October 2004 -- The U.S. Department of Agriculture recently reported that the value of U.S. agricultural exports is forecast to hit a record high in fiscal year 2004. Strong international demand for raw agricultural commodities is definitely a contributing factor, but rising export levels can also be attributed to the relatively weak U.S. dollar compared to levels seen in the 1990s. Compared to the weak U.S. dollar seen in 2001 and 2002, the U.S. dollar gained some strength in late 2003 and early 2004, but then weakened somewhat in mid-2004.
In fiscal year 2004, Asia is projected to be the United States? largest regional market. Given recent increases in U.S. interest rates, the U.S. dollar may rebound and continue to strengthen as it did in the first half of 2004. However, if the U.S. dollar stays weak, expanded export opportunities may open for particular lamb cuts as well as for mutton and hides. Overall, the domestic lamb market is high value and any export market would have to be of even higher value to attract exports.
Export potential for mutton may be limited because the U.S. mutton market may actually be increasing in value. A stronger mutton market may be due to the increased Hispanic and Moslem populations. Mutton imports increased from 24 million carcass lbs. in the first half of 2004, up from 15.4 million lbs. during the first half of 2003. Mutton imports from New Zealand increased 208 percent over this period while mutton from Australia increased 42 percent. In the United States 71,284 head of mutton were slaughtered in the first half of 2004, up from 66,256 head during the same period in 2003.
Although the domestic mutton market may be increasing, mutton remains a notable export commodity. During the first half of 2004, more mutton was exported to Mexico than was slaughtered domestically. In the early 2000s, meat of sheep exports to Mexico rose sharply from the late-1990s levels.
U.S. Meat of Sheep Exports to Mexico 1,000 Pounds
|
|
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
|
Fresh or Chilled |
289 |
501 |
207 |
545 |
734 |
781 |
833 |
706 |
|
Frozen |
2,796 |
2,884 |
2,926 |
2,622 |
3,296 |
3,799 |
4,317 |
4,216 |
Lamb is also exported to both Mexico and Canada. In general, lamb exports to Mexico appear to be on the rise. Reportedly, U.S. lamb is sold in high-end foodservice establishments in Mexico (ASI). However, in the first half of 2004, lamb variety meat exports to Mexico were 149 metric tons, down from 886 metric tons during the same period in 2003. Perhaps record-high lamb retail prices, in addition to border issues, were deterring exports.
The United States also trades live sheep. However, live sheep exports have fallen in recent years. Only two loads of ewes moved across the border in August. In 2002, 405,578 head of sheep were exported, while in 2003, 172,726 head were exported, and in the first half of 2004, 39,464 head were exported.
Despite low export demand, ewe prices have remained steady to strong. This factor, combined with increased mutton imports, is an indicator that the domestic mutton market is strong (ASI).
Retail prices hit another record high in June: The average domestic price was $5.33/lbs. and $5.45/lbs. for imported product. Over the last couple of years, domestic prices have ranged from $4/lb. to $4.99/lb. and hit the $5.00/lb. mark in March 2004. By comparison, imported prices in 2001 averaged $3.86/lb. and have since been inching upward -- hitting $5/lb. in January 2004.
Imported lamb retail prices have been high, in part, because Australian lamb prices have been high due to tight supplies. However, price increases up to June may be because the USD/AUD exchange rate worked against imports during the first five months of 2004 as the U.S. dollar strengthened. Importers may have felt pressured to pass higher prices onto consumers as their margins were squeezed. It is possible that we are just beginning to see the exchange-rate effect -- but in higher price levels.
USDA recently announced an amended Livestock Mandatory Reporting regulation going into effect in November, which would lower the required volume of imports at which importers must report. The requirement redefines an ?importer? as someone who imports 2,500 metric tons of lamb annually, down from the current threshold of 5,000 metric tons. The new rule will increase the comprehensiveness of data on sales of imported lamb.
Rising lamb prices in Australia are not the reason for higher import prices because prices during mid-2003 were actually slightly higher than prices during this summer. In June 2004, Australian export lambs averaged 418 Acents/kg cwt. By comparison, Australian lamb prices during the summer of 2003 were higher than 2004 levels -- roughly 459 Acents/kg cwt. to 524 Acents/kg cwt., on occasion.
If year-to-year Australian lamb prices remained the same, at August 2004 levels, then the price would be 24 U.S. cents more per pound this summer compared to last summer simply because of fluctuations in the exchange rate.
Despite a relatively strong U.S. dollar in early 2004, lamb imports in January through June totaled 85 million carcass lbs., up from 64.8 million lbs. during the same period in 2003. In the 2003/04 season, Australian export values to the United States reached a record level of A$69 million, a 19-percent annual increase (Meat & Livestock Australia 8/27/04).
Tight supplies may be pushing retail prices higher. However, a lack of adequate information makes it impossible to prove whether prices are being boosted only by short supplies or by an increase in demand as well. It is a question that deserves further research.
Perhaps retail prices began to weaken in August (retail price data was unavailable at the time of this writing), which would explain the observed downward pressure on carcass values. Gross carcass values fell from $235.91/cwt. in June to $229.58/cwt. in July, then to an average $217.71/cwt. in August. Medium, 8-rib rack prices fell from $5.25 in June to $4.36/lbs. in August. Trimmed loins price also fell, from $4.57/lbs. to $3.92/lbs., as did leg prices, from $2.29/lbs. in June to $2.24/lbs. in August.
Carcass weights also fell, from about 66 to 67 lbs., January through June, to an average 62 lbs. in July and August. To better understand the relationship between carcass weights and price, and whether the two series move together, a correlation coefficient was estimated. The correlation coefficient was ?0.11 since August 2001, indicating that there was a small negative relationship. A scatter diagram with a linear trend line imposed also indicated a loose negative relationship. That is, as carcass weights got heavier, prices per hundredweight fell.
In August, feeder-lamb prices remained strong and well above last year?s levels. (Since February, they have edged upward.) In August, the average feeder-lamb price was $111.73/cwt., up from $96.98/cwt. last August. (Feeder-lamb prices averaged $107.65/cwt. in July and $104.52/cwt. in June.) Higher feeder-lamb prices were reportedly occurring at higher volumes of trade, indicating that demand for lamb remained strong. In direct trade, USDA reported the sale of 80,000 more feeder lambs year-to-date than in August of 2003 (ASI). Mid-July through August, Omaha corn was $2.19/bu., still about $1/bu less than the level last August.
While feeder-lamb prices strengthened, slaughter-lamb prices lost some seasonal value, from about $102/cwt. in May and June, to $96.70/cwt. in July, to $90.48/cwt. in August.
Tight sheep supplies worldwide will help support prices in coming months. The rise in U.S. imported lamb prices corroborates that Australian supplies, in particular, have been tight. "The Australian Bureau of Statistics revealed that Australian sheep slaughter in the 2003/04 fiscal year fell 24 percent on the previous year to 10.4 million head -- the lowest fiscal year level in 20 years and the second lowest level since 1951/52," (Meat & Livestock Australia 8/27/04). The persistent drought coupled with producers? desires to withhold breeding stock to rebuild inventories meant reduced slaughter numbers.
Tight supplies are evident in the volume of retail lamb sold in the United States. In June, the volume of domestic and imported lamb sold was half of its average monthly sales volume in 2001. Agreeably, June is seasonally slow for the lamb market, but volumes had not fallen this low for both domestic and imported lamb.
As an indication that supplies and margins were tight, the percent of lamb sold through featuring declined in August. Typically, about 16 percent more imported than domestic lamb is sold through featuring. However, in June the volume of imported lamb sold through featuring hit a record low ? 10 percent -- for imported product. This level was very close to the 8 percent of domestic lamb sold under featuring.
Prospects Mixed for Wool Market
In August there were several mixed signs regarding the level of wool prices in coming months. The first sign that prices may weaken is that supplies in Australia at the opening of its 2004/05 season were higher than expected. The second indicator was reports of lower-than-forecasted growth in late 2004 and early 2005 in the key importing countries of the United States, United Kingdom and China due in part to uncertain oil supplies and gains in U.S. interest rates.
However, demand has remained solid. U.S. imports in June began to rise seasonally in anticipation of solid fall and winter retail sales -- particularly of women?s wool apparel. Chinese imports of raw and semi-processed wool continued to rise in June as it fulfilled orders for depleted stocks. Exchange-rate movements also influence wool prices. In general, as the U.S. dollar has weakened since January and February levels, wool prices in Australia and New Zealand strengthened.
The U.S. wool market in August was seasonally slow with the remaining supplies in firm hands (AMS 8/27/04). At the end of August, Grade 70s (19.15-20.59 micron) wool ranged between $2.40/lb.-$2.75/lb., Grade 64s (20.60-22.04 micron) was $2.30/lb.-$2.50/lb., Grade 62s (22.05-23.49 micron) was $2.00/lb.-$2.30/lb., Grade 60s (23.50-24.94 micron) was $1.70/lb.-$2.00/lb., and Grade 58s (24.95-26.39 micron) was $1.60/lb.-$1.90/lb.
Editor?s Note: Julie is open to comments and questions and can be reached by e-mail at juniper_economists@tds.net or by phone: 303-619-9975.