USDA GAIN: Livestock and Products
13 March 2012
USDA GAIN: Korea Livestock & Products Semi-annual
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.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.
Slaughter
High inventories, low cattle prices, high feed costs and the government’s plan to market lowerperforming 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.
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.
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.
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.
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.
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).
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