabilize in 2013. Retailers are reporting double digit decreases in beef sales since October 2011. The U.S. beef industry is expected to have difficulty in increasing market size in 2013 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.
Farmers’ initial fears for the worst, associated with the resumption of Canadian beef imports and the implementation of the KORUS FTA, did not materialize. Under the KORUS FTA the duty in 2013 will drop from 40 percent to 34.6 percent. Importers feel that lowering to 30 percent will make an even larger difference. High domestic beef production in Korea is the biggest impact on U.S. beef exports. Additionally, importers took 6-7 months to recover from the April 2012 BSE incident, which forced them to freeze their chilled beef stocks. The limited supply of U.S. chilled beef in the months following strained the importers’ finances as a result of lost premium on their chilled beef imports.
According to quarantine inspection data for the month of February 2013, Chile exported beef to Korea for the first time under its bilateral FTA in February 2013. As the TRQ under the FTA with Chile is only 400 MT, Chilean beef will have a minimal impact on the import of U.S. beef.
Animal Numbers, Swine
The 2012 piglet numbers were adjusted upwards by 3 percent to reflect the increase in Maximum Sustainable Yield (MSY). The MSY of 15.6 piglets in 2011 increased to 17~18 piglets in 2012. The disinfection process after the 2010/2011 FMD outbreaks, as well as the lower mortality rate of piglets, allowed for the Maximum Sustainable Yield (MSY) rate to improve. As a result of the increased pig crop, ending inventory went up by over 2 percent and impacted the swine market in 2013. In order to stop the swine prices from dropping below production cost, the government procured 64,000 heads of swine during the first 2 months of 2013, but was not successful in preventing a drop in swine prices.
Both government and producer groups realize the need for additional measures and have joined efforts in reducing production while increasing consumption. The following measures were agreed upon on February 27, 2013 between the producer groups and the government to cope with this situation:
Producers will voluntarily reduce 10 percent of sow numbers to reduce production. The government will assist in verifying the reduction at the farm level and preclude farms that fail to reduce the sow numbers from future government support programs.
Producers also agreed to reduce the live weight of swine being sent for slaughter from the current average of 115 kg. to 110 kg.
The government will request processed meat producers to increase the ratio of domestic meat usage which currently stands at about 80 percent of the total meat used.
The National Agricultural Cooperative Federation will sell bacon at a 32 percent price reduction for 2 weeks in March.
Voluntary efforts by producers to decrease sow numbers and slaughter weights, as well as higher slaughter numbers, will help reduce total inventory in 2013.
Month-on-month comparison of slaughter numbers between 2012 and 2011 show that the slaughter level was about 30 percent higher in 2012 over the same period in 2011. Given the high inventory level and the aforementioned measures by producers and the government, the high slaughter rate is projected to continue into 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, except for November, since September 2012. The reason for the short lived price increase inNovember was due to a seasonal demand where there is a high demand for pork to be consumed while making Korean Kimchi for the winter season.
The 2012 pork production number was adjusted to reflect the final slaughter numbers. The high swine numbers will result in 2013 production numbers to increase by over 20 percent. Factors that could pull down this projection would depend upon the success of the producers’ voluntary reduction of sow numbers and slaughter weight. A reduction of the live weight for swine being slaughtered from 115 kilogram to 110 kilogram would be equivalent to a total reduction of 41,600 MT (CWE) of pork production.
Pork consumption in 2013 has been adjusted to reflect the increased domestic supply, low pork prices and campaigns to boost domestic pork consumption. Despite such promotional efforts, if the economy does not pick up during the second half of 2013, some of the increased production could end up being carried over to 2014.
Consumers’ preferences as a substitute meat for domestic pork are chicken and duck meat. The preference for imported pork and beef both dropped as domestic pork prices fell. The increase in the preference for duck meat reflects consumers’ demand for healthier meat, due to its high level of unsaturated fatty acid.
Pork import numbers have been dropped in 2013 from the previous USDA numbers to reflect the oversupply of domestic pork. The tariff on frozen hams and shoulders fell from 25% to 16.7% in 2012 and is 8.3% in 2013. These are the cuts that are mostly used for meat processing and the United States’ market share is over 80 percent for these imported cuts. 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.
Chilled boneless pork imports from the United States may exceed the trigger level for safeguard which is set at 8,745 MT in 2013. In this case, the KORUS duty that has dropped to 18 percent for chilled boneless pork will jump back to 22.5 percent for the amount that exceeds the trigger level. The import of chilled boneless pork in 2012 from the United States was 8,336 MT.
Korea has discontinued providing zero duty tariff-rate-quota (TRQ) for pork imports in 2013 to cope with low domestic swine prices