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USDA GAIN: Livestock and Products


19 September 2012

USDA GAIN: Korea Livestock and Products Annual 2012USDA GAIN: Korea Livestock and Products Annual 2012

Korean beef cattle farmers have begun to respond to low prices and government efforts to reduce inventory. As a result of the surge in slaughter numbers, total 2012 beef production is projected to increase by 19.3 percent over the 2011 level, but to drop in 2013. Due to the increase in domestic beef production, beef imports in 2012 are estimated to be down slightly. The Korean swine industry, hardest hit by the 2010/2011 FMD outbreak, has recovered about six months sooner than experts predicted. By June 2012, the number of sows had reached the same level that existed prior to the FMD outbreak. Estimated 2012 pork production is revised up. Pork imports, which reached a record 640 thousand CWE MT in 2012, will be lower in 2012.

USDA GAIN: Livestock and Products

Cattle

Production

Korean beef cattle farmers have begun to show signs of reducing stocks as calf and cattle prices continue to come down after overcoming the shock from the FMD outbreak that broke out in late 2010. Total beef cattle inventory continued to increase up until June, 2012, as the result of higher insemination numbers that continued through July, 2011, showed up in the market. However, as the calf and cattle prices continued to drop throughout 2011 and even further in 2012, farmers have drastically cut down on semen purchases since August 2011, which will have an impact on overall inventory numbers for the second half of 2012 and into 2013. Semen sales continued to drop by 16.1 percent during the first seven months of 2012, compared to the same period in 2011. Signs of a drop in cattle inventory can also be seen in the increase 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, which is at a historically high level. Such downsizing will be reflected in the market in 2013, as calf production drops and ending inventories also 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 somewhat slowed the decline in live cattle prices, prices were still far from recovering to the price level prior to FMD. The main reason for the drop in live cattle prices is due to a surplus in local cattle inventories. The domestic herd size increased 70 percent over the past decade.

In order to reduce the total cattle inventory, the Korean government has announced a program to promote the slaughtering of cows that typically do not sell as well. The government is providing a subsidy (30 billion won in 2012) for farmers that slaughter lower-performing cows, such as heifers that have different hair color and tend to receive lower prices, cows that have given birth to calves that are of low quality, etc. The government’s target is to reduce the number of such cows by 100,000 head in 2012 and another 100,000 head in 2013. Such efforts are slowly showing results in the market as the ratio of cow slaughter has gradually increased from 42.7 percent in January 2012 to 52.0 percent in June 2012. This trend in increased slaughter of cows is projected to continue during the second half of 2012 as farmers continue to send lower performing cows to the market in order to receive the subsidy. In addition to the increased slaughter of cows, farmers that raise cows are switching the use of cows for breeding purposes to feeder cattle. A low insemination rate and a smaller number of breeding cows will all contribute in lowering the number of beef cow beginning stocks and calf production in 2013.

A combination of government efforts to reduce the cow numbers and farmers’ moves to lower their inventory by reducing the semen purchases will bring down the total ending inventory in 2013. As the continued increase in cattle inventory is showing symptoms of turning to a downward trend, some research institutes, such as the GS&J, are pointing out that it is time for the government to discontinue its policy of reducing total inventory and switch over to a policy that dissuades farmers from getting cold feet over increasing the breeding number and total herd size.

As the total inventory comes down in 2013, overall slaughter numbers are projected to drop as well. Such reduction in total inventory and slaughter should help boost the low calf and cattle prices during the second half of 2013 and mitigate the ratio of cow slaughter as farmers begin to retain their breeding stock.

The survey of farmers’ intentions to maintain or reduce its herd size shows that more farmers are looking at reducing herd size as cattle prices drop. As can be seen from the following table, all of the numbers from the survey conducted in September 2012 are showing that farmers are less inclined to increase herd size or even maintain the same level but are heading more towards a reduction in herd size.

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 over 41 percent during the period running from January-July, 2012, as farmers sent lower quality cows to slaughter plants due to high feed prices and low cattle prices.

Meat, Beef and Veal

Production:

The Government’s policy to reduce the total cattle inventory by enhancing cow slaughter, coupled with high beginning stocks in 2012, allowed the total number of cattle slaughtered during the first half of 2012 to jump by 21.7 percent to 452, 207 head over the same period in 2011. This rush to slaughter more cattle is projected to continue during the second half of 2012 as the government’s plan to encourage the slaughtering of cows continues and as farmers try to mitigate the profit loss coming from a continued drop in live cattle prices and higher feed prices. As a result of the surge in slaughter numbers, total 2012 beef production is projected to increase by 19.3 percent over the 2011 level. However, as total inventory drops due to lower calf production in 2013, slaughter numbers will also drop, resulting in lower beef production for 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 in increasing live cattle prices to get farmers to hold onto their herd.

The increased slaughter is largely due to falling prices coming from high inventory numbers. The initial farmers’ fears for the worst, associated with the resumption of Canadian beef imports and the implementation of the KORUS FTA, has not materialized. The actual impact coming from the KORUS FTA will be minimal as the duty will only drop to 37.3 percent from the current 40 percent. High live cattle future market prices for U.S. beef in 2012 seem to be more than enough in offsetting the drop in import duties, as can be seen by the drop in beef imports during the first half of 2012, compared to the same period in 2011.

Consumption:

An abundant supply of domestic Hanwoo beef and continued beef promotional activities by Korean farmer groups and hypermarkets is projected to increase consumption further by over five percent in 2012. The consumption is projected to continue to increase in 2013 at a slower pace until the market starts to raise the price of Hanwoo beef with tighter supplies due to smaller inventories. The shortage in domestic beef supply will be filled by imported beef and to some extent by abundant pork supplies.

Prospects for U.S. beef consumption remain high as the percentage of consumers that have tried U.S. beef continues to go up from 22 percent in 2010 to 52 percent in 2012. Most importers have viewed the television advertisements that USMEF has been carrying on major television programs for two and half months since December 15, 2011. Such promotional activities and consumers’ experience in purchasing U.S. beef will enable the consumption of U.S. beef to gradually increase in this market. Thanks to such promotional activity and due to consumers’ BSE experience from the previous three cases, the impact of the 4th BSE case found in California on April 24, 2012, had minimal impact on the consumption of U.S. beef. Although, a few stores suspended selling U.S. beef after the news for a short period, most of the major stores continued to sell U.S. beef. Consumers’ confidence level on the safety of U.S. beef has increased drastically in the past decade, with over 40 percent of consumers saying that U.S. beef is safe or normal, even right after the 4th BSE case found in California on April 24, 2012.

During the survey conducted in April, 2012, after the California BSE case was reported, 69 percent of the consumers surveyed replied that they would reduce the consumption of U.S. beef, whereas, 30 percent of those surveyed replied that their consumption would not change and only 1 percent replied that they would increase the consumption of U.S. beef. As for the product that they would substitute in place of U.S. beef, 28 percent replied that they would purchase Australian beef.

The price gap between imported beef and Hanwoo beef is bigger at restaurants than at retail stores. Such a huge price gap between Hanwoo beef and imported beef has encouraged consumers to choose more imported beef than Hanwoo beef when dining out.

Trade:

Due to the increase in domestic beef production in 2012, beef imports for this year have dropped slightly. As earlier explained, the impact on beef imports coming from the KORUS FTA will be minimal. The resumption of Canadian beef imports has not had a major impact, given the reluctance of consumers to purchase over fear of BSE. However, as the domestic beef production drops in 2013 due to a low cattle inventory, beef imports are projected to increase to make up for the gap in beef supply.

The impact of the 4th BSE case found in California on April 24, 2012, had minimal impact on the import of U.S. beef. Although, a few stores suspended selling U.S. beef for a short period following news of the event, most of the major stores continued to sell U.S. beef.

Animal Numbers, Swine

Production:

The swine and pork industry was hit hardest by the 2010/2011 FMD outbreaks with over 3.4 million head (or one-third of the total inventory) culled; but has recovered about six months sooner than what most experts predicted. By June 1, 2012, the number of sows had reached the same level that existed prior to the FMD outbreak. Such rapid recovery was made possible through government issuance of a tariff rate quota (TRQ) in 2011 of 31,000 head for breeding stock and another 5,000 head for the first half of 2012. This policy assisted the swine industry in repopulating herds. In addition to the TRQ, about 30 percent of farmers are reportedly using non-purebred, second filial generation (F2) sows for reproduction. Although it has helped to shorten the time taken to repopulate the swine inventory, the downside of this move is that the F2 sows tend to produce lower quality piglets. F2 sow productivity is generally 85 percent of that of F1 sows. As can be seen from the following table, the sow inventory reached about 99.3 percent of the level prior to the FMD outbreak.

The number of piglets has been adjusted to reflect the reduced mortality rate among piglets. About one-third of the pig farms were hit by FMD and these farms were required to fully disinfect their facilities prior to repopulating. The disinfection process has allowed for the Maximum Sustainable Yield (MSY) rate to improve as well as lower the mortality rate of piglets. The increased piglet production in 2012 reflects the increase in MSY, the lower mortality rate, and also an ongoing increase in sow numbers of over seven percent during the first half of 2012. However, the use of F2 sows that are less productive then F1 sows will result in a drop in piglet production in 2013. Also, once the swine farmers have replenished the herd size, they are expected to focus on improving the quality of their swine and gradually replace the F2 sows with F1 sows.

The table reflects the intention of swine farmers to continue to increase herd size into the second half of 2012. This should help replenish the ending inventory to 9.7 million head in 2012. However, high inventory numbers in 2013 are projected to lower swine prices and with record high feed corn prices, the surge in inventory numbers is projected to level off in 2013. Also, the F2 sows with their lower productivity will have an impact on overall piglet production in 2013, resulting in a drop in piglet numbers.

The index showing swine farmers’ plans for their herd size for each month was derived using the total swine inventory in December 2011 as 100.

The survey was conducted during the period February 6~15, 2012.

Other factors that will have a dampening effect on further increases in swine populations in 2013 are as follows:

  1. The provincial government’s designation of areas restricted for raising livestock. According to the recommendation made to provincial governments by the Ministry of Environment; swine farms cannot be located within 500 meters of residential areas. The farms that were in place prior to the law were exempt, but when repopulating, the farms will be subject to the minimum distance law.
  2. The Korean government has increased minimum requirements for barn space per swine in order to prevent intensive breeding of swine and the spread of livestock diseases. This will allow for fewer animals to be housed in the existing barn space. In order to raise the same number of animals, producers will have to further invest in barn construction. The minimum space for sows is set at 1.4 square meters and 0.8 square meters for porkers.
  3. Beginning on January 1, 2012, disposal of livestock manure in the open sea was prohibited, increasing the cost of manure disposal.
  4. Large sized farms (50 heads of cattle or 1,000 head of swine) must pay 50 percent of the cost for FMD vaccination. The government will continue to pay for the smaller sized farms. However, aside from the cost of vaccination, farms will be subject to a penalty if over 60 percent of their herd does not have an antibody against FMD. According to a survey conducted on a sample of farms, only half of the farms met this requirement
  5. Korea also plans to run a trial traceability program for swine and pork in October, 2012. The farms subject to the trial program will have to be equipped to meet the requirements of the traceability system, which will likely be expanded and in the future eventually apply to all swine farms.
  6. As of the end of 2012, all breeding farms, semen collection farms and large livestock farms (9,000 farms) will be required to receive a business permit. Also, small sized farms, regardless of size, will also have to register their operation and receive mandatory training.

The early recovery of the swine inventory has resulted in higher slaughter numbers for 2012. The number of slaughters for the first half of 2012 jumped by 23 percent over the same period in 2011 and this trend is expected to continue into the second half of 2012, resulting in higher slaughter numbers than previously projected. A high level of slaughter is projected to continue in 2013 as swine farms adjust to prior FMD levels.

Meat, Swine

Production:

The pork production forecasted in 2012 has been revised upward to reflect the rapid recovery in swine inventory as well as increased average carcass weight from 114 kg. in 2011 to 115 kg. for the first six months of 2012. If the Korean swine industry returns to pre-FMD levels before the end of 2012, and young piglets that were replenished in the second half of 2012 come into the market in 2013, domestic pork production will increase for the year.

Consumption:

Pork consumption in 2012 has been adjusted to reflect the slight increase in consumption. The increased supply of domestic pork, coupled with low pork prices, has encouraged greater domestic pork consumption. An increased supply of domestic pork would have driven pork consumption even higher but low-priced Hanwoo beef and massive promotion of Hanwoo in support of Hanwoo farms limited pork from increasing any further. According to a survey conducted by KREI in June, 2012, a full 89 percent of consumers surveyed replied that domestic pork prices were too expensive. Such survey results are an indication that, unless the pork prices come down further, there will be constraints on boosting further consumption. As more swine comes into the market in 2013, the price is projected to come down further and should help consumption of pork pick up.

Trade:

During the first half of 2012, the Korean government announced a zero duty tariff-rate-quota (TRQ) for 70,000 MT of pork imports for the year. Of that amount, 50,000 MT were allocated for single-rib bellies and 20,000 MT for other cuts. The Korean government announced an additional TRQ of 50,000 MT of single-rib bellies for the second half of 2012. However, this is less than half of the 260,000 MT of TRQ that was announced for imports in 2011. Imports during the first half of 2012 dropped by 14 percent over the same period in 2011 due to the lower level of TRQ allotted in addition to the increased supply of domestic pork. A continued increase in domestic pork supply will keep the import level in 2013 at the same level as 2012.

USMEF has begun to aggressively promoting U.S. pork through radio announcements from May 1 to August 31, 2012. It is too early to see actual results from the promotion but should help increase consumers’ awareness of U.S. pork.

September 2012

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