February 27, 2004

Korean 2004/05 Soybean Imports Seen At 1.55 Million MT

Korea's MY 2004/05 soybean imports are expected to increase to 1.55 million metric tons, driven by an improved economic situation and financial restructuring in the Korean oilseed crushing industry, according to information from the U.S. Department of Agriculture.

SITUATION AND OUTLOOK
 
The Bank of Korea forecasts that the GDP growth rate will be 5% in 2004 compared to 2.9% in 2003. Although increased growth should bolster demand for food and agriculture products in general, stronger demand will be offset somewhat by increased prices for food driven by higher prices of major commodities in international markets.
 
SOYBEANS
 
Korea's soybean area is expected to remain stable at 80,000 HA in MY 2004/05. Although the Republic of Korea Government (ROKG) has instituted an area reduction program for rice, it has not resulted in additional plantings of other crops such as soybeans. Payments under the rice area reduction program are contingent on a requirement that no commercial crops can be planted on previously existing rice area. MY 2004/05 soybean production is forecast at 110,000 metric tons based on average yield for the past 5 years; up 5% from the previous year's crop which had yields damaged by bad weather.
 
In MY 2004/05, total soybean imports are projected at 1.55 MMT, composed of 1.25 MMT for crushing and 0.3 MMT for food processing. MY 2004/05 imports are expected to exceed MY 2003/04 levels as a result of an improving Korean economy and improved financial conditions in the crushing industry (particularly for the Shin Dong Bang facilities which came under new ownership in January 2004). In MY 2003/04, total soybean imports are estimated to reach 1.5 MMT consisting of 1.2 MMT for crushing and 0.3 MMT for food processing.
 
Korea has been the eighth largest market for U.S. soybean exports in recent years. In MY 2002/03, U.S. soybean exports to Korea were unchanged from the previous year at 1.23 MMT. U.S. soybean exports to Korea in MY 2003/04 are forecast to recede slightly to 1.2 MMT in part due to growing competition from South American supplies. In MY 2004/05, U.S. soybean exports are projected to increase to 1.25 MMT along with larger overall Korean soybean imports.
 
Soybean crushing and food processing account for most of the demand for imported soybeans. Over 80% of imported soybeans are processed into meal and oil. The remaining 20% of imports are utilized in food processing. Food processing demand for soybeans has stabilized at 300,000 MT in recent years of which the majority is sourced from the United States.
 
The Agricultural and Fisheries Marketing Corporation (AFMC), a state trading company, will continue to buy U.S. No. 1 non-biotech-enhanced soybeans for food processing through an identity preserved (IP) certification system under the tariff rate quota. Food manufacturing of soybean curd, soy sauce, soy paste, soy milk, and soybean meal used to produce soy based-seasonings is based largely on U.S. soybeans (85%). Chinese soybeans account for the remaining portion of raw material for the food processing sector.
 
Private importers are expected to continue importing 50,000-60,000 MT of soybeans from China in MY 2003/04 and MY 2004/05 for food processing purposes, the press release said. Chinese soybeans, which are imported strictly through private sector buyers, are subject to the out-of-quota import tariff rate of 487% or Korean Won 956/Kg, whichever is greater. Seventy percent of the soybeans imported from China are used sprouting, 20% are processed into soybean curd, and the remaining 10% are processed into soybean-based seasoning.
 
Since the revision of the Korean food code allowed soybean powder to be used for food processing purposes in 1991, soybean powder imports (HS 1208.10.0000) have gradually increased to 30,000 MT in CY 2003. Soybean powder is subject to a 3% import tariff.
 
Soybean curd processors have been major consumers of soybean powder. Processors say using soybean powder as a raw material for bean curd production has been more profitable than other raw materials in terms of both production yield and processing time.
 
MEAL
 
In MY 2004/05, total compound feed production is projected at 15.5 MMT, a slight increase in feed consumption in contrast to sluggish demand for compound feed in MY 2003/04. In line with the expected increase in compound feed production, MY 2004/05 soybean meal consumption and imports are expected to increase to 2.44 MMT and 1.5 MMT, respectively.
 
Reduced poultry meat consumption stemming from the outbreak of avian influenza in Korea in December 2003 slackened MY 2003/04 feed demand from the poultry sector for chicken and duck feed. Concurrent with the avian influenza outbreak in Korea, a BSE case was detected in the United States. Korea banned U.S. beef and other U.S. ruminant products in response. Korean beef consumption was negatively influenced by the import ban on U.S. beef. Nevertheless, Korean beef cattle producers and hog producers are expected to ramp up product to the extent possible to attempt to fill the void left by U.S. beef which accounted for nearly 50% of all beef consumption in Korea prior to the ban. In turn, total production of compound feeds is forecast to remain nearly unchanged from a year earlier because increased compound feed production for the cattle and swine sectors is expected to offset the reduction of poultry compound feed, the press release said.
 
Soybean meal inclusion rates on a total compound feed basis were reported at 14.6% in MY 2002/03, down from 15.0% in the previous year. Reduced compound feed production for the poultry sector in MY 2003/04 is expected to, in turn, reduce the inclusion rate of soybean meal. Korean feed millers, closely following the 30 percent increase in international soybean meal prices since October 2003, are expected to search for alternatives to replace soybean meal.
 
Vegetable protein meal has been the major protein source for animal feed since the outbreak of BSE. American Soybean Association's (ASA) dehulled soybean meal program has helped Korean soybean crushers increase production of dehulled soybean meal and establish demand from feed millers for value-added soybean meal. Crushers are expected to increase the production of dehulled soybean meal to 40% of total soybean meal production in MY 2003/04, up 2% from a year earlier. Dehulled soybean meal is expected to account for 43% of total soybean meal production in MY 2004/05.
 
Feed millers who have been convinced by the economic benefits of U.S. dehulled soybean meal imported 104,000 MT of U. S. soybean meal at a premium ranging from US$11-15 per ton over Indian or South American soybean meal in MY 2002/03, the press release said. However, U.S. soybean meal exports to Korea are expected to reduce to 50,000 MT in MY 2003/04 because current price differences exceed the premium importers are willing to pay for U.S. origin soybean meal.
 
OIL
 
In MY 2004/05, the Korea oil production is projected to increase to 220,000 tons from 215,000 tons in MY 2003/05. The increase is expected to be driven by an improving Korean economy and restructuring of the Shin Dong Ban crushing facility. Shin Dong Bang's oilseed crushing operation was sold to KD Partners at the end of January 2004. KD Partners is expected to resell the facilities to a third party by the end of May 2004. In MY 2003/04, soy oil production is forecast to decrease slightly due to a sluggish consumer economy caused by credit defaults and incomplete operation of Shin Dong Bang's crushing facilities.
 
Concurrent with the decrease of local oil production in MY 2003/04, soy oil import demand fell prey to the dampened Korean economy which impacted local oil dealers severely during the second half of 2003. Local oil dealers play a major roll in importing and distributing crude soy oil to small and medium-sized refineries that have processing and bottling facilities. In MY 2004/05, imports of soy oil are projected to increase from 150,000 to 160,000 MT (about 7%) on the basis of improved expectations of Korean economic performance beginning in the last quarter of 2004.
 
U.S. soybean oil exports to Korea compete directly with soy oil from South America. In MY 2002/03, Korea was the sixth largest market for U.S. soy oil, down 2 steps from a year earlier. The reduced presence of U.S. soybean oil in the Korean market resulted from an increasing spread between U. S. and South American export prices to Korea, the press release said.
 
The price spread averaged US$45/MT in MY 2002/03. Korean crude oil refiners are very reluctant to accept U.S. soy oil priced at more than US$ 10 per ton over South American oil. Therefore, in MY 2003/04, U.S. soy oil exports to Korea is forecast to decline further in the expectation that the price spread with South American oil will continue to exceed Korean buyers willingness to pay for U.S. origin oil.
 
In MY 2003/04, palm oil imports are forecast to increase to fill demand for tallow substitutes. Korea has banned Canadian tallow since May 2003 and U.S. tallow since December 2003. Palm stearine is being used in Korea to replace tallow in feed sector. However, Korea has recently proposed to allow tallow imports from these countries, if the products have an insoluble impurity rate of 0.15 percent or lower, and when accompanied by appropriate certification. Both the United States and Canadian governments are currently working with Korea to finalize this proposal.
 
TARIFFS
 
In CY 2004, Korea set tariffs for the minimum market access quota at "zero" for the first 1.39 MMT of soybeans imported for crushing purposes. The tariff was set at "5%" for the first 185,787 MT of food grade quality soybeans imported for food use. Soybeans imported out-of-quota will be assessed a tariff of 487% or Korean won 956/Kg, whichever is greater. CY 2004 tariff rates announced for imported soybean meal and oil, and cottonseed oils
remain in line with terms of the 1993 U.S./Korean bilateral agreement.
 
MARKET OPPORTUNITIES
 
Over the next 3-5 years, the oilseed market is expected to grow at a rate of 3%-5% a year following reduced growth in MY 2003/04. The economic recovery is expected to support strengthening demand for food and feed grade oilseeds as consumer demand for vegetable oil-based products and animal proteins rises. Imported oilseeds will remain necessary as domestic production is insufficient to meet the market requirements for even food quality beans. Significant trends that could affect U.S. exports include consumer acceptance of biotechnology and products derived using biotech-enhanced ingredients; tariff levels applied on seed, meal and edible oils, availability of affordable commercial credit, market development efforts at promoting consumption of dietary oils.
 

Source: USDA