By Julie Stepanek Shiflett, Ph.D.
In March feeder and slaughter lamb prices weekend, indicating ample supplies in feedlots and perhaps sluggish trade in the wholesale and retail markets. The slump was surprising for typically both feeder and slaughter lamb prices strengthen through the first quarter in anticipation of high-demand Easter sales. Weaker prices suggested that retailers already had Easter supplies ready to go. In the first quarter, federally-inspected harvest was down 2.3 percent year-to-year and market-ready lambs continued to feed in feedlots.
There has been a recent surge in reported lamb and mutton import supplies. One problem with looking at import volume and its effect on price is we don’t know how much clears the market when it comes in and how much is stored. Some of the imported product that is bought at good discounts will be in cold storage for months. At 36.8 million lbs., the amount of lamb and mutton in cold storage in March was 5-percent higher monthly, 40-percent higher year-on-year and nearly double the volume in 2008. Regardless, import’s generally lower prices and increased supplies could have a price-depressing effect on domestic markets.
In the fourth quarter of last year, total imports were 55.3 million lbs., up 27 percent year-on-year and the highest fourth quarter total since 2007.
Higher imports are squeezing the domestic market share. U.S. lamb supplies comprised an estimated 44 percent of total supplies in the three months November through January. Not only has the American lamb share fallen, but the pie has grown: total lamb supplies in November through January (last figures available) were 2-percent larger than a year ago (not accounting for freezer inventories). More recent data showed that lamb imports from Australia alone were 4-percent higher in the first quarter 2015 year-on-year to 12.3 million tons (27.1 million lbs.). With higher imports and large freezer inventories, many retailers might have secured Easter supplies earlier this year, thereby deflating the March live lamb market.
One reason imports have grown is because the U.S. dollar is strong. The U.S. dollar in the past six months rose 14 percent versus the Australian dollar, and is up 6 percent against the New Zealand dollar. Federal Reserve Chairwoman Janet Yellen commented recently that a strong dollar “is holding down import prices,” (Wall Street Journal, 3/18/15). In a rough calculation, the U.S. wholesale shoulder, leg and loin averaged 45 cents per lb. higher than comparable Australian imports in January, compared to 26 cents per lb. a year ago. What happened? Imported prices dropped, domestic prices rose.
Not all news is bad: Harvest weights stabilized in March after getting heavier through the first couple months of the year. Overall, weights stabilized, but at a heavier weight than a year ago. Packerowned and formula-traded slaughter lambs – consisting over half of the commercial market — weighed over 160 lbs. at harvest, up about 5 lbs. from a year ago. Harvest weights have been inching up since last September. In January and February the portion of commercial lambs receiving yield grade 4s and 5s (often synonymous with increased back fat) grew to 23 percent — up from 19 percent a year ago.
There is more good news: lamb demand is strong. It is estimated that the lamb industry saw marginally increasing supplies over the past couple years coupled with higher prices at retail. Across all lamb cuts and across the U.S., the average retail price of lamb rose 3 percent in 2014 from $6.80 to $7.00 per lb. (FreshLook Marketing, 4/2015). Strong lamb demand will likely continue, for beef prices are still high and incomes are growing. Additionally, habits die hard: lamb has a strong cultural following that continues to expand demand.
Forecasts
There are likely sufficient numbers of old crop lambs in Colorado feedlots to carry the industry well into June and therefore, price offers for the remaining few old crop and new crop (California springers) supplies might weaken. However, feeding conditions in southern California are tenuous. While the Central Valley of California has been extremely dry, the Imperial Valley and Mojave Desert in southern and southeastern California have been sufficiently wet to provide adequate feeding conditions for old and new crop (spring) lambs through March. As summer fast approaches, however, it is unknown how much longer lambs can be fed without finding greener pastures or feedlot space.
The Livestock Market Information Center (LMIC) is more optimistic. The second quarter could see higher feeder and slaughter lamb prices. This is possible given that imports historically trend down sharply from Easter through September, possibly shifting the demand to U.S. product. In early April, LMIC forecasted that national direct slaughter lambs on a carcass basis could range from $314-320 per cwt. in the second quarter, up about 1 percent quarterly and 12-percent higher year-on-year. Feeder lambs are forecasted to range from $209-$218 per cwt., up also 1 percent quarterly and 10-percent higher year-on-year.
Feeder Market Slowed
Sixty- to 90-lb. feeder lambs at the San Angelo auction saw an 11-percent slide in March to $193 per cwt. and were 10-percent lower than a year ago. In Sioux Falls, 60-90 lbs. feeders averaged $216.26 per cwt., down 6 percent in March and 5-percent lower yearon- year.
No lambs were reported in the feeder lamb direct trade in March.
In early April, the U.S. Department of Agriculture Agricultural Marketing Service (AMS) reported that most old crop Californian lambs have been shipped to Colorado feedlots and that California springers could start moving in April or later. New crop spring lambs will be held in southern California for as long as there is sufficient feed. AMS reported: “Most believe that if they are able to hold them back longer it would be very beneficial as feedlot numbers have risen this past month and pen space is limited,” (4/3/15).
Slaughter Lamb Prices Lower
Live, slaughter lamb prices at auctions were about $20 per cwt. lower during the first quarter of 2015 compared to a year ago. Auction lamb prices dropped 4 percent in March to $137.33 per cwt. – 13-percent lower than a year ago.
The San Angelo slaughter lamb average was $135.42 per cwt. in March, the South Dakota average was $134.88 per cwt. Equity Electronic Auction held one sale averaging $135 per cwt.
Slaughter lamb prices on a carcass basis in March averaged $297.77 per cwt., 4-percent lower monthly and 2-percent lower yearon- year. Weights for formula carcass trades were nearly 2-percent higher year-on-year to 162.15 lbs.
Live, negotiated slaughter lamb prices averaged $135.55 per cwt., down 4 percent for the month and 16-percent lower yearon- year. At 157 lbs., weights averaged about 2-percent higher year-on-year.
Auction Trades Lower
In March, the estimated number of head channeled through auctions on a live basis fell to a low not seen since the inception of mandatory price reporting (MPR) in 2001. At 36 percent, the portion channeled through auctions was sharply lower than the 2014 average of 44 percent and 2013 average of 47 percent. By comparison, packer-owned lambs comprised 25 percent of total harvest, 29 percent were formula-based trades and the remaining 10 percent was live, negotiated slaughter lambs. Thus, 64 percent of total harvest in March was “captive” meaning lambs were booked in advance.
Meat Market Mixed
The March carcass averaged $323.15 per cwt., down 2 percent monthly and 2-percent lower year-on-year.
The net carcass value averaged $335.61 per cwt., up 1 percent monthly and down 1 percent from a year ago. The net carcass value deducts a $33.75 per cwt. processing and packaging charge from the gross carcass value.
The leg trotter-off averaged $315.77 per cwt., 4-percent higher monthly and down 9 percent from a year ago. The leg, trotter-off, partial boneless averaged $502.03 per cwt.
While many primals were steady to lower than a year ago, the loin was sharply higher. The loin has struggled over the past two years to regain value attained in 2012. The loin, trimmed 4×4, saw a 1-percent weakening to $518.23 per cwt. in March, but was 9-percent higher than a year ago.
The shoulder lost steam in March at $295.65 per cwt., 2-percent lower monthly and 2-percent lower year-on-year.
The 8-rib rack, medium, averaged $802.39 per cwt., 0.22-percent higher monthly and down 2 percent from a year ago. The rack, roast-ready, frenched was $1,484.43 per cwt. in March, down 2 percent monthly. The rack, roast-ready, frenched special (cap-off) was $1,887.29 per cwt., down 3 percent monthly.
Ground lamb slipped 0.30 percent in March to $569.42 per cwt., but, like the loin, saw a 7-percent gain in value year-on-year.
Easter Leg Featured in Specials
Easter is the most important demand event of the year for the lamb industry. Among all cuts, the leg is the most important lamb primal to the industry in terms of both volume and value.
In 2014, the leg accounted for 27 percent of all lbs. of lamb sold, followed by the shoulder (23%), the loin (17%), misc. lamb (including stew meat) (16%), the rib (10%), ground lamb (7%) and 0.1 percent to variety meats.
In terms of total expenditures, consumers spent 23 of their annual lamb budget in 2014 on the leg and on the loin each. Consumers spent 20 percent on the shoulder, 19 percent on the rib, 9 percent on misc. lamb (including stew meat), 6 percent on ground lamb and 0.03 percent on variety meats.
Total lamb expenditures jumped 87 percent during Easter last year to $48 million according to FreshLook Marketing sampling. During Easter week, the USDA Agricultural Marketing Service (AMS) reported that leg ads across U.S. grocery stores jumped by 78 percent with the leg being the most popular feature item (4/3/15). AMS noted that lamb racks and loin roast were also very popular items features for the Easter Holiday weekend.
Typically, the leg is featured in price specials at Easter to promote sales. During the 2010-2014 5-year period, retailers offered an average 14-percent price discount on the leg during Easter (compared to the annual average).
While some leg products were offered in price features, some cuts actually saw price increases in Easter specials. This year, the bone-in leg averaged $5.31 per lb. in grocery features, 8-percent lower weekly and 11-percent lower year-on-year (USDA/ AMS, 4/3/15). The boneless leg averaged $6.74 per lb. in features, up 4 percent weekly and down 23 percent year-on-year. The semi-boneless leg averaged $5.65 per lb., up 7 percent weekly and the leg shank averaged $6.62 per lb., 7-percent higher weekly.
The semi-boneless leg received the most features – at 5,870 –, followed by the bone-in leg (3,300), the shank (2,790) and the boneless leg (1,190). At Easter lamb consumers are likely a very mixed bunch. Some remain very traditional and won’t have anything but a bone-in leg while others want a cut that is more manageable, more convenient.
Slaughter Ewe Prices Higher
In the first quarter of 2015, slaughter ewe prices in San Angelo averaged $90.63 per cwt., 46-percent higher than a year ago and 40-pecent higher than its first-quarter 5-year average. Higher prices could be the result of tighter supplies and/or heighted demand for mutton or live sheep exports.
Ewe supplies at auction were down in the first quarter due to inclement weather which helped boost prices and reduce both live exports and federally-inspected mutton slaughter. Live sheep exports to Mexico were down 71 percent in the first quarter at 1,854 head year-on-year. In the first quarter, estimated sheep slaughter was down 5 percent year-onyear to 27,109 head. Estimated mutton production was down 3 percent to 1.8 million lbs.
According to AMS-San Angelo, rain and icy conditions limited deliveries of many ewes to Producers Livestock Auction Co. in San Angelo, Texas, to about half of expected numbers in some weeks. With about 250 head of ewes in a sale– slaughter and replacements – there was sufficient interest in the ring to bid prices up.
Pelt Market Saw Strengthening
Previously shorn springers saw a 17-percent gain in March to $6.88 per piece, but still 40-percnet lower than a year ago. These mostly California fall-born new crop lambs are relatively youthful, clean and had pelts that were not as tough as older lambs and had wool that was mostly longer than 1 inch. The never shorn springer pelts have been the highest valued pelt reported for over a year.
Over 60 percent of pelts reported by AMS are wooled – never shorn –, but that doesn’t mean that they necessarily have longer wool than previously shorn pelts. The never shorn pelts do typically command a premium, however. Over the past 12 months, the unshorn pelts received an average $1.15 per piece more than comparable previously shorn Fall Clips.
Other pelt categories saw little interest in March with Fall Clips maintaining at $5.75 per pelt and No. 1 pelts stagnant at $3.50 per piece and No. 2s steady at 25 cents per pelt.