by Eric J. BROOKS

While Japan's market is larger and China's fast growth gets most of the headlines, South Korea's feed sector is not to be underestimated. Trailing only China, Japan and Mexico, South Korea's market may be mature but it is also the world's fourth largest feed crop importer, importing some 25 million tonnes annually for feed and human use. Yet, with regards to both its grain and oil seed sides, South Korea's feed market is quietly evolving.

 

Superficially, late 2010 and early 2011's foot-and-mouth disease epidemics destroyed enough hogs to create a unique circumstance: The 28.9% proportion of feed consumed by poultry exceeded the 26.5% consumed by hogs. Driven by a resultant pork shortage, meat imports topped one million tonnes for the first time last year. While recovering hog numbers will restore their proportion of total feed demand, other changes are underway.

 

A flat but evolving market, South Korea typically imports 7.5 to 8.5 million tonnes of corn. The USDA and US Grains Council report that 77.6% of this total is GM corn from the United States, with a far smaller proportion coming from Brazil or Argentina. Most of the remaining, non-GM corn imports are used for deep processing into corn starch or corn syrup used in foods and beverages. They are supplied by several countries including South Africa, Hungary and Serbia.

 

Growing only 1% of its annual wheat consumption and less than 1% of its corn, South Korean livestock is entirely dependent on feed crop imports. Out of 4.4 million tonnes of wheat consumed in 2011/12, 4.2 million tonnes was imported, with 44,000 tonnes grown domestically and an approximate 156,000 tonne inventory run down bridging the supply-demand gap. Out of this total wheat demand, 2 million was used by feed mills and 2.4 million tonnes for human use.

 

With regards to wheat, the past two years have seen imports fall 6.0%, from 4.47 million tonnes two years go to 4.40 million tonnes in 2011/12. This is because while South Korea's feed demand has leveled off, its consumption of baked goods continues to grow: A 6.7% or 150,000 tonne in demand for flour-milled wheat could not offset a 16.7% fall in feed wheat consumption, from 2.2 million tonne in 2009/10 to 2.0 million tonnes in 2010/11.

 

Nevertheless, while feed wheat use is down 16.7% from two years ago, this merely reflects falling hog inventories. At 6.2 million tonnes, 2011/12 cattle feed consumption was 5% higher. Similarly, the amount of feed consumed by broilers jumped 7.5%, from 4.56 million tonnes to 4.90 million tonnes.

 

All this was offset by late 2010 and early 2011's mass culling of foot-and-mouth disease infected swine, which made hog feed consumption crash by 17.8%, to 4.50 million tonnes in 2011, down 17.5% from 5.46 million tonnes the previous year. Consequently, the lower swine population more than offset higher feed demand from cattle and poultry. This caused feed consumption to fall a nominal 1%, from 17.18 million tonnes in 2010 to 17 million tonnes last year.

 

Moreover, with corn and wheat prices doing a rare cross-over, the last two years have seen a mass substitution of wheat in place of corn. Amid relatively flat feed output numbers, the amount of feed wheat used has risen by over 33% in just three years, from 1.4 million tonnes in 2008/09 to over 2 million tonnes in 2011/12.

 

Along with rising reliance on DDGS, this made feed corn demand fall 6.3% over the last five years, from 6.4 million tonnes in 2007/08 to 6.0 million tonnes last year. This has resulted in wheat's proportion of the total feed supply rising significantly over the past three years, mostly at corn's expense.

 

USDA figures indicate that corn went from comprising 39% of South Korea's feed in 2007/08 to 35% in 2011/12. Wheat's share went from 8.5% in 2007/08 to 11.8% in 2011/12 and an expected to be near 13% this year. Along with corn, the share accounted for by alternative fibers and starches such as tapioca and bran also fell by 0.5%, but this mostly reflects their substitution by DDGS imports.

 

While feed wheat substitution and flat feed demand have cut livestock demand for corn, processors have done their part to keep imports at their undulating, 7.5 to 8.5 million tonne range: Thanks to high sugar prices, since 2007, the amount of corn used for corn starch, syrup and other derivatives has jumped by over a third, from a 1.49 million tonnes to 2.0 million tonnes last year. Hence, the rising volume of corn used by processors roughly made up for the wheat-driven reduction in feed corn use.

 

The US Grains Council reports that 379,000 tonnes of American DDGS were imported in 2011/12, and that South Korea has the potential to import up to 1.5 million tonnes. Hence, it is very likely that feed corn imports will remain around 6.0 million to 6.5 million tonne range: When the substitution of feed wheat in place of corn tapers off, more DDGS could be substituted in place of both, with the corn to sugar price ratio representing a potential wild card boost to demand.

 

Moreover, despite the market's maturity, we see a similar of underlying changes beneath South Korea's superficially flat consumption of oil seeds. The most recent USDA GAIN report states that soy accounts for 83.1% of South Korea's raw oil seed imports, with cotton seed making up another 8.2% and ten other oil seeds accounting for the remaining 8.7%.