February 15, 2004
Feb. 2004 -- Dr. Wayne Purcell, a reputable agricultural economist, found that if deflated slaughter-lamb prices were plotted against production, it appeared that demand was lower in 1996 than in 1986 (1998). He added that the high prices observed in the mid- and late-1990s were due to tightening supplies and not necessarily increases in demand for lamb.
I repeated and updated Purcell?s analysis and found that although it appeared demand might have fallen in 2001 and 2002, it most likely rebounded in 2003. Each point in the scatter diagram depicts the intersection of average live prices and production levels in the corresponding years. Thus, each point is the intersection of a supply-and-demand curve. Although it is difficult to determine whether shifts in supply or demand caused changes in the points of intersection, it is probable that through the 1990s and early 2000s, supply contracted. Purcell maintained that lamb demand is considerably lower than levels seen in the 1970s and 1980s. I add that in the 2000s, lamb demand may have slipped from levels seen in the mid-1990s, but in 2003 likely rebounded from 2000 and 2001 levels. Thus, it is very likely that at given prices consumers chose more lamb in 2003 (i.e., demand shifted up).
Changes in per-capita lamb consumption as reported by the U.S. Department of Agriculture (USDA) should not be confused with demand for lamb. Lamb demand is a function of both quantity and price, while per-capita lamb consumption relates to quantity. The USDA?s Economic Research Service (ERS) reported that per-capita lamb consumption was 1.1 pounds in 2001 and increased to 1.2 pounds in 2002, but is expected to fall back to 1.1 pounds in 2003 and 2004 (12/17/03). However, this does not mean that lamb demand fell in 2003.
Since 1999, domestic production has fallen and imports have increased, but total lamb availability (the sum of the two) also has fallen. Total lamb availability increased from 319 million pounds in 1999, to 325 million pounds in 2001 and 2002 and to 301 million pounds for January through October 2003.
In the last five years, annual lamb production has fallen from 236 million pounds in 1999 to 191 million pounds in 2003. During this period lamb imports fluctuated, but rose from 83 million pounds in 1999 to 110 million pounds through October 2003. Imports increased their share of domestic production, from 35 percent to 57 percent, over this period.
Strong import numbers are a testament of strong U.S. demand for lamb. Australian lamb exports to the United States in November were the second highest on record, after the record October 2003 exports (Meat & Livestock Australia 2/12/03). Lamb and mutton imports in the United States in October 2003 were up year-to-year by 46 percent. The value of lamb and mutton imports in October 2003 increased by 68 percent above the value in October 2002.
Lamb imports remained surprisingly high in 2003 given reports of continued tight supplies in Australia and New Zealand and the weak U.S. dollar. Lamb imports were 109.7 million pounds in January through October 2003, compared to 97.3 million pounds in the same period in 2002. ERS expected imports to reach 159 million pounds in 2003.
The USDA Economic Research Service has forecast that imports will reach 163 million pounds in 2004 (ERS 12/17/03) -- an increase over recent years? totals. Furthermore, ERS maintains that in 2004 imports will exceed the 45 percent share of U.S. consumption observed in 2003 (12/17/03).
Australian authorities concur. ABARE expects lamb exports to the United States in 2003/04 to remain strong -- up 8 percent from the previous year. However, Australia?s total lamb exports for 2003/04 are expected to decline 11 percent (Meat & Livestock Australia 12/19/03). Australia?s primary export market, the United States, continues to divert lamb from other markets. Sheep slaughter in Australia in 2003/04 is forecast to decline 29 percent in comparison to that of the previous year, to 9.7 million head -- the lowest slaughter rate since 1983/84. This decline in production is due mainly to producers withholding stock from slaughter for the purpose of rebuilding breeding flocks after almost two years of drought and increased turnoff (Meat & Livestock Australia 12/19/03).
Tighter production, and possibly increased demand, helped support prices in the 4th quarter of 2003. Average live slaughter-lamb prices were expected to average around $92/cwt. in 2003 -- 27 percent above last year (ERS 12/17/03). The actual average live price in 2003 was $91.41/cwt., up nearly 20 cents from an average $71.65/cwt. in 2002 and up 26 cents from the average of $65.34/cwt. The ERS anticipates that slaughter-lamb prices will average in the low $90s per hundredweight in 2004 (12/17/03).
Average live slaughter-lamb prices were $89.98/cwt. in December, down from $90.45/cwt. in November. Average live feeder-lamb prices were $105.54/cwt. in December, down slightly from $105.84/cwt. in November. The average feeder-lamb price in 2003 was $99/cwt., up 24 cents from an average $74.81/cwt. in 2002. No. 1 pelt prices averaged lower in 2003 at $11.51 compared to $12.45 in 2002 and $10.93 in 2001.
The price of retail lamb (domestic and imported) fell from $4.86/lbs. to $4.84/lbs. between September and October 2003. Between September and October 2003, domestic retail prices remained steady at $3.90/lbs. and imported prices fell from $4.78/lbs. to $4.70/lbs.
The amount of lamb on the market in 2003 (through October) fell from 2001 levels ? and from the high levels observed in 2002. The volume index (the average monthly volume in 2001 being 100) for all lamb fell from 63 to 62 between September and October 2003. The index fell from 60 to 59 for domestic lamb and fell from 70 to 69 for imported lamb.
The share of retail lamb sold through featuring for all lamb increased from 12 percent to 14 percent between September and October. The share of retail lamb sold through featuring for domestic lamb increased from 7 percent to 9 percent between September and October. The share sold in features for imported lamb increased from 22 percent to 25 percent between September and October.
Given the quantity and value of imports in October 2003, the import price was $2.69/lbs. The corresponding import price in October 2002 was $2.33/lbs. Recall that the feature-weighted average retail price of imported product was $4.70/lbs. in October 2003 -- $2 higher than the imputed import price.
In January through October 2002, lamb exports were 2,352 metric tons, but fell to 2,321 metric tons in the same period in 2003. Although the volume of exports fell slightly by volume, the value of exports increased from $5 million to $5.7 million over the same time period.
High Cotton Prices Give the Wool Market a Boost
The rising price of cotton on world markets has made wool relatively more affordable. Stephen Read, general manager of wool with Elders, reported that the rising price of cotton and ?the fact that wool has come back quite significantly in the last six months, makes wool, as a comparative fibre, far more competitive than we were this time last year" (Australia Broadcasting Corp. 12/22/03).
In the United States, wool imports as a share of total textile imports (including cotton and man-made fibers), fell from 1.2 percent in 2000 and 2001 to 0.9 percent in 2002 and to 0.8 percent in the first 10 months of 2003 (computed from American Textile Manufacturers Institute 2003). This share is likely to increase in 2004 as the price of wool becomes more competitive with that of cotton.
However, wool demand may be rebounding. In the first 10 months of 2003, U.S. year-to-year wool apparel imports increased 2 percent by volume and 2.5 percent by value (Woolmark12/19/03). In October alone, wool apparel imports to the United States increased 14 percent year-to-year. Increased imports were attributed to improved consumer confidence and the strengthening U.S. economy (Woolmark 12/19/03).
In 2003, wool prices continued their climb from lows in 2000, but still did not reach levels seen in the late 1980s. In 2003, average wool prices, clean, delivered, were: Grade 64s (20.60-22.04 micron), $2.41/lbs., Grade 62s (22.05-23.49 micron) $2.27/lbs., and Grade 60s (23.50-24.94 micron), $2.07/lbs. These prices are about 50 cents higher than averages for 2002 and $1.20/lbs. higher than 2001 averages.
U.S. wool prices remained steady through the end of 2003. Most lamb wools were exported in December. At the end of December, wool prices, clean, delivered, were Grade 70s (19.15-20.59 micron) $2.40/lbs.-$2.50/lbs., Grade 64s (20.60-22.04 micron), $2.25/lbs.-$2.40/lbs., Grade 62s (22.05-23.49 micron) $2.00/lbs.-$2.25/lb., and Grade 60s (23.50-24.94 micron), $1.80/lbs.-$2.10/lbs.
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