June 1, 2011

 

South Korean pork imports surge after FMD outbreak

               

 

Pork imports by South Korea, the third-biggest buyer of US supplies, soared in the first quarter after the country's worst foot-and-mouth outbreak cut output, helping meat processors such as Smithfield Foods Inc.

 

Shipments jumped 85% to 81,154 tonnes in the first three months, with purchases from the US more than tripling, according to the Korea Meat Trade Association. The pace may slow in the second half as inventories climb and zero-tariff measures end on June 30, according to an importer group.

 

Increased demand from Korea helped hog futures in Chicago climb in April to the highest level since at least 1986. The country's pig herd slumped by about a third because of disease and culling, boosting local pork prices and sending inflation in March to the highest level since 2008.

 

"Imports rose more than expected," said Choi Jong Sun, chairman of the Korea Meat Importers' Association. "Importers snapped up purchases on expectations that demand will rise after the foot-and-mouth outbreak and the tariff removal."

 

Hog futures, which touched US$1.0435 per pound on the Chicago Mercantile Exchange on April 1, have gained 11% this year, closing at 88.6 cents on May 27. Demand from South Korea is "underneath this market," Don Roose, president of US Commodities Inc. in West Des Moines, Iowa, said on February 25, before the price rallied 17% the following month.

 

Pork production in South Korea may drop 32% to 760,000 tonnes this year from an estimated 1.11 million tonnes in 2010, the USDA's Foreign Agricultural Service said on March 7. Imports may jump as much as 20% this year, up from 179,500 tonnes in 2010, Choi forecasted in January.

 

Shipments from the US soared 209% to 37,621 tonnes in the first quarter, trade data showed. Canada was the second-biggest supplier, selling 11,484 tonnes. Korea was the third-biggest market for US pork in March, said the USDA.

 

Smithfield shares have gained about 20% over the past year, closing at US$20.67 on May 27.

 

The Korean livestock industry may be "sluggish for a long time" after the outbreak, Kim Chi Young, a director at the Korea Feed Association, said on May 23. "It will probably take a long while for the pork industry, in particular, to recover."

 

The monthly wholesale price of pork gained 64% on average in the first quarter, data from the trade association showed. Korea's consumer prices rose 4.2% in April from a year earlier, the fourth-straight month exceeding the central bank's target of 2 % to 4 % through 2012.

 

The government increased tariff-free imports of pork by 20,000 tonnes to 130,000 tonnes in the first half, the Ministry of Strategy and Finance said on May 3.

 

Import growth may slow in the second half unless the government extends the zero-tariff rate or expands the scope of the measure as importers have high inventories at present, said Choi.