April 7, 2004

Korea To Import 7 Million MT Of US Corn In 2004/05

Korea is expected to shift from Chinese to U. S. suppliers for the bulk of the 9.3 million metric tons of corn imports projected for MY 2004/05, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service web site.
 
U.S. corn exports to Korea in MY 2004/05 are projected at 7 MMT; a 5 MMT increase from MY 2003/04.
 
The Bank of Korea forecasts that the gross domestic product growth rate will be 5% in 2004 compared to 3.1% in 2003. Although increased growth should bolster demand for food and agricultural products in general, stronger demand will be offset somewhat by increased prices for food driven by higher prices of major commodities in international markets.
 
Korea's strengthening currency and escalating oil prices have emerged as potential roadblocks to the nation's export-driven economy. In addition, the surging price of other commodities has also triggered inflationary pressure, deepening economic anxiety. The three to five-year outlook for grain demand in Korea remains promising given the overall direction of the economy.
 
Rice is the only grain produced in quantities approaching domestic demand. Domestic production of corn and wheat are insignificant. Consequently, Korea will remain reliant on imports to meet food and feed grain requirements. Market prices will dictate the level of substitution among feed grains, the report said. Food safety concerns, mostly related to biotechnology, are instrumental in determining suppliers of food grains. In contrast, price is the primary criteria in determining suppliers of feed grains.
 
Faced with rice prices several times higher than world rice prices, Korean per capita consumption of rice will continue to decline as consumers shift dietary patterns. Government efforts to reduce rice production through rice area reduction programs will likely continue. Negotiation of the parameters of future rice market access will occur in 2004.
 
Wheat
 
Wheat area and production are unlikely to increase significantly in MY 2004/05 due to the limited demand for wheat flour made from locally grown wheat. Rice area reduction programs resulted in more wheat area in 2003, up 81% from the 2002 crop. Nevertheless, wheat area in Korea remains relatively sparse at 3,281 HA for the 2003 crop.
 
Per capita flour consumption in CY 2003 decreased to 32.9 Kg or down 1.2 Kg from the previous year due to the lack of flour demand from noodle and bakery/ confectionary purposes. However, milling wheat consumption is expected to grow 1% or 2% in MY 2004/05 in line with prospects for an improving economic situation.
 
In MY 2004/05, FAS/Seoul projects feed wheat consumption at 1 MMT based on the five-year-average. Feed wheat consumption depends largely on feed wheat availabilities and prices of substitutes. In MY 2003/04, feed wheat consumption is expected to decline to 0.9 MMT based on reported feed wheat consumption during the first seven months and contracts for feed wheat deliveries for the remaining period. Overall, reduced feed wheat availabilities from major supplies in MY 2003/04 are expected to result in a 45% decrease in feed wheat consumption, the report said.
 
FAS/Seoul forecasts MY 2004/05 Korean wheat imports at 3.3 MMT composed of 2.3 MMT of milling wheat and 1 MMT of feed wheat. Imports of U. S. milling wheat are expected to remain unchanged at 1.3 MMT. Australian wheat is expected to attract importer interest for noodle flour production.
 
The U.S. is expected to maintain a 50% to 55% share of Korea's milling wheat market. Australia and Canada, principal competitors in the milling wheat market, rely on wheat boards to negotiate quality and price contracts directly with individual flourmills. These Boards conduct extensive market research on taste preferences to identify acceptable wheat-based products, and provide technical research and train millers to broaden awareness and acceptance of wheat holding more uniform characteristics and quality.
 
The Australian Wheat Board also provides Korean millers a 3-month rotating line of credit of US$25 - 30 million. Under the FY 2004 GSM-102 credit guarantee program, Korean flour millers are expected to use around US$200 million to import U. S. milling wheat. Korean millers used US$194.6 million to purchase 1.2 MMT of U. S. No. 1 wheat under the FY 2003 GSM-102.
 
CORN
 
Domestic corn production is expected to remain relatively flat at 70,000 MT for the next couple of years. Corn production appears to have peaked in 2002 partially in response to government policy established in 2001 to reduce rice production on marginal farmland.
 
In MY 2004/05, total corn consumption is forecast at 9.3 MMT, composed of 2.3 MMT for food and 7 MMT for feed corn. Total compound feed production in MY 2004/05 is projected to grow less than 1% from the current forecast of 15.4 MMT in MY 2003/04.
 
Outbreaks of highly pathogenic avian influenza in poultry and diseases in the hog sector plagued Korean producers in 2003 and 2004. The repeated outbreaks of animal disease threaten to slow the growth of feed industry. Compound feed production for beef cattle has continued positive growth since MY 2001/02. Feed demand for other animals (horses, pets, turkeys, duck, etc), which comprised 6.9% of overall compound feed production in MY 2002/03, is expected to stay around about 1.1 MMT due to the sharp decrease of duck inventory resulting from measures taken to combat avian influenza outbreaks in 2003.
 
Wet milling, forecast to reach 2.1 MMT in 2004/05, is expected to grow annually 1%-2% due to the increased consumption of carbonated soft drinks. In contrast, dry milling is expected to remain at 180,000 MT as imports of corn grits (included hominy) continue to cover breakfast cereal manufacturers' demand. Breakfast food manufacturers cite better quality of granule size and puffing grade as the reason they prefer imported corn products over domestic produced products.
 
In MY 2004/05, Korea's corn imports are forecast at 9.3 MMT to meet the demand of feed and food sectors, a slight decrease from the forecast of MY 2003/04. Decreased corn imports reflect expectations that Korea will import 1 MMT of feed wheat during MY 2004/05 (Oct/Sep). In MY 2003/04, Korean corn imports are estimated to reach a record level of 9.6 million metric tons (MMT); an 800,000 MT increase over MY 2002/03 driven by the reduced world supplies of feed wheat.
 
Since China's retreat from corn exports in CY 2004, Korean buyers have continued buy on the basis of optional origin contracts. Grain suppliers have sold feed corn with the option to declare loading ports from China, Argentina or the United States. Similarly, processing corn contracts provide for loading in China, Brazil or the United States. So far in CY 2004, suppliers have opted to fulfill their optional origin contracts for feed corn by supplying corn primarily from the United States and, to a lesser extent, Argentina. Brazil has been the primary origin for processing corn. The estimate of MY 2003/04 U. S. corn exports to Korea has been revised from 2 MMT to 5 MMT to reflect the U. S. as the predominate origin of optional origin feed corn purchases. Chinese corn exports were projected to fall from 8 MMT in MY 2003/04 to 2 MMT in MY 2004/05. Accordingly, U.S. corn exports to Korea in MY 2004/05 are projected at 7 MMT; a 5 MMT increase from MY 2003/04.
 
When logistical constraints preclude Brazil, identity preserved non-GM corn from the United States can become attractive for the Korean processing sector. Nevertheless, total sale volume of non-GM U.S. corn to Korea are expected to remain under .25 MMT.
 
RICE
 
While failing to find political will to reduce government-supported rice procurement prices, the Korean government has attempted to stem overproduction of rice by paying farmers not to grow rice in recent years. Nevertheless, declining consumption and increasing imports tied to Korea's commitments under international agreements have largely overshadowed the effects of the area reduction programs. In 2004, planted area is expected to be slightly less than one million hectares. Area reduction programs are expected to result in 37,000 hectares less rice plantings in 2004. Direct payments to farmers provided under the area reduction programs began in 2003 and are scheduled to continue through 2005.
 
Changes in farmland ownership laws have allowed urban Koreans to hold up to 1,000 square meters of farmland since January 2003. Reduced restrictions on farmland ownership have facilitated the conversion of some rice area into other purposes. The Ministry of Agriculture and Forestry has announced that the maximum area allowed to be owned by urban Koreans will be increased to 3,000 square meters effective January 2005. Additional changes in land ownership and use regulations may surface in 2004. The Korean government recently indicated intentions to unify all regulations relevant to land into a "National Land Planning Act" during the first half of 2004 in order to increase the supply of land available for the commercial development purposes. MAF has agreed in principle with the land reform scheme as a means to promote rural development.
 
In MY 2004/05, rice production is forecast at 4.7 MMT assuming the 5-year- average yield per HA. Crop yields for the 2004 crop are forecast 5% higher than the 2003 crop which was impacted by severe weather damage.
 
Adjustments in recent years to the Korean government's rice price support program for rice were targeted at encouraging higher quality rice production. The Government purchasing program also encouraged rice farmers to convert marginal paddy fields unfit for high quality rice production into land for other crops. The Ministry of Agriculture and Forestry (MAF) released a list of 18 rice varieties approved for the government-purchasing program in 2004. The intent of limiting the varieties eligible for the government purchasing product is to promote production and marketing of high quality rice.
 
The official rice procurement price has remained at KRW 2,097 per Kg since 2001. However, the Food Grain Marketing Committee, which advises the Minister of Agriculture, has recommended a 4% reduction in the government procurement price in CY 2004.
 
If the National Assembly approves the 4% reduction, it will be the first reduction in the procurement price of rice since the nation initiated the procurement system in 1948. The National Assembly rejected an attempt to reduce the rice procurement price by 2% in CY 2003.
 
A new government purchasing program called the Public Storage System (PSS) is expected to replace the current government procurement system beginning with the 2005 crop. The PPS is described as a means for the government to buy rice at market prices during harvest and sell rice during non-harvest periods at market prices.
 
In MY 2003/04, per capita rice consumption is expected to continue to decrease from the per capita consumption of 83.2 kg in MY 2002/03, down 4.4% from the previous year, the report said.
 
Korean dietary patterns have shifted from rice to wheat-based products. Similarly, availability and affordability of other foods such as meats and fruits have reduced the consumption of table rice in urban areas. Usage of rice as a raw material for alcohol processing is expected to be reduced in 2004 reflecting lower stock levels. Stock levels decreased in 2002 and 2003 as South Korea shipped 400,000 MT of rice per year to North Korea under government agreements.
 
Rice imports remain restricted under the Ministry of Agriculture's administration of Korea's Minimum Market Access (MMA) quota commitment under international agreements. In CY 2004, the MMA-quota amount is set at 205,228 MT on a milled rice basis, up 14% from the previous year. China has supplied the majority of rice purchased under the MMA quotas. All rice purchased under the MMA quota is required to be used for processing purchases. Consequently, no imported rice is allowed to be marketed as table rice through retail channels. The Korean government oversees distribution of imported rice to rice processors. Processors are charged the cost of the rice including handling and storage charges.
 
In CY 2003, Korea purchased 55,000 MT of U. S. No. 1 medium grain brown rice (equivalent to 49,500 MT on a milled basis worth US$ 29 million) under its MMA program. In CY 2004, the U.S. is expected to export roughly 60,000 MT of U. S. No. 1 medium grain on a milled basis. As with all other imported rice, the U.S. rice is not permitted to be marketed through retail channels to Korean consumers.
 
Korea will complete the final year of Uruguay Round market access commitments for rice in 2004. Korea has requested negotiations within the WTO to extend special treatment provisions on rice imports. Negotiations are required to be completed by the end of 2004.
 
Consequently, the restrictions currently in place on rice imports are expected to undergo significant change for 2005. As a result, access to the Korean rice market is expected to improve sharply. However, in order to not pre-judge the outcome of the 2004 rice negotiations, Post has carried over the 2004 MMA quota amount for 2005.
 

Source: USDA