July 15, 2003
Market Report: Feeder-Slaughter Lamb Price Spread Narrows
By Dr. Julie Stephanek Shiflett, Juniper Economic Consulting
For most of 2000 and 2001, feeder-lamb prices were 6.61 $/cwt. to 11.87 $/cwt. higher than slaughter-lamb prices. In 2002, that spread fell by roughly half, to 3.30 $/cwt., and then to 3.06 $/cwt. in the first five months of 2003. What was happening?
In dry years lambs may not graze as long and are put in feedlots early. The combination of increased feed costs and the additional weight a slaughter lamb must gain can narrow the price spread between feeder and slaughter lambs. This was the case in 2002. In fact, average slaughter weights were getting a little lighter through 2002 and into 2003 -- from more than 140 pounds to around 135 pounds. Corn futures were 60 percent higher in the fall of 2002 than 2001, which set the tone for feeder prices.
Another possible reason for the reduced price spread is that in some areas of the country the distinction between feeder and slaughter lambs may be blurred. In the Midwest, lambs may be sold at a lighter weight to meet the demands of ethnic communities. Such lambs are usually slaughtered at about 85 pounds or lighter and are not fed grain for as long as are typical slaughter lambs in the West.
Overall, slaughter- and feeder-lamb prices remain higher than those of the last several years. Slaughter-lamb prices increased steadily over the past 17 months. Prices averaged about $1/pound in May 2003 compared to 62 cents in May 2002. Feeder lambs also gained strength, from about 68 cents/pound in May 2002 to $1/pound in May 2003. In San Angelo, Texas, slaughter lambs were $1.02/pound during the week ending May 30 and feeder lambs were $1.11/pound.
Higher slaughter-lamb prices continue to be passed onto breakers and wholesalers. The average loin price was $4.08/pound in May compared to $2.73/pound the previous May, while leg prices averaged $2.40/pound in May compared to $1.56/pound the previous May. Loin prices increased steadily throughout the year as the outdoor grilling season approached. In May, leg prices began to weaken seasonally after reaching high prices during the religious holidays. The 8-rib rack price in May 2003 was $6.12/pound compared to $4/pound in May 2002. Rack prices began to weaken after reaching a historic high of $7/pound in late March. The carcass value was an average $2.35/pound in May compared to $1.57/pound the previous May ? nearly a 50-percent increase.
As supply is kept current, slaughter weights are kept relatively low. Live weights in May were 136 pounds compared to 139.5 pounds the previous May. Dressed weights also fell, from 69.5 pound to 68.75 pounds over the same time period. Live slaughter weights in the first five months of 2003 averaged 135.8 pounds compared to 139.8 pounds in January-May 2002.
Short supplies were reflected in slaughter numbers as well as in prices and slaughter weights. Average weekly slaughter was 48,453 head in May 2003 compared to 61,000 head the previous May. In the first five months of 2003, weekly slaughter averaged 54,932 head, compared to 61,298 head in the same period in 2002. From January through May 2003, production was 3.7 million pounds, compared to 4.3 million pounds during the same period in 2002.
Enrollment numbers in the ewe-lamb retention program indicate that the program may fulfill its objective of encouraging producers to restock their flocks. From its inception until March 2003, 221,992 ewes were enrolled in the program in Texas, 127,760 in Wyoming, 112,175 in Utah, 102,864 in Montana and 99,779 in California. Roughly 31 percent of the ewes were enrolled in Texas, 39 percent in Wyoming and 44 percent in Montana. At these levels, the United States may see its sheep and lamb inventory stabilize and even increase.
Import levels in the first quarter of 2003 were not as low as expected. Total lamb imports in the first quarter of 2003 were 31.1 million pounds compared to 32 million pounds in the first quarter of 2002 -- a 2.7-percent drop in volume. Imports in March alone exceeded projections. Total March imports were 14 million pounds -- only 668,000 pounds less from the 14.6 million pounds imported in March 2002. In March, New Zealand imported 6.7 million pounds ? a record high, and 76 percent more than was imported in February. Australia also increased its imports for the religious holidays -- 7.2 million pounds compared to 3.9 million pounds in February.
It was anticipated that Australian imports would slow considerably in 2003 and New Zealand imports would increase. New Zealand imports increased, but Australian imports did not slow as much as anticipated. In the first quarter of 2003, Australia imported 16.8 million pounds, down from 20 million pounds in the first quarter of 2002 -- 17.6 percent less.
Surprisingly, Australian national lamb slaughter for the first quarter of 2003 was 4.3 million head, up 1 percent from the same quarter last year (Meat & Livestock Australia 5/20/03). The impact of the drought was less severe than anticipated. ?March year on year lamb slaughter increased by 4 percent to 1.3 million head in response to strong Easter export demand and near record price peaks in the middle of March? (Meat & Livestock Australia 5/16/03). It is expected that supplies of quality lambs in Australia will remain sufficient through June, but may run short during July and August.
The weakening U.S. Dollar means the U.S./Australian exchange rate continued to increase in May, making U.S. imports relatively more expensive. In May, the average exchange rate was 65 cents USD/AUD, up 19 percent from 2002?s average of 0.54 USD/AUD. The average exchange rate was 0.61 USD/AUD in April and 0.60 USD/AUD in March.
Pelt prices fell marginally due to reduced world demand -- particularly from Turkey. Pulled pelt prices also weakened because wool prices weakened. Fall clips remained steady at $13.50, No. 1 clips fell from $11.50 to $11.25 in mid-March, No. 2 pelts remained steady at $10 and No. 3 and No. 4 pelts lost some strength, falling between 25-50 cents, to $3.50 and $3.25, respectively.