March 11, 2005
Korea 2005-06 soybean imports seen rising
Korea's 2005/06 soybean imports, given an improving economic situation and the restructuring of the oilseed crushing industry, are expected to increase to 1.55 million tonnes, after rebounding to 1.50 million tonnes in MY 2004/05, according to a USDA.
Strong demand for compound feed from the beef cattle and poultry sectors is expected to result in soybean meal imports of 1.35 MMT in MY 2004/05 and 1.40 million tonnes in MY 2005/06. The perception of consumers that vegetable oil-based products are healthful is expected to lead to increased soybean oil imports in MY 2004/05 and MY 2005/06.
Situation and outlook
The Bank of Korea forecasts that the potential GDP growth rate for 2005 is 5.0 percent as compared to 4.7 to 4.8 percent in 2004. Consumer price increases are expected to remain in the three percent range. The unemployment rate is likely to hover in the mid-three percent range. The current account surplus is expected to reach approximately $20 billion in 2005 because the goods account surplus will shrink somewhat while the service account deficit will grow in comparison to last year. Some economic analysts, however, forecast that the GDP growth rate will be lower than last year's because export growth has been lackluster, the economy lacks a conspicuous engine for recovery, and private debt levels are high.
Oilseed
In MY 2005/06, Korea's soybean area is expected to be in the 86,000 to 87,000 HA range. Increases are due to farmers continuing to convert from rice to soybeans. In 2002 the Korean government initiated a rice area reduction program, which included favorable government purchase prices for soybeans that are grown on former rice paddies. Last marketing year, this program was responsible for a six percent increase in soybean area, which grew to 85,270 HA. Based on average yields for the past five years, MY 2005/06 soybean production is forecast at 120,000 to 130,000 tonnes. It is expected that next year's yields will be six to 14 percent lower than last year's which, due to favorable weather, were the highest yields in recent memory.
MY 2004/05 soybean imports are expected to be 13 percent higher than last year's because Shin Dong Bang, which, in September 2004, merged with the Sajo Industry Company, is now fully recovered from seven years of financial difficulties. In MY 2005/06, total soybean imports are expected to reach 1.60 million tonnes, which represents only limited growth over 2003/04, when imports for crushing totaled 1.25 million tonnes and imports for food purposes totaled 0.35 million tonnes. Last year's robust growth in imports were the result of an improving Korean economy and an overall improving financial environment in the crushing industry.
In MY 2004/05, US soybean exports to Korea are expected to increase to 1.3 million tonnes, up 18 percent from last year. The additional imports will be necessary to meet the greater demand from the rebounding crushing sector. In MY 2005/06, US soybean exports to Korea will likely remain at 1.3 million tonnes due to growing competition from South American suppliers.
Soybean crushing and food processing account for most of the demand for imported soybeans. Over 80 percent of imported soybeans are processed into meal and oil. The remaining 20 percent are utilized by the food-processing sector. In recent years, food-processing demand for soybeans has stabilized at 350,000 million tonnes of which the majority is sourced from the United States.
In 2004, Shin Dong Bang closed one of its two crushing facilities. The closed facility was situated in Chinhae, near Busan, and had a daily crushing capacity of 1,100 million tonnes. Shin Dong Bang is building a new vegetable oil refining facility that will have capacity to refine 150 million tonnes of crude soybean oil a day. The facility is expected to open during the second half of 2005.
Food Grade Soybean (NON GMO SOYBEANS)
The Agricultural and Fisheries Marketing Corporation (AFMC), a state trading company, continues to buy US No. 1 non-biotech-enhanced soybeans for food processing through an identity preserved (IP) certification system under a tariff rate quota (TRQ). Due to greater demand from manufacturers of soybean curd, soy sauce, soy paste, and soy-based seasonings, AFMC requested that the government increase the 2005 soybean TRQ to 270,000 million tonnes, up 21,000 million tonnes from last year's TRQ.
Increased demand for food quality beans is partially due to a growing preference for whole soybeans on the part of some food manufacturers who formerly used soybean powder instead of whole beans. Consumers prefer the taste of foods made from whole soybeans. Also, soybean curd made from soybean powder quickly turns brown. Therefore, from January to November 2004, the importation of soybean powder declined to 12,015 million tonnes, down 52 percent as compared with the same 11-month period in the previous year. Even though the Korean food code has allowed soybean powder to be used for food processing purposes since 1991, imports, mostly from China, only became sizeable in 2001. Soybean powder is subject to a three percent tariff.
In MY 2004/05 and MY 2005/06, private importers are expected to continue importing 50,000 to 60,000 million tonnes of soybeans for food processing purposes from China. Chinese soybeans, which are imported strictly by private sector buyers, are subject to the out-ofquota import tariff of 487 percent or Korean Won 956/kg, whichever is greater. Seventy percent of the soybeans imported from China are used for sprouting, 20 percent are used to make soybean curd, and the remaining ten percent are used to make soybean-based seasonings.
Meal
In MY 2004/05 and MY 2005/06, the production of soybean meal is expected to increase gradually because it is anticipated that feed industry demand for soybean meal will strengthen, and that crushing margins will improve. (Since MY 1999/2000, the soybean meal extraction rate has declined from 79 to 75 percent because crushers have increased the production of dehulled soybean meal.)
In MY 2004/05, compound feed production is projected to increase only slightly because growing beef cattle and poultry numbers will be offset by decreasing swine and dairy cattle inventories. Korean beef cattle numbers, which reached a low point in March 2003, have continued to increase steadily since then. Beef cattle numbers are expected to continue to increase for the time being because of record level farm gate prices for beef cattle and calves. Farmers expect even more growth in demand for beef because the Korean economy is expected to do well in 2005. Beef cattle numbers are expected to contract, however, when US beef returns to the Korean market. Meanwhile, dairy cattle numbers are declining due to the overproduction of milk and a herd reduction program.
In MY 2003/04 swine inventories declined due to disease outbreaks. In MY 2004/05, swine numbers will likely continue to fall due to mandatory livestock registration regulations, which were recently announced by the Korean government. These regulations require that livestock farmers register their operations with the municipal government. Farmers must demonstrate that they have a minimum amount of space per animal and they must agree to attend extension classes on environmentally friendly agriculture once a year. (See KS5007.) Meanwhile, layer and broiler production is expected to increase because the demand for poultry products is on the rise, buoyed by the recovery of the Korean economy, and by dwindling consumer concerns over avian influenza. Anticipated lower compound feed prices have also contributed to the expansion in poultry numbers. In the first ten months of 2004, due to sharp increases in prices for inputs, compound feed prices increased by 23 percent. But, these prices fell by five percent in November 2004, and by another five percent in January 2005.
In MY 2003/04, soybean meal inclusion rates, on a total compound feed basis, were reported at 13.7 percent, down from 14.6 percent the year before. The inclusion rate fell, not only because the import price of soybean meal was about 83 percent higher as compared with MY 2002/03, but also because compound feed production for the poultry sector declined. However, in MY 2004/05, the inclusion rate is expected to rebound to the 14.0 to 14.5 range because, since November 2004, soybean meal prices have declined to levels similar to those in MY 2002/03.
In MY 2003/04, the large price difference between US and Indian/South American soybean meal made it impossible for US soybean meal exports to compete in the Korean market. Since the first quarter of MY 2004/05, however, U.S. soybean meal prices have been more in line with India and South America's, and therefore, in MY 2004/05 and MY 2005/06, US soybean meal exports are projected in the 50,000 million tonnes to 100,000 million tonnes range. Korean feed millers, who have used about 140,000 million tonnes of US dehulled soybean meal since 2001, under the American Soybean Association's (ASA) dehulled soybean meal program, remain potential buyers of US soybean meal and they are willing to pay premiums ranging from $11 to $18 per tonnes over South American and Indian soybean meal for US product. ASA surveys recently found that 28 feed mills recognize the comparative economic advantage of dehulled US meal over Indian and South American meal. Three of those feed mills are willing to pay a premium of as much as $18 per tonnes for dehulled US meal. ASA will continue to work to differentiate US soybean meal from other origins by demonstrating the value of dehulled US meal to Korean feed millers and livestock producers through the use of technical support, direct communications, technical assistance, and marketing assistance.
Thus, in summary, in MY 2004/05, because soybean meal prices since November 2004 have been stable and relatively competitive vis-a-vis substitutes, the soybean meal inclusion rate in compound feed is expected to increase, and thus, despite little overall projected growth in compound feed production, soybean meal consumption is expected to increase five to ten percent, as compared with 2003/04. Assuming that current US soybean meal price trends continue, 2005/06 growth of soybean meal consumption is forecast at around three percent. In MY 2005/06, total compound feed production is projected at 15.2 million tonnes, which suggests only limited growth in overall feed consumption.
Oil
In MY 2004/05, soy oil production is expected to be about five percent above last year's production level due to greater demand brought about by the economic upturn that began just prior to Lunar New Year in early February 2005. In MY 2005/06, due to the improving economy, and the restructuring of the Korean crushing industry, Korea's oil production is forecast to increase to 214,000 tons, up four percent over current marketing year projections.
In 2004/05, because of the stronger economy, and because of growing consumer preference for processed foods that contain vegetable oil, which is considered to be a healthful ingredient, soybean oil imports are also expected to grow. Growth in mayonnaise exports has also contributed to the stronger demand for soybean oil. Annual mayonnaise exports grew to 20,000 million tonnes between 1999 and 2004. Exports in coming years are expected to be in the 20,000 to 30,000 million tonnes range.
US soybean oil exports to Korea compete directly with soy oil from South America. In MY 2003/04, Korea imported 10,775 million tonnes from the United States, five percent of total imports. Due to tight US soybean oil inventories, the limited presence of US soybean oil in the Korean market continued for all of 2004.
However, when the premium for US soybean oil, vis-a-vis Argentine soybean oil, fell to just $10 per million tonnes, a Korean refinery purchased 14,000 million tonnes of U.S. soy oil for March 2005 delivery. In recent months, the spread between US and South American export prices to Korea has been from $25 to $30 per million tonnes. Because Korean crude oil refiners are reluctant to purchase US soy oil when the premium exceeds $10 per million tonnes, US MY 2004/05 and MY 2005/06 exports of soybean oil are forecast in the 30,000 million tonnes to 50,000 MT range.
In MY 2003/04, palm oil imports grew to 213,000 million tonnes, up 2.4 percent from a year earlier. In MY 2004/05, imports of palm oil are expected to grow again, mainly due to stable international market prices. In MY 2005/06, palm oil imports are expected to continue to exhibit gradual growth, due to increased familiarity with palm oil, and the economic recovery which is currently underway.
"Source: USDA"
