Highlights

The government of Korea has approved the use of 470,000 MT (milled basis) of rice stocks for feed use in Calendar Year (CY) 2017, a quantity more than five times larger than in CY 2016. This policy will have the effect of increasing rice prices and depleting old and deteriorating stocks, but it will also lead to a decrease in the overall demand for other feed grains. Due to the relative price competitiveness of feed grade corn over feed grade wheat, Post forecasts lower consumption and imports for feed grade wheat in Marketing Year (MY) 2016/17 relative to previous projections. Meanwhile, the projections for consumption and corn imports in MY2016/17 remain unchanged.

General Information:

WHEAT

Consumption:

The MY 2016/17 forecast for wheat consumption is revised down to 4.4 million metric tons (MMT) from the previous estimate of 5.0 MMT, as feed grade wheat has been less price competitive than feed grade corn since November 2016, leading to fewer new contracts for wheat.

Trade:

Changes reflects the impact of lowered price competitiveness of feed grade wheat relative to feed grade corn The price disparity between these commodities has widened since November 2016, which is expected to reduce the number of upcoming contracts for feed wheat in the remainder of the marketing year. Meanwhile, the previous forecast of 2.6 MMT of wheat imported for milling purposes (including flour and pasta imports on a wheat equivalent basis) remains unchanged. As of early January 2017, Korean feed millers have completed contracts for delivery of feed grade wheat for the first nine months of MY 2016/2017 (Jul/Jun) of approximately 1.5 MMT.

Wheat imports will also be affected by the recent announcement from the Korean government that they will convert 470,000 MT of old rice into animal feed in CY 2017, thereby reducing the burden on domestic rice prices caused by a high level of rice ending stocks. As a result, feed producers are expected to use a lower quantity of feed grade wheat in MY2016/17, as an additional quantity of rice is added to the blend of feed grains.

Production, Supply and Demand Data Statistics:

Wheat

2014/2015

2015/2016

2016/2017

Market Begin Year

Jul 2014

May 2015

Jul 2016

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

7

7

10

10

11

11

Beginning Stocks

1437

1437

1400

1363

1535

1468

Production

23

23

26

26

36

36

MY Imports

3942

3948

4420

4426

5000

4560

TY Imports

3942

3948

4420

4426

5000

4560

TY Imp. from U.S.

1179

1234

1120

1124

0

1300

Total Supply

5402

5408

5846

5815

6571

6064

MY Exports

153

196

177

213

200

210

TY Exports

153

196

177

213

200

210

Feed and Residual

1490

1490

1728

1728

2500

2000

FSI Consumption

2359

2359

2406

2406

2395

2386

Total Consumption

3849

3849

4134

4134

4895

4386

Ending Stocks

1400

1363

1535

1468

1476

1468

Total Distribution

5402

5408

5846

5815

6571

6064

CORN

Corn Production

Consumption:

Corn consumption for MY 2016/17 remains unchanged from the previous forecast of 9.9 MMT, consisting of 7.6 MMT for feed and 2.3 MMT for food, seed and industrial (FSI) purposes. The demand for corn used for compound feed production will remain unchanged at 7.6 MMT. MY 2016/17 compound feed production is revised down by 400,000MT from the initial forecast to 19 MMT, after a recent recurrence of Highly Pathogenic Avian Influenza (HPAI) sharply cut the total poultry inventory by around 19 Percent.

MY 2015/16 corn consumption totaled 10.2 MMT due to a continued high demand for corn used for feed and food processing purposes. Corn consumption was composed of 7.84 MMT for feed and 2.31 MMT for food, seed and industrial (FSI) use. Recorded corn use was down less than one percent from the previous marketing year. Demand for feed corn was smaller than the previous year due to a greater global availability of feed grade wheat at competitive prices. Demand for processing corn grew five percent greater than the year earlier due to higher demand for high fructose corn syrup (HFCS).

Compound feed production for MY 2015/16 was recorded at 19.4 MMT, up about two percent from the year earlier mainly due to continuing growth in poultry, swine and other livestock sectors, partly offsetting reduced demand from both beef and dairy cattle operations. Feed corn was the primary ingredient used in poultry and swine compound feed, accounting for about 40 percent of total ingredients. This number is down about two percentage points from the previous year, with an increasing proportion of feed wheat used. In MY 2015/16, consumption of processing corn increased by five percent, to more than 2.2 MMT from 2.1 MMT in MY 2014/15. Wet millers consumed almost 97 percent of total processing corn, with the remainder going to dry millers . Major corn processors have continued using conventional corn imported from Brazil, Russia, Hungary, Australia and France. Meanwhile, they are sourcing non-GM corn from the United States and Argentina for food purposes. Many Korean food processing companies are reluctant to use ingredients sourced from biotech corn.

Trade

Total corn imports forecast for MY 2016/17 remain unchanged at 9.8 MMT, down three percent from total corn imports for the previous year. Total corn imports are expected to decrease due to competition from comparatively cheaper feed grade wheat.

As of early January 2017, importers had contracted 5.2 MMT of corn for October 2016 through April 2017 deliveries, and they were continuing to make contracts for arrival in May 2017 and onward. Most feed corn contracts are optional origin at seller’s option from South American countries, Eastern Europe, or the United States, with a price range of USD 182-217/MT, CNF. Meanwhile, corn processors have contracted for No. 2 GM/non-GM yellow corn from South America or the United States. Conventional corn is contracted from Eastern Europe with a price range of USD 187-226 /MT, CNF. Most recent buying contracts stabilized in the range of USD 182-184 /MT, CNF, for feed corn, and USD 187-192 /MT, CNF, for processing corn.

The MY 2016/17 forecast for U.S. corn exports to Korea remain unchanged from Post’s previous forecast at three million tons, expecting a greater supply of competitively priced corn originating from both South America and the Black Sea region.

Production, Supply and Demand Data Statistics

Corn

2014/2015

2015/2016

2016/2017

Market Begin Year

Oct 2014

Oct 2015

Oct 2016

Korea, Republic of

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

16

16

15

15

15

15

Beginning Stocks

1860

1860

1860

1860

1936

1905

Production

82

82

78

78

75

75

MY Imports

10168

10168

10121

10121

9800

9800

TY Imports

10168

10168

10121

10121

9800

9800

TY Imp. from U.S.

3647

4022

3882

2908

0

3000

Total Supply

12110

12110

12059

12059

11811

11780

MY Exports

0

0

0

0

0

0

TY Exports

0

0

0

0

0

0

Feed and Residual

8035

8035

7800

7841

7600

7600

FSI Consumption

2215

2215

2323

2313

2300

2300

Total Consumption

10250

10250

10123

10154

9900

9900

Ending Stocks

1860

1860

1936

1905

1911

1880

Total Distribution

12110

12110

12059

12059

11811

11780

RICE

Production

Higher than normal average yield for the past few years has led the Korean government to seek a balance between rice supply and demand by 2018. The government plans to achieve this goal by seeking a gradual reduction in harvested area and by using promotional activities to expand rice consumption.

The Ministry of Agriculture, Food and Rural Affairs (MAFRA) recently released its plan to reduce arable land used for rice cultivation to 711,000 hectares by 2018. This area is significantly smaller than the baseline of 746,000 hectares of rice paddies planted.

In line with the rice reduction scheme, the government plans to introduce the Production Adjustment Program which will encourage rice farmers to cultivate other crops in their paddy lands, up to 18,000 hectares across the nation in CY 2017. A recent survey by the Korea Rural Economic Institute (KREI) shows that rice farmers intend to plant 762,000 hectares in CY 2017, a decrease of 2.1 percent from the previous year.

Consumption

Rice consumption for MY 2016/17 is forecast at 4.74 MMT, a sharp increase of 532,000 MT from the previous year. This increase is expected because the Korean government announced that they would reduce the heavy burden of ending stocks by expanding rice availability for use in animal feed to 522,000 MT of brown rice (equivalent to 470,000 MT on milled rice basis) in CY 2017. MY 2015/16 total rice consumption was revised up to 4.21 MMT, up 15,000 MT from the previous marketing year, as the Korean government allowed 101,000 MT of domestic brown rice (equivalent to 91,000 MT on milled rice basis) to be used for animal feed in CY 2016.

The old rice that is used for animal feed is sold at price that is so low that it is comparable to 88 percent of corn value imported January – October 2016. In MY 2016/17, the price of rice for feed was 208 KRW per KG, whereas the year before it was 200 KRW per KG.

TRADE

As agreed to for the period for special treatment for the Minimum Market Access agreement, Korea continued to import the mandatory import volume of 408,700 MT from Most Favored Nation (MFN) countries at the current duty level of five percent under the tariff rate quota (TRQ) regime in 2015 and beyond. In MY 2016/17, rice imports are expected to remain unchanged at 410,000 MT, while actual delivery of some portion of the TRQ will roll over into the following year. U.S. rice exports to Korea are expected to stay around 140,000 MT (milled). The 2017 TRQ purchasing plan is expected to be released by the Korean government in the near future.

In MY 2015/16, Korea’s rice imports were 312,280 MT, consisting of 161,663 MT imported under the 2015 TRQ quota, and 150,617 MT imported under the 2016 TRQ. In CY 2016, U.S. exports to Korea amounted to 111,698 MT, which was composed of 48,425 MT imported under the 2015 TRQ quota and 63,273 MT imported under the 2016 TRQ.

2016 TRQ Tendering Results:

The Korea Agro-Fisheries and Food Trade Corporation (aT) completed the tendering process for the 2016 TRQ commitments for rice on December 29, 2016. Korea purchased a total of 408,700 MT of rice (milled basis) from the United States, China, Thailand, Australia, India, and Vietnam. The U.S. share was a record 40.6 percent, up about 2.2 percentage points from the previous year, due to more competitive pricing than other countries in tandem with greater demand for medium grain variety. Contracts totaled 165,865 MT (milled), worth USD 112.7 million. U.S. contracts of 139,849 MT were for brown rice (equivalent to 125,865 MT on a milled basis) for food processing purpose, while the remaining 40,000 MT was milled rice for table use.

The Korean government purchased 50,000 MT of USDA No. 1 Grade milled rice for table use, 10,000 MT less than the previous year. This total consisted of 40,000 MT of medium grain from the United States, 7,000 MT of long grain from Thailand, and 3,000 MT of short grain from Vietnam. Korean domestic political circles continued pressing the Korean government to reduce the scale of table rice imports under the TRQ regime.

The average contracted price for U.S. #1 medium grain table rice was USD 688.92/MT, down 25 percent from the previous year. Meanwhile, the contracted price for Vietnamese #1 short grain table rice was at USD 888.9/MT and Thai #1 long grain table rice at USD 498.06/MT, respectively.

Auctions for Imported Table Rice:

At sells table rice shipments to consumers 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.

Compared to CY 2015, the current pace of auctions for imported rice for table use have been very slow, effectively reducing the volume of rice being auctioned. In CY 2016, large rice stocks led to low domestic prices. However, farmers’ groups blamed imported rice for worsening domestic rice prices, leading farmers’ groups to strongly request the government slow down auctions for imported rice for table use.

As of October 7, 2016, the Korean government decided to stop auctioning off table rice imported under the 2014 Minimum Market Access agreement (MMA) because the quality of imported rice had deteriorated due to the delay between the time of import and the time of the auctions. As a result, the total unsold portion of table rice imported under the 2014 MMA is 57,538 MT. This quantity consists of 8,754 MT of U.S. #1 medium grain, 43,386 MT of Chinese #1 and #3 short grain, and 5,395 MT of Australian #1 and #3 medium grain.

Instead of continuing sales of the now aged rice imported under the 2014 MMA, aT recently began auctions for table rice imported under 2015 TRQ. However, aT temporarily stopped even these auctions on October 19, 2016, to prop up domestic rice market prices. Current auctions for imported rice are selling long grain table rice imported under the 2016 TRQ , because long grain rice does not impact the domestic (short grain) rice market.

Exports:

Korea’s rice exports were 2,313 MT in CY 2016, up 16 percent from the previous year. Korean rice exports to China increased due to new SPS requirements agreed upon in early 2016.

Stocks:

MY 2015/16 ending stocks (through the end of October 2016) are estimated at 1.8 MMT, or 43 percent of total domestic consumption. Rice production in the past four consecutive years has been greater than actual demand, as the decline of per capita table rice consumption continues. MY 2016/17 stocks (at the end of October 2017) are forecast to decline to 1.7 million tons, or 36 percent of total domestic consumption, due to a government policy to increase rice consumption for animal feed in CY 2017. The Korean government is expected to continue reducing the level of ending stocks by enacting policies that will stimulate rice consumption and reduce rice production.

Rice PS&D

Rice, Milled

Rice, Milled

Market Begin Year

Korea, Republic of

2014/2015

2015/2016

2016/2017

Nov 2014

Nov 2015

Nov 2016

USDA

New

USDA

New

USDA

New

Official

Post

Official

Post

Official

Post

Area Harvested

816

816

799

799

779

779

Beginning Stocks

899

899

1406

1406

1697

1831

Milled Production

4241

4241

4327

4327

4200

4197

Rough Production

5638

5638

5771

5771

5629

5625

Milling Rate (.9999)

7522

7522

7498

7498

7461

7461

MY Imports

465

465

340

312

410

410

TY Imports

372

372

350

313

410

410

TY Imp. from U.S.

143

143

0

111

0

140

Total Supply

5605

5605

6073

6045

6307

6438

MY Exports

2

2

2

2

2

2

TY Exports

2

2

2

2

2

2

Consumption and

4197

4197

4374

4212

4484

4744

Ending Stocks

1406

1406

1697

1831

1821

1692

Total Distribution

5605

5605

6073

6045

6307

6438