FEED Business Worldwide - October / November, 2011
A new South Korean beef market takes shape
by Eric J. BROOKS
Koreans are known as a stubborn, hardy people and this can be seen in the behavior of their cattle farmers. Instead of retrenching, they continue to boost inventories in the face of an import flood. While this year's foot and mouth disease (FMD) outbreak provided a respite from its supply-side implications, a day of reckoning should become apparent by early 2012.
FMD, hog deaths, boost imports
Indeed, because large cattle herd growth in the years prior to this year's foot-and-mouth disease (FMD) outbreak coincided with aggressive import growth, the past year has seen beef prices drop 20% and cattle prices fall 35%. At one point, beef was more cheaply priced than certain pork cuts, as FMD put hogs in even shorter supply. However, with prices falling, living standards rising and consumption increasing, it is felt that first beef prices and later cattle prices will stabilise –provided local herds can be brought to a sustainable level and a well-targeted market niche.
Fortunately for South Korea's cattle farms, late 2010's foot-and-mouth disease (FMD) epidemic mostly hit hogs and spared cattle. While this minimised farmers' investment loss of cattle to disease, it did make for a worse oversupply situation going into next year.
In any case, only 4.5% of South Korea's cattle were slaughtered due to FMD, compared to 33.5% of its hogs. Coinciding with rising consumption and cheaper imports, this 151,000 head reduction in cattle numbers still made for fast growth in imports, as it dented domestic beef supplies just as demand started growing strongly. However, it was not as extreme as the situation with swine, where devastated local hog herds led to a flood of foreign pork.
Even so, beef import volumes jumped 9.3%, from 2010's 366,000 tonnes to a USDA-estimated 400,000 tonnes this year. Even this forecast was revised from 380,000 after this year's Korean FMD epidemic boosted the country's appetite for foreign red meat. This Korean beef import total is the second highest volume, bested only by the early 2000s high-point before mad cow disease devastated the US beef imports it once depended on.
Indeed, early 2011 saw a huge influx of foreign beef being imported as a substitute for pork, which FMD had put into short supply. Unexpectedly, even though beef's price sank below that of pork at one point, consumers opted to substitute chicken in pork's place. This kept retail beef prices lower than was anticipated. With their lower cost base, this gave imports an advantage while squeezing the profit margins of domestic producers.
US market share peaking?
At this time, hog numbers are recovering, meaning that to some extent, pork will be substituted back in place of beef, especially as the former's price falls back to normal levels. This means that after 2011's heady import penetration, 2012 beef imports are forecast to rise by a more conservative 2.5%. And this tapering off in import growth must accommodate two players at very different stages of market participation: the United States and Canada.
Ever since it was reintroduced into South Korea's market three years ago, US beef imports have grown very rapidly, taking back a substantial portion of the market share it lost to Australia after its 2003 ban. Uncle Sam had luck on his side again this year: A rising Australian currency and falling US dollar coincided with floods in Australia's Queensland state, which dented its cattle production.
With Korean import demand boosted by FMD and Australia having less beef available for export, America was happy to bridge the supply gap. After seeing US beef's share rise from zero in mid-2008 to 29% in 2010 and 35% this year, it will level off to a 37% market share in 2012. American beef exports, which zoomed from near-nothing in mid-2008 to 140,000 tonnes this year, will grow a still respectable but much slower 7.1%, to 150,000 tonnes in 2012.
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