A top official with the U.S. Department of Agriculture said investigators are “pursuing many avenues” to determine how the wheat — which carries a gene making it resistant to herbicide applications — popped up in late April.

“At this point we have not… eliminated any” potential causes, Bernadette Juarez, deputy director of the investigative unit with USDA’s Animal and Plant Health Inspection Service (APHIS), told Reuters in a telephone interview.

South Korean millers suspended imports of U.S. wheat on Friday and some Asian countries increased inspections after the discovery of the unapproved wheat, but stopped short of imposing import bans.

U.S. officials are attempting to tamp down global alarm about the wheat, developed by biotech giant Monsanto more than a decade ago but never put into commercial production. Field tests on GM wheat were last conducted in 2005.

The discovery of the long-forgotten strain prompted major buyer Japan to shun wheat from the Pacific Northwest at its weekly tender on Thursday, while the European Union said it would step up testing.

Canada not seeing benefit

So far, rival exporter Canada has not seen any benefit from the incident, a major Canadian merchant said, predicting that the nervous response from buyers might soon fade.

“It’s like the lights going out in the restaurant I was in last night. Nobody really expects they’ll stay out for very long,” Curt Vossen, chief executive of Richardson International Ltd told Reuters. “It might be five minutes, but they’ll come on again fairly quickly.”

In that vein, wheat futures prices in Chicago were higher on Friday, more than retracing Thursday’s small decline.

The impact of the GMO wheat find has been felt mostly on cash prices in the Pacific Northwest, a key market for Asian buyers to purchase supplies of white wheat.

Still, South Korea — which last year sourced roughly half of its total wheat imports of five million tonnes from the U.S. — has also raised quarantine measures on U.S. wheat bought to feed livestock, while Thailand put ports on alert.

Its scientists had conducted weeks of quiet field work and complex tests before the bombshell news was announced this week.

To pin down the origin of the wheat, USDA extracted DNA from the tissue of wheat plants collected by its investigators from the Oregon field, and sent material to three facilities.

The U.S. Department of Agriculture has said the wheat posed no threat to human health.

South Korean officials said the U.S. had provided the DNA sequence of the rogue GM strain to help its inspectors detect if it was in other imported U.S. wheat and flour. Test results will be released on Monday, the South Korean food ministry said.

“From this weekend, we will also collect wheat and flour imported from all over the United States and will conduct tests next week,” said Ahn Man-ho, a spokesman at the ministry of food and drug safety.

South Koreans say they will not import U.S. wheat until all tests are completed.

Tight Australian supply

Asia imports more than 40 million tonnes of wheat annually, almost a third of the global trade of 140-150 million tonnes. The bulk of the region’s supplies come from the U.S., the world’s biggest exporter, and Australia, the No. 2 supplier.

But Australia will struggle to soak up extra demand as its supplies tighten in the wake of unsustainably brisk exports and growing demand from domestic livestock farmers.

“The bulk of grain suppliers (in Australia) are cancelling shipping slots and selling grain to domestic feed mills and feedlots,” said Stefan Meyer, a manager for cash markets at brokerage INTL FCStone in Sydney.

Japan is not rushing to find alternative sources of wheat, however, with the county’s flour milling industry body saying they have sufficient stocks for the short term.

“We haven’t thought about alternatives to the grade or proposed candidates to the farm ministry (at this stage),” said Masaaki Kadota, executive director of the Flour Millers Association of Japan.

But Kadota added that it could be difficult for users to find alternative soft white types of wheat to the U.S. Western White grade, as wheat grown in nations such as Australia and Canada is mainly the medium to hard type.

An industry official in the Philippines, which buys about four million tonnes of wheat a year and relies mainly on U.S. supplies, said the country could turn to Canada if it decides not to import from the U.S.

— Charles Abbott and Meeyoung Cho write for Reuters from Washington, D.C. and Seoul respectively.

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Rising global food prices have prompted the country to eye participation in grain operations abroad and move to encourage farmers to grow more corn and wheat while easing rice import policies, said Yoo Jeong-bok, South Korea’s food, agriculture, forestry and fisheries minister.

The country is working with Canada to solve a dispute on beef imports banned over mad cow disease concerns in 2003, he said, as South Korea recovers from an outbreak of foot and mouth disease that cost the country nearly three trillion won (US$2.76 billion).

“A decision (on allowing Canadian beef imports) is likely to be made through bilateral talks instead of a (World Trade Organization) panel ruling. The decision is seen coming this quarter,” Yoo, 54, a former member of the parliament, told Reuters in an interview late Thursday.

Global grain market volatility is worsening and prices are likely to rise due to soaring demand, said Yoo, who represents the Asia-Pacific region at the U.N. Food and Agriculture Organization (FAO).

South Korea, the world’s fourth-largest grain importer, is responding to high prices with a range of measures such as buying U.S. grain storage elevators and increasing its overseas grain farming, Yoo said.

“We want to ensure supplies by expanding growing fields… On top of (direct grain) imports, we will raise importing through overseas farming to 10 per cent of our total imports by 2018,” he said, adding that imports from overseas grain farming could reach 1.38 million tonnes by 2018 from 281 tonnes in 2010.

Crop imports

South Korea may also allow open rice imports at an unspecified higher tariff instead of quota limits now, which incur a five per cent levy. It is also encouraging farmers to plant more corn and wheat as the country already produces more than enough rice to meet domestic demand, Yoo said.

Moving to a tariff-based rice system could give South Korea more flexibility to change imports volumes during price spikes through modifying levies on incoming shipments. Now, imports are constricted by an import quota cap.

South Korea could move to solely tariff-based rice imports by the start of 2012, at higher tariff rates, as part of a five-year plan to encourage corn and wheat planting, Yoo said.

“We are trying to raise production of wheat, beans and corn to reduce imports and ensure supplies… as local production of wheat and corn is less than one per cent each,” Yoo said, adding 40,000 hectares (about 99,000 acres) of rice fields would be used to grow other grains this year, and expanded in the next three years.

South Korea is vulnerable to increasingly volatile global grain markets and price rallies, as it imports three quarters of its 20 million-tonne grain consumption, he said.

Meat imports

South Korea will likely allow imports of Canadian cattle under 30 months of age when it lifts the import ban, similar to rules covering U.S. beef, Yoo said.

Canada’s Agriculture Minister Gerry Ritz said last month that the two countries were close to resolving the import dispute ahead of any decision from a WTO panel on the issue.

Canada is the world’s third-biggest beef shipper and South Korea was its No. 4 market in 2002 prior to the ban.

Last year South Korea imported a combined of 261,159 tonnes of frozen and chilled beef, and of the total, 53 per cent came from Australia and 32 per cent from the U.S.

Seoul culled a third of its hog population and about five per cent of cattle to contain its worst foot-and-mouth outbreak.

The government has turned to imports to alleviate meat price spikes. It cut import tariffs on pork to ease the shortage while the domestic livestock population recovers — which may take as long as two years.

The ministry would closely monitor prices to decide whether to extend tariff-free pork imports to the end of the year, Yoo added.

The government said it would also continue to test domestic and some imported food for radiation levels due to ongoing concerns about leaks from Japan’s earthquake and tsunami damaged nuclear plants, he said. But South Korea would not impose an outright ban.

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South Korea’s swine industry could take one or two years to recover from a foot-and-mouth epidemic that has boosted meat purchases by one of the world’s top pork importers.

A long-term boost to the country’s pork imports, mainly from the United States, could support U.S. hog futures already at record highs partly on the back of potential Korean demand.

Pork shipments into Asia’s No. 4 economy may rise by 20 to 30 per cent from last year’s 290,000 tonnes after nearly a third of the pig herd was culled, and the country lowered tariffs on meat imports in an effort to contain food inflation.

“When one removes that many animals from their domestic herd, it would suggest that it’s going to take, in the case of swine, a couple of years to come back,” said Martin Rice, executive director of the Canadian Pork Council in Ottawa.

Foot-and-mouth started on Nov. 28 and snowballed to 140 cases in eight provinces within two months, triggering a cull of 2.8 million pigs and nearly 150,000 cattle.

“As the number of sows fell to 700,000-750,000 from last September’s 980,000, it will be hard for hog population to rise by the end of 2011,” Korea Rural Economic Institute said in a report.

South Korea in January dropped its 25 per cent tariff on up to 60,000 tonnes of pork to be imported through June to ease supply and try contain prices that are at their highest since at least 2005.

On Tuesday a finance ministry official said Korea may expand the volume of tariff-free port imports if prices continue to shoot up, as consumer inflation in January jumped to a higher-than-expected 4.1 per cent, above the central banks inflation target.

Rich Nelson, an analyst at Allendale Inc. in McHenry, Ill., said, “We think we’ll be trading good news from South Korea for the next two to three months.”

“One thing we had been concerned about was that it would not be extended (the slashing of the tariff), and that the 60,000 metric tons might be it,” Nelson said.

Korean swine farmers strongly opposed the government’s tariff reduction, saying it threatened to destroy the domestic industry.

U.S. pork favoured

South Korea expects a surge in meat demand for the five-day Lunar New Year holidays starting on Feb. 2, its biggest holiday.

The government keeps assuring consumers that meat from foot-and-mouth-infected animals is not harmful to humans.

But consumers increasingly opt for imports, which cost less and look cleaner as all local pigs and cattle have been vaccinated against foot-and-mouth, industry sources and local media said.

While U.S. January pork export results are not yet available, cash sources and traders said South Korea has likely bought 60,000 tonnes or more of U.S. pork since the start of the year.

Chicago Mercantile Exchange (CME) April lean hogs futures on Monday touched a high of US94.525 cents per pound, the highest price ever for a second position.

The U.S. is the largest exporter of pork and poultry to South Korea, while Canada is the second-largest pork exporter.

Tim McRae, an economist at Meat and Livestock Australia, which oversees the Australian livestock industry, said U.S. sales to South Korea had already been picking up because of the weak dollar and the shipment of select cuts into that market.

The Korean won has gained 10 per cent against the U.S. dollar in the past six months (US$1=1,115.6 won).

“Very preoccupied”

The massive slaughter of animals against foot-and-mouth and bird flu in South Korea will slow grain imports in the world’s No. 3 corn importer.

Feedmakers, who are usually active buyers, had issued only one soybean meal tender for feed since mid-December, as they shied away from surging international grain prices.

But it has been a boon for small cap companies involved with marketing imported meat and fish and producing disinfecting materials.

Shares of Dongwon Fisheries jumped by 65 per cent over four sessions in mid-January to a record high, before pulling back, while Choong Ang Vac, an animal vaccination maker, hit a year high in December.

The foot-and-mouth outbreak in South Korea could also slow the settling of trade disputes.

Canadian beef has been banned in South Korea since a 2003 discovery of mad-cow disease. Canada has complained to WTO and a decision is expected early in 2011. The two countries have been talking to each other ahead of the decision.

“It makes it more difficult to negotiate because the people we would talk to are very preoccupied,” said John Masswohl, director of government and international relations for the Canadian Cattlemen’s Association.

“It’s the same animal health officials, same food safety officials who are working around the clock to try and contain the situation over there. It becomes a distraction.”

— Additional reporting for Reuters by Rod Nickel in Winnipeg, Bruce Hextall in Sydney and Michael Hirtzer in Chicago

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(Reuters) –– South Korea said Thursday its meat imports jumped in December to meet lost local supply due to outbreaks of foot-and-mouth, but future import gains might be short-lived even as demand remains steady despite the disease outbreak, industry and government sources said.

South Korea’s combined beef and pork imports increased 13 per cent month-on-month and seven per cent year-on-year to a combined of 57,706 tonnes in December, customs data showed.

South Korea’s exports of beef, pork and poultry meat were all banned due to foot-and-mouth starting from late November and bird flu starting from late December.

“We are hearing higher demand (in January) for imported meat,” said an industry source who declined to be identified as he was not authorized to talk to the media.

Meat demand has remained steady in Asia’s fourth-largest economy and is expected to be robust ahead of Chinese New Year in February, but domestic production is seen rebounding quickly afterwards, sources said.

An official at the ministry of knowledge economy said “the government is starting to lift local supply by purchasing those animals that were prevented from being transported to contain foot-and-mouth.”

The nationwide outbreaks of foot-and-mouth, triggering the slaughter about 10 per cent of local pig and cattle population, originated in pigs in the city of Andong in North Gyeongsang province on Nov. 28.

The country exported a total of 79 tonnes of beef and pork in December, down 77 per cent from November and down 96 per cent from a year earlier, the customs statement said.

Another ministry official said it would take at least a half year to resume exports if the country is acknowledged disease-free six months after its last slaughter and vaccination.

South Korea confirmed 116 cases of foot-and-mouth as of Thursday, continuing to rising from 115 cases on Wednesday, the ministry of knowledge economy said in a statement.

On top of the serious outbreaks of foot-and-mouth, South Korea also confirmed the first case of bird flu on Dec. 31 in ducks in the city of Cheonan, South Chungcheong province, and in chickens in the city of Iksan in North Jeolla province.

South Korea said in a second statement on Thursday it had confirmed 23 cases, up from 16 cases a day earlier, of H5N1 avian influenza. The country has no human cases.

Price spike

South Korea’s recent massive slaughter of pork and cattle to contain the outbreak have prompted a spike in domestic beef and pork prices and exacerbating food inflation.

On the Chicago Mercantile Exchange, live cattle and hog prices reached a record high on feed costs, and prospects of increased exports.

An agriculture ministry official, however, said Wednesday the country has no plans to boost imports now or cut import duties. In a statement Wednesday, South Korea said to expand foot-and-mouth vaccination to reach animals across the country except Jeju Island.

The U.S. is the largest exporter of poultry and pork to South Korea and the second-largest beef exporter after Australia. Canada is the second-largest pork exporter to South Korea.

South Korea imposes about 40 per cent of tariffs on imported beef, and about 25 per cent of tariffs on imported pork.

— Cho Mee-young writes for Reuters from Seoul.

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