July 15, 2004
July 15, 2004 --
Imports Exceed Domestic Production Levels
by Dr. Julie Stepanek Shiflett
During the first quarter of 2004, lamb and mutton imports exceeded domestic production. During this period, imports were 58 percent, for their highest level ever of total lamb and mutton availability (imports plus domestic production). As domestic supplies remain tight and demand remains strong, the portion of imports in our market is increasing. By comparison, in 2002 the portion of imports in domestic availability was 43 percent -- and rose to 47 percent in 2003. With an increased share of foreign lamb in our meat cases, promotion of American product is crucial in helping consumers make informed choices.
Imports of lamb and mutton are likely to remain strong. Imports were 62 million lbs. during the first quarter of 2004, are likely to fall during the second quarter, but overall are expected to stay strong throughout 2004. USDA's Economic Research Service (ERS) forecasts that imports will be 41 million lbs. in the second quarter, 39 million lbs. in the third and 42 million lbs. in the fourth. Domestic production is likely to remain unchanged. ERS expects that tighter supplies will be compensated by heavier weights.
Year-to-year, first-quarter imports increased 42 percent by volume. Lamb and mutton imports totaled 62.3 million lbs. during the first quarter of 2004, up from 39.7 million lbs. during the first quarter of 2003. Within this total, the greatest percentage increase was for mutton imports, which totaled 8.5 million lbs. in the first quarter of 2003, before jumping to 18.1 million lbs. in 2004.
Lamb and mutton exports also increased year-to-year. During the first quarter of 2003, lamb and mutton exports totaled 2 million lbs, but climbed to 2.9 million lbs. during the first quarter of 2004.
San Angelo live slaughter-lamb prices strengthened between April and May. Tight supplies may be delaying the seasonal price slump often observed during the summer months. Prices averaged $96.25/cwt. in May and $92.90/cwt. in April. Slaughter numbers are low: Weekly slaughter rates averaged about 43,000/week in May, compared to 55,500/week-average in May over the previous five years. To keep supply chains running, packer-owned supply comprised a larger portion of slaughter in May.
In May, the USDA Economic Research Service released price forecasts for San Angelo Choice slaughter-lambs. Prices are expected to remain at current to slightly weaker levels through 2005, boosted by continued tight supplies. In the first quarter of 2004, prices averaged $100.62/cwt. and are expected to be between $95-101/cwt. in the first quarter of 2005. Prices in the third and forth quarters of 2004 are expected to be $93-97/cwt. and $91-99/cwt., respectively.
Retail prices continued to strengthen into May, as supplies remained tight. The feature-weighted price of lamb, domestic and imported, rose from $4.99/lb. in February to $5.04/lb. in March. First-quarter 2004 lamb prices averaged $4.98/lb., up from $4.40/lb. during the same quarter in 2003. The percentage of lamb sold under featuring was 14 percent in the first quarter of 2004, down from 20 percent in first quarter of 2003. The volume sold also fell compared to 2003: 89 in the first quarter of 2003 to 70 in the first quarter of 2004 (index of 100 is average monthly sales in 2001).
Domestic retail lamb prices surpassed $5/lb. in May, averaging $5.12/lb. First-quarter domestic-lamb prices were $4.99/lb., up from $4.40/lb. in January through March 2003. Imported-retail prices softened slightly in March to $4.87/lb. from $5.03/lb. in February. Year-to-year imported prices also increased from $4.38/lb. in the first quarter of 2003 to $4.97/lb. in the first quarter of 2004.
Domestic lamb-cut prices strengthened between February and March. Domestic lamb chops increased from $5.97/lb. to $6.06/lb.; roasts from $9.29/lb. to $9.53/lb.; lamb loins from $7.55/lb. to $8.56/lb.; shoulders from $3.73/lb. to $3.85/lb.; and legs ("whole" sub primal, retail ready) from $3.88/lb. to $4.05/lb.
In a time of record-high feeder- and slaughter-lamb prices, it is easy to forget that a few years ago some producers had difficulty selling lambs, and as a result weights increased. In a recent tele-news conference Secretary of Agriculture Ann M. Veneman reported that the "farm economy is exceptionally strong" and the "safety-net for producers is firmly and fully in place" (5/26/2004). Indeed, the index of prices received by farmers for all farm products reached a record high in March. The value of agricultural exports also recently reached a record high.
Although lamb prices are very strong and the wool market is improving, these markets remain volatile. Producers are encouraged to diversify marketing options and thereby reduce risks. An article was recently published in the Review of Agricultural Economics about how some small-scale pork companies have been able to compete effectively with the national firms (Buhr, Summer 2004). Much research is directed toward the merits of adding value from unique packaging and processing. This research concurs that producers must have a close relationship with their customers to be successful, but additionally as effective in adding value, is the cost savings that can be achieved through creative methods of managing supply chains. One small company has a holding facility akin to a feeding floor -- physically close to the retail outlet allowing for a "real-time production response system." Revenues from fresh sales can be maximized and from frozen inventory minimized.
Imports Exceed Domestic Production Levels
Wool trading in the United States slowed in May as the U.S. dollar gained strength and buyer interest waned. Currency fluctuations means uncertainty, and uncertainty in trading is a risk. However, buyer interest may have declined due to currency fluctuations -- and not necessarily due to the strength of the U.S. dollar.
It is too soon to tell whether the strengthening U.S. dollar will adversely affect the U.S. wool market. The recent and growing development of relationships with foreign buyers can mitigate this effect. U.S. wool exports increased dramatically over the past decade: Since 1998, exports have jumped from 1.2 million lbs. to 4.8 million lbs. in 2003 (Kourlis Samuelson, ASI 5/21/04). Not only have U.S. wool exports increased, the export markets also have diversified, which reduces the risk of sourcing only one buyer. The United States used to export raw wool primarily to Mexico, Canada and Germany, but now China and India, among others, are becoming important buyers.
Dominant Australia also recognizes that diversifying its markets can help reduce risks in a volatile wool market. Australian Wool Producers President Robert Pietsch is concerned that Australia relies too heavily on the Chinese market. "I think the challenge for the industry is to make sure that it continues to open up new markets and build on the strong markets it has in places like India; and also into eastern Europe and also western Europe; and also maintaining the other Asian markets." (Australian Broadcasting Corp., 5/28/04).
Stronger prices reflected increases in demand in both Australia and New Zealand in May, perhaps due to the strengthening U.S. dollar and signs of economic recovery. The United States-Australian exchange rate was 0.77 USD/AUD in January and February, 0.75 USD/AUD in March, 0.74 USD/AUD in April, and fell again to 0.70 USD/AUD in May. A similar downward trend occurred against the New Zealand dollar. Although the supply of wool sent to auctions in Australia in May increased, prices remained strong, indicating strong demand. When observed at an annual scale, wool prices remained relatively soft, however, at the end of May, the Australian Eastern Market Indicator (EMI) was 16 percent lower year-to-year (Woolmark, 5/28/04).
By the end of May, wool prices, clean, delivered, weakened, on average, from April levels. Grade 70s (19.15-20.59 micron) $2.30/lb.-$2.50/lb., Grade 64s (20.60-22.04 micron), $2.20/lb.-$2.40/lb., Grade 62s (22.05-23.49 micron) $2.00/lb.-$2.30/lb. and Grade 60s (23.50-24.94 micron), $1.90/lb.-$2.20/lb.
Editor's Note: Julie is open to comments and questions and can be reached by e-mail at email@example.com or by phone: 303-619-9975.