USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed
27 April 2012
MY 2012/13 wheat production is forecast to stay around 45,000 tons because of the sluggish demand for domestically grown milling wheat and unsold ending stocks. The government is encouraging wheat production by providing loan assistance to finance purchases of domestic milling wheat. Also, the government is providing assistance to local wheat producers for sufficient drying and storing facilities. However, weak end-user demand has led to increasing stocks.
MY 2012/13 wheat consumption is forecast at 4.9 million tons, a decrease of nearly 200,000 tons from the current marketing year due to the anticipated decrease in the available limited supplies of competitively priced feed wheat.
MY 2012/13 milling wheat consumption including flour and pasta imports on a wheat basis is forecast at 2.4 million tons, remaining unchanged from the current marketing year.
In MY 2011/12, total wheat consumption is expected to reach 5.1 million tons, an increase of 700,000 tons from the previous forecast due to greater demand for feed grain. Feed millers are substituting corn with competitively price feed grade wheat. Milling wheat consumption is expected to be 2.4 million tons, remaining unchanged from the previous forecast.
CY 2011 per capita flour consumption increased to 33.4 kilograms, reaching per capita consumption levels not seen since prior to 2008. Since then, Korea’s wheat flour consumption has been hit by strong global wheat prices. Nearly 44.0 percent of flour consumption is used for local noodle manufacturing, followed by 14.5 percent for baking products and 8.2 percent for confectionary products. The remainder is used by the following - restaurants (8.1 percent), households (6.9 percent), pet food (5.1 percent), Exports (3.8 percent), soy sauce (4.6 percent), brewery (1.1 percent), extruded traditional chewy cakes (0.7 percent), industrial use (0.8 percent) and others (2.2 percent). Some flour is also exported, mostly to Japan.
MY 2012/13 wheat imports are projected at 4.6 million tons, of which 2.4 million tons are for milling (including flour and pasta imports on a wheat equivalent basis) and 2.2 million tons for feed. The import estimate hinges to a large extent on the continued availability of feed wheat. International traders expect Korea to import between 2.0 million and 2.5 million tons of feed wheat depending on the 2012 crop situation in Ukraine, Russia and Eastern European countries - the traditional feed wheat exporters to Korea.
MY 2011/12 wheat imports are expected to reach 5.4 million tons given that imports for feed wheat were higher than expected during the first eight months of the marketing year. Competitive international prices for feed wheat are driving imports. Korea’s feed wheat market is dominated by three exporters including intermittent exports from Ukraine. Australia is a major supplier of feed wheat, followed by Canada and the United States. Since June 2010, the U.S. feed wheat exports to Korea have been trending higher. Imports of U.S. wheat in MY 2011/12 are expected to reach around 1.5 million tons, which include 200,000 tons of U.S. feed grade wheat. U.S. feed grade wheat is mainly composed of soft wheat or white wheat containing lower than normal protein contents.
In late December 2011, the Ministry of Strategy and Finance (MOSF) released its adjusted tariffs and tariff rate quotas (TRQ) for CY 2012. Please refer to KS 1205 for more details. A TRQ covering milling wheat was set at 1.56 million metric tons at a zero percent duty, down from the base rate of 1.8 percent, for the first half of CY 2012. The out-of-quota duty remained fixed at 1.8 percent. Of note, the feed wheat TRQ and its corresponding duty were eliminated in 2007. On March 15, 2012, the KORUS FTA was implemented. Consequently, the duty on U.S. wheat immediately fell to zero.
In CY 2012, the flour import tariff rate that was reduced to zero to curb inflation in 2011 returned to the local base rate at 4.2 percent. Under the KORUS FTA, tariffs for wheat flour (H.S. 1101.00.1000) will gradually be eliminated over a 5 year phase out period while tariffs for meslin flour (H.S. 1101.00.2000) fell to zero.
MY2011/12 flour imports are expected to decline to 30,000 tons (less than 50,000 tons wheat equivalent) because the SPC Group, Korea’s biggest bakery company started milling its own flour. Consequently, MY 2012/13 flour imports are forecast to level off around 50,000 tons (wheat equivalent) because small-sized restaurants and noodle manufactures continue being loyal users of cheaper priced flour. The statistics of pasta imports have been reflected into PSD table since MY 2010.
Since MY 2008, annual flour exports have converged at around 60,000 tons (wheat equivalent), this level is expected to be maintained for the foreseeable future.
Corn production is negligible and accounts for less than one percent of total consumption. Planted area for MY 2012/13 is expected to remain steady at around 16,000 hectares, while production is forecast at 78,000 MT based on the preceding five-year average yield.
MY 2012/13 corn consumption is forecast to stay around 8.1 million MT, up 0.4 million MT from the current marketing year estimate, due to an anticipated increase in demand for feed corn as Korea’s swine industry is expecting inventory to recover to the level prior to 2010/11FMD outbreak . Feed corn consumption is projected to increase to 6.0 million MT, up 0.4 million MT from the estimated current marketing year level in large part due to anticipated increase in compound feed production for the swine sector. However, food, seed and industrial (FSI) corn consumption is expected to stay around 2.1 million MT to meet a constant demand for high fructose corn syrup (HFCS) from the soft drink industry.
MY 2011/12 corn consumption is expected to decline to 7.7 million MT, down 0.6 million MT from the previous year due mainly to increasing consumption of competitively priced feed wheat. The decreased amount of corn is mainly offset by the increase of feed grade wheat. Processing corn is expected to stay around 2 million tons and the FSI corn consumption will be at 2.1 million MT, remaining unchanged from the previous year.
Compound feed production is expected to continue increasing to 17.2 million tons in MY 2011/12 and reaching 17.5 million tons in MY 2012/13 following the recovery of swine inventories. Feed corn has been the main ingredient used in compound feed, accounting for 35 to 40 percent of total ingredients. This ratio is projected to remain relatively constant for the foreseeable future based on the preferences of local livestock producers. However, because rising feed wheat use has impacted total corn demand, feed corn use ratio in MY 2011/12 is expected to fall to 33 percent of total compound feed production.
Compound Feed Production for Swine Industry
In Korea, the swine industry is the most important feed grain user. In MY 2010/11, compound feed production for the swine industry was 4.74 million, down 13.3 percent from the previous marketing year. The decrease was attributed to the substantial inventory losses in early 2011 due to the foot and mouth disease (FMD) outbreak. At the end of CY 2011, the nation’s swine inventory recorded 8,171 thousand head, down 17 percent over the same period of the previous year. In CY 2011, the national average inventory per farm was 1,287 heads, representing an average annual growth of 9.6 percent during the recent five years. About 14 percent of the total swine was raised by farms with 10,000 or more heads in inventory, 14 percent by farms with 5,000 to 9,999 swine, 59 percent by farms with 1,000 – 4,999 swine, and 13 percent by farms with 999 or less swine. About 20 percent of the nation’s total swine inventory is kept by 21 integrated operations. The integrators play an increasingly important role in the development of the industry and in the improvement of overall productivity by expanding operations and centralizing business management. In 2012, the nation’s swine inventory levels will increase modestly over 2011. However, over the longer-term, it is unlikely that the total hog inventories will reach pre-crisis levels.
Corn processors continue using non-biotech IP corn imported from the United States and traditional corn imported from other countries such as Hungary, Serbia, Ukraine, Romania and South Africa. The perceived public concern over biotech continues to exert pressures on imported processing corn, especially biotech corn that is used to manufacture cooking oil and HFCS. Many food processing companies have been reluctant to use ingredients sourced from biotech corn. Some companies using starch have sourced ingredients imported from China since these items are reportedly derived from non-biotech corn.
MY 2012/13 total corn imports are projected to increase to 8.0 million MT, up 500,000 tons from the current marketing year estimate, consisting of 6 million MT of feed corn to meet a greater demand for swine sector and 2 million MT of processing corn to meet relatively stable demand for food processing.
MY 2012/13 U.S. corn imports are forecast to stay around 5.5 million MT or about 70 percent of total Korean corn imports. However, U.S. imports could reach as much as 6.0 million MT depending on the corn supply situation of other major exporters including the availability of traditional corn from Eastern Europe.
Corn imports for MY 2011/12 are expected to decrease to 7.5 million MT, down 0.6 million tons from the previous year due to a lower demand for feed corn, spurred by the increased use of feed wheat.
MY 2011/12 U.S. corn imports are estimated at staying around 5.5 million tons based on the records of U.S. corn imports for the first five months.
At the end of March 2012, importers have contracted for 5.8 million MT of corn delivering from October 2011 to September 2012. Most of the contracted purchases to date are for U.S. corn and/or optional origin at seller’s option among the United States, South America, South Africa or Europe with a price range of $283-363 per metric ton CNF for feed corn. Meanwhile corn processors have contracted for U.S. No. 2 non-GM yellow corn and Eastern European conventional corn with a price range of $284-364 per metric ton CNF for the same period.
In MY 2010/11, the United States accounted for 78 percent of total corn imports in Korea, representing 86 percent of total feed corn imports and 55 percent of total food processing corn imports, respectively.
In late December 2011, the Ministry of Strategy and Finance (MOSF) released its adjusted tariffs and tariff rate quotas (TRQ) for CY 2012. These autonomous TRQs cover a variety of agricultural products, including feed and processing corn. The TRQs for these commodities were expanded with feed corn set at 9 million MT for CY 2012 and processing corn at 1.41 million MT for the first half of CY 2012, respectively, with a zero percent duty. Please refer to KS 1205 for more details. The out-of-quota duty for both feed and processing corn remained fixed at 328 percent.
Of the annual TRQ for feed corn, 9 million MT has been allocated to feed millers who are members of the Korean Feed Association (KFA) and Nonghyup Feed Inc. (NOFI). The Korea Corn Processing Industry Association (KOCPIA) is expected to manage the 2 million MT of processing corn TRQ.
Starting March 15, 2012, the duty on U.S. feed corn immediately fell to zero under the KORUS FTA. If imports of U.S. corn claim the KORUS preferential duty, these imports should not count against the global TRQ. Conversely, the duty-free volumes for corn for food processing will grow each year with tariffs being completely phased out by 2019.
MY 2012/13 rice production is forecast to stay around 4.2 million tons – down 0.5 percent from 4.224 MMT in 2011/12 - due to lower planting intentions. According to a recent Korea Rural Economic Institute (KREI) survey of 1,536 rice farmers from December 23 through 27, 2011, area planted is expected to decline to 847,000 HA, down about 0.8 percent from last year. However, high yield varieties will offset low planting intentions. Information about the 2011 rice crop is available in KS 1147 (Rice Production Update)
Rice farmers prefer planting high yield varieties to maximize returns. Consequently, increased yields are expected to offset the effects of declining paddy land. The KREI forecasts rice average yields ranging from 482Kg/10a to 532Kg/10a depending on weather conditions.
Rice farmers receive two types of income support payments under the Rice Income Compensation Act (RICA), an area payment and a deficiency payment. In CY 2011, combined support payments totaled 617 billion won ($557 million). An explanation of how these payments are calculated follows.
Area Payment: This payment is made on a ‘per hectare’ basis and is calculated using the average area of rice production during the base period 1998-2000. The 2011 area payment was 701,169 won ($634) on average per hectare. Paddy area covered under this support program declined to 883,000 hectare, down 0.2 percent from the previous year.
Deficiency Payment: The deficiency payment is 85 percent of the difference between the national-average market price during the 2011 harvest season (Oct-Jan) and the 2011 target price, less the area payment. In 2011, the deficiency payment amounted to zero since the average harvest price of 2,079 won ($1.88) per kilogram (milled) was so close to the target price of 2,126 won ($1.92) per kilogram (milled). The area payment of 701,169 won per hectare is converted to a kilogram equivalent (144 won/Kg) by dividing it by the 1999-2003 Olympic average yields*.
Due to strong farm gate prices during the harvest season, farmers received no deficiency payments in 2011. The deficiency payment calculation is shown as below.
[(Target Price W/kg - Average Harvest Price W/kg) x .85] - Area Payment per HA /Avg. National Yield per HA
[W 2,126 – W 2,079] x .85] – W 703,163/4,880 MT = minus W 104 per kilogram
Note: *Olympic average yields: an average during a 5-year period, dropping the highest and lowest values.
Government Rice Purchase Program under the Public Rice Stockholding Program (PRSP):
The government purchases rice to ensure food security and price stability. Under the Public Rice Stockholding Program (PRSP), the Korean government procures domestic paddy rice during the harvest season (October-December) at the average market price and later sells it during the non-harvest periods at the prevailing domestic market price. Between October and December 2011, the Korean government purchased 261,000 MT (milled basis) of paddy rice, or 6 percent of the 2011 rice production, under PRSP. However, government procurements failed to reach the initial target of 340,000 MT because farmers were reluctant to participate in the program.
Rice Reduction Plan:
The Korean government revised its acreage reduction program for trimming rice production from 40,000 HA down to 5,000 HA. In recent months, decreasing rice stocks have caused considerable domestic market instability.
MY 2012/13 consumption is forecast at 4.8 million tons, the same as the current marketing year. Imported rice constitutes about 8 percent of total consumption.
Korean consumers prefer short grain table rice and 84 percent of domestic production (all short grain) is consumed as table rice. Per capita table rice consumption continues to decline as eating habits change due to rising incomes and the growing popularity of Western foods. Annual per capita table rice consumption reached its peak at 136.4 Kg in 1970 and has gradually declined. FAS/Seoul estimates per capita table rice consumption at 68.5 Kg in MY 2012/13 based on declining consumption trends for table rice.
Although processing accounts for only about 13.5 percent of total rice supply, consumption of rice for processing has grown rapidly in the past few years, In MY 2012/13, Korea’s food processing industry is forecast to use about 650,000 tons of rice (milled), of which half will be imported. Nearly 60 percent of processing rice is used for food processing and about 40 percent is used for liquor processing according to the latest official statistics. Consumption of processing rice is expected to continue to grow in the coming years as the government continues its efforts to globalize Korean cuisine, which includes rice cakes and other rice based snacks.
Korea imports rice as part of its WTO Minimum Market Access (MMA) agreement. Import volumes will continue to grow according to the predefined MMA schedule until the end of 2014. The government’s decision to import earlier under the 2012 MMA is to help stabilize domestic rice prices.
MY 2012/13 rice imports are forecast at about 400,000 tons (milled). Under the 2013 MMA, Korea is scheduled to purchase 388,353 tons (milled) of rice, which will likely occur in the first half of 2013. Of the total committed purchase amount, approximately 120,000 MT (milled), or 29 percent of the 2013 MMA, will be U.S. medium grain rice, under Country Specific Quota (CSQ) and Most Favored Nation (MFN) quota allocations.
MY 2011/12 rice imports are expected to reach 600,000 tons (milled) under both the 2011 MMA and the 2012 MMA commitments. As of February 2012, the Korean government started purchasing 368,006 MT under 2012 MMA. Prior to these purchases, the government successfully acquired 347,658 MT under the 2011 MMA in early December 2011.
2012 MMA Rice Purchasing Plan:
In late January 2012, the Korean government released its 2012MMA rice purchasing plan. Under the MMA plan, Korea will purchase 368,006 MT of rice, comprising of 162,778 MT under the global quota (GQ) and several country specific quotas (CSQ) totaling 205,228 MT. The United States is expected to receive around 100,000 MT, or 27 percent of the total MMA taking into account the U.S. CSQ and the medium grain allocation. Please refer to 2012 MMA Rice Purchasing Plan for more details.
2011 MMA Purchases Completed:
In early December 2011, the Korea Agro-Fisheries and Food Trade Corporation (aT) completed the tendering process for the 2011 MMA commitments for rice. Korea purchased a total of 347,658 metric tons (MT) of rice from the United States, China, Thailand, Vietnam and Myanmar. The U.S. share was 29.2 percent, with contracts totaling 101,490 MT (milled) worth $87 million. The bulk of the U.S. contracts, roughly 76,031 MT, were for brown rice (equivalent to 68,428 MT on milled basis) with delivery period from October through December 2011 and the remaining 33,062 MT were for milled rice with delivery dates from January through June 2012, respectively. More details on the tender results are available in KS 1209 (2011 MMA Rice Tender Results).
The aT, the government’s state trading arm, manages the purchasing and selling of imported table rice. The aT sells table rice shipments through a public auction system. On the other hand, the Ministry of Food, Agriculture, Forestry, and Fisheries (MIFAFF) sells processing rice to end-users such as food processors and alcoholic beverage producers throughout the year. The 2011 MMA shipments started arriving in late 2011 and will continue till the June 2012. Approximately 104,297 MT of table rice will be delivered over this period.
The aT kicked off table rice auctions for U.S. rice in December 2011, Thai rice in February 2012 and Chinese rice March 2012, respectively, under 2011 MMA. The auctions for U. S. rice under 2011 MMA are expected to be completed shortly considering favorable market response for U.S. table rice in the first half of 2012. In the second half, U.S. table rice imported under 2012 MMA will continue to be marketed through aT’s selling auctions. However, currently the progress of auctions for other origins as oppose to U.S. rice has been a little slower.
Korea has exported negligible amount of rice to other countries. In CY 2011, Korea exported 3,782 MT of milled rice with Australia importing 1,440 MT or 38 percent of total rice exports followed by 36 other countries. The U.S. imported 161 MT of Korean rice for the period.
MY 2012/13 ending stocks (at the end of October 2012) are forecast to decrease to about 0.7 million tons, 14 percent of total consumption, as domestic rice consumption for processing purpose will continue increasing due to a government supported program. MY 2011/12 stocks (at the end of October 2012) are forecast at 0.9 million tons, equivalent to roughly 18 percent of domestic consumption.
Ending stocks of imported rice continue to increase as the government has encouraged the use of old domestic rice in food processing. Consequently, imported rice stocks for MY 2011/12 are expected to reach 450,000 metric tons as of the end of October 2012.
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