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USDA GAIN: Livestock and Products


10 April 2014

USDA GAIN: Republic of Korea Livestock and Products Semi-annual 2014USDA GAIN: Republic of Korea Livestock and Products Semi-annual 2014

Total Korean beef cattle inventory continues to gradually drop and as a result of the drop in slaughter numbers, total 2014 beef production is projected to decrease by 7.3 percent over the 2013 level. U.S. beef imports are projected to rebound in 2014 as Korea increases its imports to make up for the drop in domestic beef production.

USDA GAIN: Livestock and Products

Commodities:

Animal Numbers, Cattle

Production:

The total Korean beef cattle inventory continues to drop slowly but gradually as a lot of farmers with small sized operations, consisting mostly of breeding farms, that could not afford high feed prices coupled with the prospects of low calf prices up to August 2013, began to give up raising cattle. However, due to increased cow slaughter (accounting for 52.8 percent of total slaughter in 2013) and increased demand for domestic beef, calve prices began to rise from September 2013 and into early 2014. This has somewhat slowed the speed in inventory decline but has not been sufficient to change it to an upward trend. This trend was reflected in a survey conducted by the Korea Rural Economic Institute (KREI), where the indicator for farmers’ intent to increase herd size was negative until September 2013 but turned more positive in December 2013. Despite this change in farmers’ outlook, it did not come early enough to positively impact an increase in total inventory for the end of 2014. This is because although farmers may wish to increase their herd size as cattle prices go up, not enough cows were available following the increased slaughter in 2013 when prices were less favorable. Another factor that will keep total ending inventory for 2014 from rapidly returning to the same level as early 2013 is the fact that total semen sales in 2013 were only 92.8 percent of the 2012 level.

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 7 percent. Year-end inventory for 2014 is projected to be slightly higher than our earlier estimate of 3.1 million head as farmers are expected to try to rebuild their inventory in 2014 due to increased live cattle prices. Another hindering factor that will limit the increase in cattle inventory is the Korean government’s move to require cattle farms that are larger than 600 square meters to obtain permits as of February 23, 2014. Up to now, only the farms that were larger than 1,200 square meters were required to obtain permits. In order to receive the permit, the farms must be equipped with ventilation facilities, fumigation facilities as disease control facilities to prevent disease from being introduced into the farm. Farmers that cannot finance the cost of installing these facilities either will not be allowed to begin to raise cattle and existing farms will have to stop raising cattle within 1 year if they cannot be equipped with this facility.

Based on the semen sales data, the Korea Rural Economic Institute (KREI) projected that the potential production of calves will continue to drop through August 2014 compared to the same period in 2013. However, as calve prices continue to go up in 2014, some farmers are looking into the possibility of increasing their herd size. Both the government and research institutes are giving out warnings that due to high calf prices and feed prices, it could be difficult to make a profit for another 2 years. It remains to be seen if farmers will follow such warnings or not. The semen sales data since September 2013 is indicating an increase in calf crop.

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 slaughtered in 2011 were sold at a loss by 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 to 38 percent 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.

Commodities:

Meat, Beef and Veal

Production:

As farmers continued to reduce the calf production in 2013 and as some farmers try to retain their cow for breeding purposes in 2014, total slaughter is projected to drop in 2014. As a result of the drop in slaughter numbers, total 2014 beef production is projected to decrease by 7.3 percent over the 2013 level. The number of cattle under 1 year old in December 2013 was 801,000 heads, compared to 942,000 heads in December 2012. The decrease in the number of cattle in this age group will result in lower herd size to be put up for slaughter in 2014.

Consumption:

An abundant supply of domestic Hanwoo beef in 2013 kept domestic beef prices almost at the same level as in 2012. Farmer groups tried to boost consumption through various promotional activities in order to prevent cattle prices from further declining. Such aggressive promotions seems to have brought positive results as local beef prices remained stable in 2013 over the 2012 level, despite an increase of 10 percent in total supply. Substitute demand caused by an Avian Influenza outbreak in poultry and a continued drop in fish consumption following the Fukushima nuclear plant accident 3 years ago also attributed to increasing total beef consumption in 2013 by 4.4 percent.

The sluggish economy kept U.S. beef consumption from increasing in 2013 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 in hotel, restaurant and institutional use. Another factor that has kept U.S. beef consumption low is the fact that the price advantage of U.S. beef over Korean beef has diminished as U.S. beef prices continued to increase in 2013 whereas local beef prices remained stable due to oversupply.

As can be seen from the table below comparing beef prices among competing products, U.S. beef prices were squeezed by both lower domestic prices and a greater price gap with other imported beef in addition to domestic pork. In fact, the price of lower quality Hanwoo beef (Grade 3) was lower than U.S. chilled beef prices. The lower price of domestic Hanwoo beef was largely due to aggressive promotion by domestic Hanwoo cattle producers but the impact from such promotional activities was big enough to make domestic beef prices more appealing to consumers than the locally produced beef consumers generally prefer if the price is affordable.

Trade:

Although the total import value of U.S. beef to Korea increased in 2013 over the 2012 level, the volume dropped due to a lack of supply from the United States. As Korea increases its imports in 2014 to make up for the drop in domestic beef production, U.S. beef imports are projected to rebound. U.S. beef is subject to only a 32 percent duty compared with a 40 percent duty for beef coming from major competitors. Australia signed a Free Trade Agreement with Korea on February 10, 2014. However, it still has to undergo legal review and ratification by the National Assembly before it comes into effect. As the FTA with Australia calls for a 15 year phase out for beef import duties, the United States will continue to benefit from the lower duty until it comes down to zero. Canada and Korea also reached an agreement on an FTA between the 2 countries on March 11, 2014. This FTA also calls for a 15 year phase out in beef import duty and has to undergo similar legal processes as the FTA with Australia before becoming effective.

To view tables and other data, please download the document

April 2014

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