Livestock and Products Semi-annual

An Expert's View about Agriculture and Animal Husbandry in South Korea

Posted on: 23 Mar 2012

Soft cattle prices resulting from an oversupply of domestic cattle is expected to spur an increase in the animals marketed in 2012.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 3/6/2012 GAIN Report Number: KS1218 Korea - Republic of Livestock and Products Semi-annual Semi-Annual Approved By: M. Kathryn Ting, Minister-Counselor Prepared By: Yong Keun Ban / Michael Francom Report Highlights: Soft cattle prices resulting from an oversupply of domestic cattle is expected to spur an increase in the animals marketed in 2012. Rising slaughter will push cattle inventories down for the first time in over a decade to 3.25 million head. With beef production projected to climb higher, imports are forecast to come down to 400,000 MT. Imports of U.S. beef are forecast to hold steady at 160,000 MT, accounting for 40 percent of total imports. The swine industry is steadily recovering from the aftermath of FMD with pork production estimated at 982,000 MT, up 17 percent year-on-year. The increase in production is forecast to push imports down to 500,000 MT, a year-on-year decrease of nearly 100,000 MT. Imports of U.S. pork, though down from last year, are forecast to remain strong at 170,000 MT. Commodities: Animal Numbers, Cattle Production: After confronting Foot & Mouth Disease (FMD) in late 2010 and early 2011, Korean beef cattle farmers are now facing an even bigger challenge with plummeting cattle prices. Live steer prices have dropped over 35 percent between November 2010 just before the FMD outbreak and January 2012. See price series at end of cattle section for more detail. The main reason for the price drop is a surplus in local cattle inventories, which have increased 70 percent over the past decade and 26 percent over the last five years. In order to buoy local cattle prices, the Ministry for Food, Agriculture, Forestry & Fisheries (MIFAFF) recently announced a 30 billion won ($26.7 million) incentive program to encourage cattle farmers to send lower-performing cows (e.g. inferior progeny) to market instead of breeding them. MIFAFF is targeting to reduce the number of these substandard cows by 100,000 head in 2012 and another 100,000 head in 2013. Farmers will receive 500,000 won/head ($444) for heifers and 300,000 won/head ($267) for cows. MIFAFF has also announced plans to purchase 1,000 Holstein steer calves for veal production, which is an underdeveloped segment of the local beef market, in order to reduce inventories and stabilize prices. The government will also continue providing support to agricultural cooperatives under the NACF umbrella to carry discounted price promotion activities and will supply the military with domestic Holstein beef instead of imported Australian beef. While cattle prices still remain far below pre-FMD levels, these concerted efforts have helped to stabilize the market and have put the brakes on production. In fact, according to a recent think-tank survey, more farmers are looking to reduce herd sizes this year due to the decline in cattle prices. See survey results below. However, based on strong Hanwoo semen sales last year, 2012 production is only forecast to come down 2 percent from the previous year to 990,000 head. Meanwhile, the production estimate for 2011 was raised to 1.0 million because of high insemination rates the previous year. Cattle Industry Survey of Intention 2010 2011 2012 Farmers? Plan Mar. Jun. Sep. Dec. Mar. Jun. Sep. Dec. Mar. Maintain the same level 94.3 95.8 95.5 90.9 95.7 94.8 93.8 95.5 93.2 Will increase herd size 5.2 3.9 4.1 8.7 4.3 3.5 2.5 1.6 3.1 Will reduce herd size 0.4 0.3 0.5 0.4 0.0 1.7 3.7 2.8 3.8 Source: KREI Hanwoo Semen Sales (Unit: 000 straws) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 2008 116 151 146 156 174 177 220 212 170 170 148 118 1,958 2009 119 140 138 162 177 216 238 270 207 185 143 135 2,130 2010 146 131 145 248 154 216 271 240 223 181 144 134 2,233 2011 5 0 303 215 274 279 304 225 215 168 129 136 2,253 Source: GS&J Note: The jump in semen sales in March 2011 was due to the lifting of the FMD-related movement restrictions. Slaughter: High inventories, low cattle prices, high feed costs and the government?s plan to market lower- performing cows will push the 2012 total slaughter estimate upward to nearly 1.1 million head, an increase of about 27 percent over the previous year. The ratio of cow slaughter as a percentage of total slaughter is expected to increase as live cattle prices remain soft and farmers pull back on production. As a general rule of thumb, when cattle prices are bearish, farmers generally first look to market their steers first since their prices generally drop at a faster rate than cow prices. For example, steer prices dropped about 36 percent last year, while cow prices dropped almost 24 percent. If the downturn is longer than expected, as is the case right now, farmers start marketing their cows. The slaughter number for 2011 has been revised upward to 853,000 head because weaker cattle prices spurred an increase in the number of animals being marketed during the second half of the year. Nearly 57 percent of cattle were slaughtered from Jul-Dec 2011, up 4 percentage points from the same time the previous year. According the Korea Rural Economic Institute (KREI), a local agricultural think-tank, because of sagging cattle prices and relatively high feed costs, about 46 percent of the cattle slaughtered in 2011 resulted in the farmers losing money. These loss-generating animals were those that graded out at a 2 or 3, which is the lower end for quality grading scale. The remaining 54 percent of animals that yielded a profit received a grade of 1++, 1+ or 1. 2011 Farm Income per Head of Beef Cattle (Estimate based on 600 Kg. cattle) Unit: 000 won, percent De Carcass grade scription 1++ 1+ 1 2 3 ? Gross Income (A) 6,002 5,254 4,751 3,752 2,818 ? Expenses (B) 4,582 4,582 4,582 4,582 4,582 Calf price 1,969 1,969 1,969 1,969 1,969 Feed 2,169 2,169 2,169 2,169 2,169 Other expenses 444 444 444 444 444 ? Income [(A)-(B)] 1,420 672 169 -830 -1,764 ? % by grade 7.8 19.4 26.9 25.8 20.1 Source: KREI and Korea Institute of Animal Products Quality Evaluation Exchange rate: US$1 = 1,125.7 won Monthly Cattle Slaughter Trend Year Month Cow Bull/steers Total Heads Percent of total Heads Percent of total Sub-total Percent of annual Jan 32,820 42.4 44,588 57.6 77,408 10.3 2010 Feb 31,065 47.5 34,384 52.5 65,449 8.7 Mar 25,785 46.2 30,025 53.8 55,810 7.4 Apr 24,625 45.9 29,026 54.1 53,651 7.1 May 23,300 45.8 27,608 54.2 50,908 6.8 Jun 23,480 45.7 27,888 54.3 51,368 6.8 Jul 25,553 48.7 26,920 51.3 52,473 7.0 Aug 30,698 45.1 37,305 54.9 68,003 9.0 Sep 41,003 47.1 45,977 52.9 86,980 11.6 Oct 26,598 46.4 30,765 53.6 57,363 7.6 Nov 29,018 44.2 36,686 55.8 65,704 8.7 Dec 27,332 40.6 39,977 59.4 67,309 8.9 Total 341,277 45.4 411,149 54.6 752,426 100.0 Jan 32,297 37.8 53,045 62.2 85,342 10.0 Feb 11,047 33.3 22,078 66.7 33,125 3.9 Mar 24,217 43.6 31,310 56.4 55,527 6.5 Apr 24,752 41.4 35,090 58.6 59,842 7.0 May 26,947 40.0 40,349 60.0 67,296 7.9 Jun 28,691 40.8 41,617 59.2 70,308 8.2 2011 Jul 28,130 42.8 37,663 57.2 65,793 7.7 Aug 41,113 39.7 62,487 60.3 103,600 12.1 Sep 34,732 44.5 43,296 55.5 78,028 9.2 Oct 26,890 40.4 39,681 59.6 66,571 7.8 Nov 31,289 41.0 45,112 59.0 76,401 9.0 Dec 37,341 41.1 53,572 58.9 90,913 10.7 Total 347,446 40.7 505,300 59.3 852,746 100.0 Source: Quarantine Inspection Agency Stocks: Livestock industry experts are predicting that it will take 2-3 years before the drop in cattle prices is actually reflected in the total inventory numbers in part because Hanwoo semen sales, which are directly correlated with insemination rates, remained relatively strong through the end of 2011 even though prices were dropping. Nonetheless, ending inventories in 2012 are projected to decline from last year?s record to 3.25 million in large part because of the expected increase in slaughter. This decline, the first in more than a decade, signals the end of a long expansionary period in the local cattle sector. Prices: Korea: Live Beef Cattle Prices (000 won/head) Mont Hanwoo calf h Hanwoo cow Hanwoo steer Female Male Jan., 2009 1,370 1,514 4,602 3,659 Feb., 2009 1,482 1,618 4,584 3,694 Mar., 2009 1,509 1,669 4,597 3,699 Apr., 2009 1,629 1,852 4,670 3,688 May, 2009 1,718 1,989 4,698 3,702 Jun., 2009 1,869 2,121 4,751 3,808 Jul., 2009 1,930 2,176 4,831 3,949 Aug., 2009 2,032 2,312 5,089 4,870 Sept., 2009 2,125 2,411 5,405 5,167 Oct., 2009 2,054 2,324 5,510 5,405 Nov., 2009 2,048 2,302 5,754 5,729 Dec., 2009 2,081 2,292 5,904 5,789 Jan., 2010 2,080 2,344 5,911 5,846 Feb., 2010 N/A N/A N/A N/A Mar., 2010 2,272 2,434 5,714 5,495 Apr., 2010 2,331 2,598 5,659 5,433 May, 2010 N/A N/A N/A N/A Jun., 2010 2,337 2,554 5,326 5,081 Jul., 2010 2,259 2,475 5,066 4,942 Aug., 2010 2,151 2,391 5,012 5,044 Sep., 2010 2,074 2,387 4,850 5,069 Oct., 2010 2,092 2,327 4,877 5,073 Nov., 2010 1,939 2,041 4,824 4,889 Dec., 2010 N/A N/A N/A N/A Jan., 2011 N/A N/A N/A N/A Feb., 2011 N/A N/A N/A N/A Mar., 2011 N/A N/A N/A N/A Apr., 2011 1,956 1,924 4.383 3,668 May, 2011 1,796 1,817 4,106 3,804 Jun., 2011 1,643 1,743 3,774 3,203 Jul., 2011 1,591 1,713 3,813 3,211 Aug., 2011 1,534 1,785 3,758 3,116 Sep., 2011 1,446 1,785 3,752 3,125 Oct., 2011 1,386 1,845 3,682 3,159 Nov., 2011 1,248 1,484 3,773 3,219 Dec., 2011 921 1,226 3,622 3,082 Jan., 2011 935 1,354 3,689 3,155 Source: National Agricultural Cooperative Federation, NACF (Exchange rate: US$1 = 1,125.7 won) Note: Live beef cattle prices are not available during the period Dec., 2010~Mar., 2011, as the live cattle market was closed during this period, due to FMD outbreak. Commodities: Meat, Beef and Veal Production: With the expected increase in the number of animals going to slaughter, beef production in 2012 is projected to climb above the previous estimate to 355,000 MT. Similarly, the beef production forecast for 2011 is raised to 280,000 MT on account of the increase in animals marketed during the second half of the year. Consumption: With the expected increase in production and ongoing promotional activities, the beef consumption estimate is raised slightly from the earlier forecast to 700,000, but up more than 5 percent year-on-year. In a bid to increase consumption of domestic beef, two of the largest hypermarket chain stores ? E-mart and Lotte Mart ? continue to sell Hanwoo beef at discounted prices. Prospects for U.S. beef consumption remains high as the percentage of the consumers that have tried U.S. beef has increased from 22 percent in 2010 to 52 percent in 2012, according to a KREI survey. In addition, a separate KREI survey revealed that 41 percent of consumers said they would purchase less Australian beef when purchasing U.S. beef. Meanwhile, nearly 30 percent said they would cut back on Hanwoo beef consumption when purchasing U.S. beef. In mid December 2011, USMEF kicked-off the second phase of its ?To Trust? campaign that profiled world-class U.S. beef in two different commercials which ran on all the major TV networks until the end of February 2012. USMEF will conduct surveys to gauge consumers? responses, but initial impressions seem positive. These and other types of promotional activities are considered as the key ingredients to propel consumption of U.S. beef in years to come. Survey of consumers? experience in purchase of U.S. beef Unit: Person (%) Year Have purchased U.S. beef Have not purchased U.S. beef Total 2010 169 (22.1) 595 (77.9) 764 (100.0) 2011 336 (48.0) 364 (52.0) 700 (100.0) 2012 357 (52.3) 326 (47.7) 683 (100.0) The surveys were conducted in Dec., 2010, Feb., 2011 and Jan., 2012 Source: KREI Survey of consumers? intention to reduce other meat consumption when purchasing U.S. beef Unit: Person (%) Ye Hanwoo Australian Will not reduce other meat ar B Pork Chicken l eef Beef consum Totaption 22 167 2010 30 (18.0) 79 (47.3) 6 (3.6) 30 (18.0) (13.2) (100.0) 273 2011 97 (35.5) 101 (37.0) 21 (7.7) 5 (1.8) 49 (17.9) (100.0) 38 321 2012 96 (29.9) 133 (41.4) 4 (1.2) 50 (15.6) (11.8) (100.0) Source: KREI Survey of consumers? intention to pay higher price for domestic Hanwoo beef Unit: Multiple times De Loin Short rib scription Dec., Feb., Jan., Dec., Feb., Jan., 2010 2011 2012 2010 2011 2012 Hanwoo beef / U.S. bee 3.40 3.16 3.04 2.85 2.28 2.17 f Hanwoo beef / Australian 2.72 2.71 2.65 2.17 1.95 1.76 beef Source: KREI The most popular beef cut is short ribs. In January 2012, the average retail price for 500 grams of domestic #1 grade chilled short ribs cost 22,000 won per 500 grams ($19.50). In comparison, the same U.S. and Aussie chilled cut retailed for about half the price at 11,900 won ($10.60) and 10,695 won ($9.50) per 500 grams. The reason for the price difference between U.S. and Aussie short ribs is the price premium for grain feed beef; nearly all U.S. beef is grain feed while just 30 percent of Aussie beef is. See retail price series at end of beef section for more detail. Trade: In light of the anticipated increase in beef production, the 2012 beef import forecast has been trimmed to 400,000 MT, down 4 percent from the previous year. Imports of U.S. beef during this period are forecast to hold steady at 160,000 MT, accounting for 40 percent of total imports. The KOR-US FTA is not expected to have a significant impact on U.S. beef imports in 2012 since the tariff is only being reduced from 40 percent to 37.3 percent. More on the duty phase-outs under the agreement is available in our Beef Product Brief. Imports of Canadian beef, which resumed this year, are expected to be very minor. In 2011, beef imports climbed above the earlier estimate to 417,000 MT on the back of high domestic pork prices. Prior to FMD, domestic pork retail prices were about 1.3 times higher than frozen Australian beef, but jumped as high as 1.9 times and were still 1.7 times higher in December 2011. Imports of U.S. beef reached 157,000 MT during this period, accounting for about 38 percent of total imports. On a product weight basis, imports of U.S. beef totaled slightly more than 115,000 MT, valued at nearly $600 million. Korea: Beef Imports ($000 and Metric Tons) Annual 2010 Annual 2011 Country Value Volume Value Volume Australia 571,648 138,524 770,061 152,739 United States 395,025 84,821 599,145 115,342 New Zealand 106,701 34,256 137,613 34,357 Mexico 7,364 3,574 16,449 5,236 Others 499 104 423 130 Total 1,081,237 261,279 1,523,691 307,804 Source: KITA Product Weight Equivalent basis Includes HS 0201 (fresh/chilled), HS 0202 (frozen), HS 021020 and 160250 (processed beef products) Stocks: Consumption was not commensurate with imports in 2011 resulting in a fair amount going into stocks. The GS&J research institute estimated that there was about 59,000 MT (PWE) of imported beef waiting to clear Customs at the end of 2011. Ending stocks for 2011 are accordingly revised upward to 80,000 MT (CWE). Prices: Retail prices (2009 ? 2012) Unit: Won per 500 gram Hanwoo beef Loin Australian Beef Loin Australian Beef Loin Domestic Month (Top grade) (Chilled) (Frozen) Pork Jan., 36,116 N/A 6,333 7,947 2010 Feb., 38,102 N/A 6,333 7,609 2010 Mar., 36,548 N/A 6,333 7,317 2010 Apr., 37,325 16,117 6,462 8,207 2010 May, 37,389 N/A 6,500 8,566 2010 Jun., 35,727 N/A 6,500 8,385 2010 Jul., 34,836 20,416 6,606 8,794 2010 Aug., 35,282 21,313 6,833 9,132 2010 Sept., 38,603 21,892 6,640 8,943 2010 Oct., 39,273 21,104 6,500 8,599 2010 Nov., 36,335 19,903 6,401 8,311 2010 Dec., 35,850 20,328 6,333 8,038 2010 Jan., 34,062 22,794 6,333 8,902 2011 Feb., 31,460 21,939 6,333 10,658 2011 Mar., 31,632 19,629 6.220 9,499 2011 Apr., 28,573 18,940 6,167 9,794 2011 May, 27,532 18,525 6,396 10,691 2011 Jun., 28,209 16,083 6,429 12,300 2011 Jul., 28,360 16,587 5,976 11,798 2011 Aug., 29,550 17,645 5,785 10,759 2011 Sept., 32,515 19,555 6,000 9,722 2011 Oct., 31,350 19,295 6,000 8,688 2011 Nov., 31,515 18,695 6,000 8,571 2011 Dec., 30,680 19,180 5,905 9,985 2011 Jan., 30,075 20,280 6,000 9,235 2012 Source: National Agricultural Cooperative Federation, NACF (Exchange rate: US$1 = 1,125.7 won) Retail Prices for Beef Short Ribs (2010 ? 2012) Unit: Won per 500 gram M Domestic Hanwoo (chilled) U.S. A. Australia onth #1 Grade #3 Grade Chilled Frozen Chilled Frozen Jan., 2010 36,881 19,210 N/A N/A 9,991 8,080 Feb., 2010 37,450 20,911 N/A N/A 10,993 8,488 Mar., 2010 37,450 21,030 N/A N/A 9,611 8,315 Apr., 2010 36,911 21,057 N/A N/A 9,032 8,849 May, 2010 36,032 21,230 N/A N/A 8,504 9,025 Jun., 2010 34,138 21,230 N/A N/A 8,647 8,828 Jul., 2010 34,819 21,230 13,455 9,617 8,321 8,414 Aug., 2010 34,337 21,230 13,762 9,814 7,834 8,779 Sept., 2010 35,027 21,462 12,979 9,699 10,654 8,614 Oct., 2010 35,000 21,630 12,724 9,500 9,982 8,500 Nov., 2010 35,000 21,630 13,863 9,500 9,193 8,500 Dec., 2010 35,000 21,143 13,674 9,500 8,711 8,210 Jan., 2011 34,475 20,830 13,281 9,500 10,424 8,167 Feb., 2011 33,547 20,830 13,803 9,500 12,386 8,167 Mar., 2011 31,336 21,130 13,431 10,455 10,770 8,053 Apr., 2011 28,811 21,430 13,388 10,500 9,002 8,167 May, 2011 23,439 20,295 13,150 9,818 8,739 7,834 Jun., 2011 23,212 18,333 14,352 9,234 9,108 7,667 Jul., 2011 23,566 18,333 14,515 8,412 8,819 7,238 Aug., 2011 23,248 19,795 14,855 7,577 9,134 6,534 Sept., 2011 23,134 18,500 14,500 7,732 10,676 6,750 Oct., 2011 22,080 13,625 11,900 8,090 9,224 6,750 Nov., 2011 21,835 12,000 12,885 8,184 8,720 6,750 Dec., 2011 21,655 11,810 12,950 8,170 9,215 6,645 Jan., 2012 22,200 12,000 11,900 8,270 10,695 7,185 Source: National Agricultural Cooperative Federation, NACF (Exchange rate: US$1 = 1,125.7 won) Production, Supply and Demand Data Statistics: Animal Numbers, Cattle Korea, Republic of 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Total Cattle Beg. Stks 3,079 3,079 3,278 3,278 3,356 3,354 Dairy Cows Beg. Stocks 304 304 278 278 295 283 Beef Cows Beg. Stocks 1,085 1,085 1,147 1,147 1,250 1,249 Production (Calf Crop) 1,026 1,026 950 1,010 1,000 990 Total Imports 0 0 10 0 1 0 Total Supply 4,105 4,105 4,238 4,288 4,357 4,344 Total Exports 0 0 0 0 0 0 Cow Slaughter 341 342 350 348 405 500 Calf Slaughter 0 0 0 0 0 1 Other Slaughter 411 411 450 505 495 580 Total Slaughter 752 753 800 853 900 1,081 Loss 75 74 82 81 10 10 Ending Inventories 3,278 3,278 3,356 3,354 3,447 3,253 Total Distribution 4,105 4,105 4,238 4,288 4,357 4,344 CY Imp. From U.S. 0 0 0 0 0 0 CY Exp. To U.S. 0 0 0 0 0 0 1000 HEAD, PERCENT Meat, Beef and Veal Korea, Republic of 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Slaughter (Reference) 752 753 800 853 900 1,081 Beginning Stocks 47 47 49 49 50 80 Production 247 247 262 280 295 355 Intra-EU Imports 0 0 0 0 0 0 Other Imports 366 366 410 417 420 400 Total Imports 366 366 410 417 420 400 Total Supply 660 660 721 746 765 835 Intra EU Exports 0 0 0 0 0 0 Other Exports 2 2 1 3 1 3 Total Exports 2 2 1 3 1 3 Human Dom. Consumption 609 609 670 663 700 700 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 609 609 670 663 700 700 Ending Stocks 49 49 50 80 64 132 Total Distribution 660 660 721 746 765 835 CY Imp. From U.S. 110 110 140 157 150 160 CY Exp. To U.S. 0 0 0 0 0 0 1000 HEAD, 1000 MT CWE, PERCENT, PEOPLE, KG Commodities: Animal Numbers, Swine Production: The swine industry is steadily recovering from the FMD outbreaks in late 2010 and early 2011 where over 3.4 million hogs were culled, or one-third of the total inventories. In an effort to help the swine industry rebuild, the government created a zero duty tariff rate quota (TRQ) for 31,000 head of breeding stock in 2011 and another 5,000 head during the first half of 2012. Meanwhile farmers are working quickly to rebuild their herds and will continue to do so throughout the year. As can be seen from the KREI survey results below, swine growers are planning to expand current herd sizes 12 percent by this coming August. In order to make this happen, farmers are increasing sow inventories, which currently stand at about 93 percent from where they were prior to FMD. See the following two tables below for details. Index of Farmers? Intention to Increase Herd Size in 2012 March April May June July August 101.7 104.1 105.4 107.7 110.3 111.5 Source: KREI Note: December 1, 2011 inventories were used as the benchmark (100) for the survey. Survey conducted Feb 6-15, 2012. Number of sows and swine over 6 months of age (000 heads) Age Dec. 1, 2010 2/ Mar. 1, June 1, Sept. 1, Dec., 1, 2011 (B) / (A) (A) 2011 2011 2011 (B) (Percent) 6-8 months 108 85 115 117 119 110.2 Over 8 911 688 724 756 821 90.1 months Sows 1/ 976 732 793 835 903 92.5 1/ Swine over 8 months are sows and part of the swine that are 6-8 months old are also sows. 2/ Dec 1 sow numbers do not match with PS&D figures since these are as of Dec 31. High carcass prices are also helping drive the recovery. In December 2011, the average carcass price was 6,336 per kilogram ($5.60), up 46 percent from a year earlier. Prices have, however, softened in January 2012 at 4,725 won ($4.20) per kilogram. Furthermore, according to KREI, the average carcass price is projected to come down to 4,669 won/kg ($4.10) in 2012 from 5,808 won/kg ($5.20) in 2011. While farmers are rebuilding, the expansion in production is occurring at a slower pace than was originally expected in large part because of the short supply of sows some of which because of overuse are declining in productivity. The pig production estimate in 2012 is accordingly reduced from 14.6 million to 13.9 million head. Although down from the earlier estimate, 2012 hog production is forecast to increase 5 percent year-on-year. Over the longer-term, it is unlikely that the total hog inventories will reach pre-FMD levels of 9.8 million for the reasons listed below, many of which are policy related changes that were introduced to reduce the likelihood of future FMD and other infectious disease outbreaks. There is a short supply of sows in 2012 that will keep production in check. Swine farms can no longer be located within 500 meters of a residential area. Farmers are required to provide minimum barn space requirements; 1.4 square meters for a sow and 0.8 square meters for porkers. The prohibition on livestock manure disposal in the open sea became effective on January 1, 2012. As of November 2011, there were 360 swine farms that were dumping an estimated 60,000 MT of manure into the ocean each year. Large sized farms (e.g. 50 head of cattle or 1,000 head of swine) must cover 50 percent of the cost for FMD vaccination. The government will continue to subsidize the cost for smaller sized farms. Penalties have been imposed on farmers with animals that have less than 60 percent of the FMD antibody. A recent survey shows only half of the farms met this requirement. In October, 2012, Korea plans to introduce a pilot traceability program at a number of swine farms. The hogs will receive a group tracking number when they leave the farm. The government will furnish the farms participating in the trial program with the necessary technology. The traceability system will likely be expanded to all swine farms sometime in the future. At the end of 2012, all breeding farms, semen collection facilities and large livestock farms (9,000 farms) will be required to obtain a business permit. Also, small sized farms, regardless of size, will have to be registered and receive mandatory training. Swine Carcass Prices Carcass price 2009 2010 2011 2012 Month Won per Kilogram January 4,487 3,859 6,342 4,725 February 4,225 3,920 6,372 March 5,031 3,989 6,565 April 4,955 4,325 5,786 May 4,245 4,272 7,200 June 4,531 4,647 7,675 July 4,826 4,663 6,572 August 4,967 4,802 6,322 September 4,475 4,535 5,384 October 3,672 3,817 4,495 November 4,021 3,963 5,619 December 4,128 4,344 6,336 Source: NACF (Exchange rate: US$1 = 1,125.7 won) Slaughter: The 2012 slaughter estimate has been trimmed down about 3 percent to 12.9 million to reflect the decrease in production. Though down from the earlier estimate, hog slaughter is forecast to increase 20 percent year-on-year. In 2011, the number of animals marketed dropped to 10.8 million because of FMD-related culling and livestock movement controls that remained in place until mid-year. Monthly slaughter in 2011 remained below 1.0 million head for most of the year compared to 2010 when monthly figures ranged from 1.1 to 1.4 million head. Monthly swine slaughter Unit: Heads and percent Comparison Year Month Slaughter Percent of total annual slaughter Percent of monthly slaughter in 2010 Jan 1,200,864 8.2 Feb 1,139,094 7.8 Mar 1,329,078 9.1 Apr 1,227,418 8.4 May 1,170,277 8.0 N/A Jun 1,170,586 8.0 Jul 1,145,063 7.8 2010 A ug 1,178,342 8.1 Sep 1,128,558 7.7 O ct 1,293,212 8.8 Nov 1,372,827 9.4 Dec 1,274,060 8.7 Total 14,629,379 100.0 Jan 962,309 8.9 80.1 2011 Feb 791,005 7.3 69.4 Mar 947,299 8.8 71.3 Apr 906,443 8.4 73.8 May 870,793 8.0 74.4 Jun 780,913 7.2 66.7 Jul 723,992 6.7 63.2 Aug 885,102 8.2 75.1 Sep 883,949 8.2 78.3 Oct 1,026,885 9.5 79.4 Nov 1,072,233 9.9 78.1 Dec 966,926 8.9 75.9 Total 10,817,849 100.0 73.8 Stocks: Post has revised 2011 hog ending inventories to reflect the Korean government?s updated data series, which was based on FMD vaccination records required for all swine. Post was previously backing out 864,000 head from the government numbers since they had had unexpectedly and without explanation increased ending inventories by this amount back in 1998. Ending inventories in 2012 are forecast at 8.6 million head, up about 460,000 from the beginning of the year to account for the anticipated increase in production. Commodities: Meat, Swine Production: The pork production estimate for 2012 is forecast to fall from the earlier estimate to 982,000 MT. However, year-over-year production is expected to increase 17 percent as the swine sector recovers and more animals are slaughtered in 2012. Consumption: Pork consumption in 2012 is expected to stay relatively unchanged from the earlier estimate at 1.5 million MT, which is about 3 percent higher than the previous year. In 2011, pork consumption fell 5 percent to 1.45 million MT because of the shortage in domestic pork resulting from FMD and the corresponding changes consumer dietary patterns. In particular, consumers switched to other meat proteins such as poultry, fish, domestic beef and imported red meats. According to January 2012 from KREI, the top five substitutes for domestic pork in rank order were: chicken, fish and Hanwoo beef, duck, imported beef and imported pork. See table below for details. Consumers? preference for substitute meat for domestic pork Unit: Percent Survey Period Chicken Hanwoo beef Duck Imported beef Imported pork Fish Other Feb., 2011 34 4 14 6 8 32 2 Jan., 2012 24 17 16 11 9 22 1 Source: KREI Although more recent survey results are unavailable, the following KREI survey shows that 59 percent of pork consumption occurred at restaurants where about half the pork served is imported. Since eating out is one of the first things to go when economic times get tough, consumption of imported pork to a large extent depends on the wellbeing of the Korean economy. About 20 percent of imported pork goes for retail and 30 percent for processing. Ratio of Pork Consumption at Home vs. Restaurants Dining place Jan., 2009 Jan., 2010 Aug., 2010 Feb., 2011 Restaurants 56.5 57.0 58.3 59.0 Home 43.5 43.0 41.7 41.0 Source: KREI Trade: In an attempt to curb rising pork prices, the Korean government announced a zero duty tariff-rate-quota (TRQ) for 70,000 MT of chilled/frozen pork bellies and cuts for processing during the first quarter of 2012. The government had likewise implemented TRQs last year for select pork products. Most of the quota for processing cuts was filled, but the allocation for chilled pork bellies was far from being filled due to short supplies on the international market. The following table provides a summary of the 2011- 12 TRQ announcements. Duty Free Quota Announcements on Imported Pork Quota Date Product Quota Must be HS Number Cumulative imported by allocated quota Frozen pork bellies 0203.29.1000 10,000 10,000 Jan. 28, 2011 Frozen pork for 0203.29.9000 50,000 60,000 processing Mar Jun. 30, 2011 . 7, 2011 Frozen pork bellies 0203.29.1000 50,000 a/ 110,000 May 11, Other chilled pork 0203.19.0000 20,000 130,000 2011 Dec. 31, Jun. 27, 2011 Pork 0203 130,000 260,000 2011 Aug. 11, Chilled pork for Sep. 30, 0203.19 unlimited 2011 processing 2011 Decemb Frozen/chilled pork 0203.19.1000 er 50,000 Mar. 31, bellies 0203.29.1000 20, 2011 2012 Frozen/chilled pork 0203.19.9000 20,000 for processing 0203.29.9000 a/ The combined quota for frozen pork bellies was 60,000 MT from January to June. The 2012 pork import estimate remains unchanged at 500,000 MT, but still down nearly 100,000 MT from the previous year given the recovery in the local swine industry. Although down year-over-year, imports are still forecast to remain above pre-FMD levels of 382,000 MT in 2010. Meanwhile, the United States is expected to remain the single largest supplier of pork to the Korean market. Imports of U.S. pork in 2012 are forecast at 170,000 MT, down 11 percent from the previous year, but still higher than pre-FMD levels of 105,000 MT. The U.S. import estimate has also been adjusted to reflect the expected gains under the KORUS FTA, though some have been watered down because of the emergency TRQs. The tariff on pork, which ranges from 22.5 to 30 percent depending on the cut, will drop anywhere from 2 to 10 percent upon implementation. More on the duty phase-outs under the agreement is available in our Pork Product Brief. The implementation of the FTA with the European Union on July 1, 2011 and scheduled implementation of the KORUS FTA on March 15, 2012 are not expected to have a major impact right away since domestic pork is still in somewhat short supply because the local industry is still rebuilding. However, the effects of the agreements will likely start showing through in the next 2-3 years. During the second half of 2011, pork imports slowed as domestic production started speeding up. Imports reached a record 609,000 MT, of which slightly more than 30 percent were from the United States. On a product weight basis, imports of U.S. pork totaled 152,000 MT and were worth $473 million in 2011. Korea: Pork Imports ($1000 and Metric Tons) Annual 2010 Annual 2011 Country Value Volume Value Volume $000 MT $000 MT United States 172,198 77,335 472,812 152,152 Canada 94,102 54,715 208,867 80,237 Chile 111,477 43,443 116,363 40,496 Austria 45,961 14,394 79,409 22,358 France 46,518 14,007 63,146 17,882 Netherlands 44,663 13,382 113,788 20,799 Spain 32,422 18,557 73,666 31,331 Belgium 42,230 13,813 53,982 15,774 Germany 13,363 4,600 106,486 31,429 Denmark 20,197 11,452 75,362 27,956 Hungary 13,399 5,541 32,038 10,436 Poland 10,425 5,841 41,106 17,263 Mexico 18,947 8,145 33,522 10,180 Others 17,984 8,319 30,729 13,669 Total 683,886 293,544 1,501,276 491,962 Source: KITA Product Weight Equivalent basis Includes: HS 020311, 020312, 020319 (fresh/chilled), HS 020321, 020322, 020329 (frozen), 021011, 021012, 021019, 160241, 160242, and 160249 (processed pork products) Production, Supply and Demand Data Statistics: Animal Numbers, Swine Korea, Republic of 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Total Beginning Stocks 8,721 8,721 8,449 8,449 6,806 8,171 Sow Beginning Stocks 966 966 920 920 945 903 Production (Pig Crop) 14,923 14,923 12,127 13,308 14,600 13,900 Total Imports 2 2 15 17 5 5 Total Supply 23,646 23,646 20,591 21,774 21,411 22,076 Total Exports 0 0 0 0 0 0 Sow Slaughter 0 0 0 0 0 0 Other Slaughter 14,629 14,629 11,000 10,818 13,301 12,942 Total Slaughter 14,629 14,629 11,000 10,818 13,301 12,942 Loss 568 568 2,785 2,785 510 500 Ending Inventories 8,449 8,449 6,806 8,171 7,600 8,634 Total Distribution 23,646 23,646 20,591 21,774 21,411 22,076 CY Imp. From U.S. 0 0 0 4 0 2 CY Exp. To U.S. 0 0 0 0 0 0 1000 HEAD, PERCENT Meat, Swine Korea, Republic of 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Slaughter (Reference) 14,629 14,629 11,000 10,818 13,301 12,942 Beginning Stocks 107 107 60 60 50 50 Production 1,110 1,110 835 837 1,010 982 Intra-EU Imports 0 0 0 0 0 0 Other Imports 382 382 625 609 500 500 Total Imports 382 382 625 609 500 500 Total Supply 1,599 1,599 1,520 1,506 1,560 1,532 Intra EU Exports 0 0 0 0 0 0 Other Exports 0 0 0 0 0 0 Total Exports 0 0 0 0 0 0 Human Dom. Consumption 1,539 1,539 1,470 1,456 1,510 1,500 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 1,539 1,539 1,470 1,456 1,510 1,500 Ending Stocks 60 60 50 50 50 32 Total Distribution 1,599 1,599 1,520 1,506 1,560 1,532 CY Imp. From U.S. 105 105 0 188 0 170 CY Exp. To U.S. 0 0 0 0 0 0 1000 HEAD, 1000 MT CWE, PERCENT, PEOPLE, KG
Posted: 23 March 2012

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