December 08, 2003

 

 

South Korea Animal Feed Industry's Output Forecast To Fall Further in 2004

 

The animal feed industry in South Korea, due to increasing costs and weak demand, is expected to cut output further in the coming year as meat consumption is picking up only slowly amid economic uncertainty, industry sources say.

 

Feed makers in Asia's fourth largest economy have been struggling to recover from the financial crisis since late 1997, where at that time South Korea was suffered from high feed ingredient prices and freight costs.

 

A senior official at Nonghyup Feed Inc said, "We expect (South Korean) feed output to fall by 5% in 2004 in addition to this year's expected fall by 3%."

 

For the first 10 months in 2003, feed output totalled almost 12.6 million tons, slipping 2.3% from the same period last year, Korea Feed Association (KFA) data showed.

 

Korea saw a 10% dip in feed output to 14.2 million tons in 1998 after the financial crisis. Last year, it produced 15.6 million tons, still 1.6% below the 1997 level.

 

Feed makers are being forced to raise prices to cover costs, but many farmers are in no position to pay as they, too, are in dire financial straits due to slack meat sales and weak prices.

 

"A rising numbers of farms are defaulting, while feed makers cannot avoid raising feed prices at least by 16 or 17% because of higher grain costs," said Kim Chul-ki, head of the KFA's grain purchasing committee.

 

The price hikes will happen gradually over the next year to cushion the impact, feed makers speculated.

 

Till date, South Korea has more than 60 feed makers and almost 90 feed production plants.

 

To make matter worse for feed makers and livestock farmers alike, traders are forecasting higher grains prices next year, especially if China stops or slashes corn supplies to overseas markets, including nearby South Korea.

 

"International corn prices will move up further next year if not so much Chinese corn is available," a Seoul trader with a foreign grain supplier said.

 

That would offset any benefit from the recent strengthening of the Korean won against the U.S. dollar, they said.

 

South Korea imports about 9 million tons of corn annually - seven million for feed and the remainder for food - and the vast majority comes from China.

 

Soaring freight rates have boosted prices of corn and soymeal, major feed ingredients. Panamax dry bulk rates have hit record highs on tight tonnage supply amid strong demand for minerals and grains.

 

An April shipment of U.S. or South American corn now costs about $40 per ton more than a similar deal struck a year ago, while Chinese corn is about $35 per ton more expensive, on a cost and freight basis.