Markets -- Retail Lamb Cut Prices Released

Dr. Julie Stepanek Shiflett, Juniper Economic Consulting

Mar/Apr 2004 -- In January, the U.S. Department of Agriculture's Economic Research Service (ERS) released monthly domestic retail lamb cut prices for the first time. Prices are reported for lamb chops, lamb loins, leg of lamb, lamb shoulder and lamb roast. The release of cut prices is highly beneficial to the lamb industry because the industry now has the opportunity to monitor the relative demand of each cut, and develop value-added marketing strategies for all cuts, including those of relatively lower value.

Unfortunately, the categories of cut prices as currently reported are not yet well defined. Fortunately, the cut categories are mutually exclusive. The cut prices do not overlap in their components because there is one scanner code for each product and that code is entered only into one cut category.

The "roast" category may be comprised of sirloin and boneless leg roasts. Top rounds may also be in the "roast" category. There is a possibility that "roasts" are imported racks without a country-of-origin label. There are significant amounts of imported racks in the retail market. Chops are assumed to be primarily from the loin, but can also be from the shoulder.

Due to the aggregation of cut categories, it will be difficult to calculate boxed lamb retail price spreads. However, this spread is less important as boxed lamb becomes an increasingly small portion of the industry. In this case, retail prices of cuts will become increasingly important in analyzing price spreads, market competition and efficiency and value-added in the industry.

Some descriptions of cut prices are known. "Lamb leg" includes leg of lamb, chops and roasts (sirloin, top, bottom, center and tip), leg cutlets, leg center slice, leg strips for stir-fry and any miscellaneous cuts defined as being from the leg. Another category, "leg of lamb," is a subset of the "lamb leg" category and includes cuts classified as being a "whole" sub primal or retail ready leg of lamb. (According to ERS, the majority of the volume in this cut group is classified as whole leg of lamb, leg of lamb semi boneless and boneless leg of lamb.)

More desegregation of lamb cut categories and quantitative analysis may also help refute some of the misperceptions regarding the sheep and lamb industry. An ERS publication released in January made some statements that may underestimate the progressiveness of the lamb industry. It stated that the U.S. sheep industry focuses on high-value cuts for the domestic market, and has not capitalized on market segmentation. (That is, it focuses on one consumer group.)

The sheep industry has made progress in introducing value-added new products. For example, the leg is diversified into boneless leg, top round, ? leg and leg steaks. The industry has catered to the time-constrained household: A leg steak is quicker and easier to prepare because one doesn't have to cook a whole leg. Lamb is also being prepared for shish kebabs, fajitas, and stir-fry.

The report also stated "most low-valued meat is rendered or made into pet food" (Amber Waves 2/04). Although a larger proportion of lamb is rendered than other livestock, progress has been made to market the whole lamb. Promotion of ground lamb is one product that demonstrates the industry achievement of adding value to lower-value cuts and developing market segmentation -- producing a range of products for a diverse population. While higher-value cuts target relatively affluent, older Caucasian households who traditionally consume lamb, lower-income groups will consume ground lamb.

The shoulder is agreeably a difficult cut in which to add value. There is a significant cutting loss when it is boned out and trimmed. The USDA recently ended a six-year purchase program in which it bought leg and shoulder roasts. These two lower-valued cuts were purchased to provide a protein source to the needy, but also to help support and stabilize lamb prices. The program most likely increased competition in these markets, raised prices and led retailers to reconsider their promotional activities for legs and shoulders. If the price of a cut rises, a retailer may advertise it more often in order to recoup the investment.

The ranking of value among the cut prices published is as follows: roasts and loins, followed by chops, then legs and shoulders. Roasts and loins averaged about $8/lbs. in 2003. Chops averaged $5.68/lbs., legs averaged $3.88/lbs. and shoulders averaged $3.52/lbs.

Average Price and Standard Deviation of Lamb Cut Prices

	Roasts		Loins		Shoulder		Leg		Chops
	Ave.	SD*	Ave.	SD	Ave.	SD	Ave.	SD	Ave.	SD
2001	$5.69	$0.80	$6.98	$0.83	$3.16	$0.23	$3.93	$0.31	$5.15	0.59
2002	$7.88	$0.73	$7.46	$0.52	$3.26	$0.10	$3.60	$0.31	$5.41	0.18
2003	$8.48	$0.56	$8.02	$0.49	$3.52	$0.12	$3.88	$0.27	$5.68	0.25
*Standard deviation. Deviation from the annual average. Source: USDA Economic Research Service.

The highest-value cuts are also the ones with most price volatility. The price volatility in high-value cuts may be due to volatility in slaughter-lamb prices, particularly because they comprise the largest share in value of a lamb carcass. Price volatility may also be due to higher incidences of price featuring. The loin is the cut that sold the highest volume under price featuring in the last three years (ranging from 23 percent to 36 percent). By contrast, only 2 to 3 percent of roasts were sold under featuring in 2001 and 2002, respectively, under price specials and up to 11 percent in 2003.

Volume Index and Volume Percentage under Price Featuring

	Roasts		Loins		Shoulder		Leg		Chops
	Volume*	% Feature**	Volume	% Feature	Volume	% Feature	Volume	% Feature	Volume	% Feature
2001	100	2%	100	36%	100	20%	100	15%	100	29%
2002	79	3%	70	28%	72	10%	128	23%	68	19%
2003	81	11%	58	23%	63	7%	119	17%	61	13%
*The average monthly volume sold in 2001 is 100. **The percentage of volume sold under price featuring (price specials). Source: USDA Economic Research Service.

Lamb market activity heightened during the December holidays as sales increased, and prices and featuring strengthened. The price of feature-weighted retail lamb (domestic and imported) fell from $4.68/lbs. to $4.60/lbs. between November and December 2003. During this period domestic retail prices fell from $4.71/lbs. to $4.45/lbs. and imported prices increased from $4.62/lbs. to $4.70/lbs.

In late 2003, lamb sales increased seasonally toward the December holidays. The volume index (the average monthly volume in 2001 being 100) for all lamb increased from 59 to 83 to 86 between October, November and December 2003. Between October and December, the index increased from 83 to 89 for domestic lamb and fell from 85 to 78 for imported lamb.

Featuring activity increased during the December holidays. The share of retail lamb sold under featuring increased from 17 percent to 27 percent between November and December. The share of retail lamb sold through featuring for domestic lamb increased from 15 percent to 22 percent in the same period. The share sold in features for imported lamb increased from 23 percent to 40 percent between November and December.

However, overall the amount of lamb sold under price featuring fell over the past three years. The volume of domestic lamb sold under featuring was 19 percent in 2001, 16 percent in 2002 and 13 percent in 2003. Imported lamb featuring totaled 29 percent, 42 percent and 31 percent over the same period.

Some in the industry report that high lamb prices are due to tight domestic supplies and the inability of imports to meet domestic needs. However, high lamb prices may in fact also be supported by strengthening demand. Retail lamb prices increased 9 percent between 2002 and 2003, from $4.45/lbs. to $4.63/lbs. Slaughter-lamb prices increased by about 30 cents per hundredweight over this period. Pelt prices dropped between 2002 and 2003, which may explain some of the price increase. Fall clips increased an average 10 cents between 2002 and 2003, but No. 1 pelts fell by about a $1 to $11.51.

The average monthly sales of lamb in 2003 were 21 percent less than monthly sales in 2001 and 2002, which dampens the theory that demand is expanding. Total supplies, which amounts to domestic production plus imports plus cold storage less exports, fell between 2002 and 2003, from 383 million pounds to 355 million pounds. Domestic production fell from 207.50 million pounds to 190.20 million pounds between 2002 and 2003. Lamb imports totaled 134.75 million pounds in 20

<< Back