Market Report

$44.30

JULIE STEPANEK SHIFLETT, PH.D., Juniper Economic Consulting

Julie is open to comments and questions and can be reached by email at julie@juniperconsulting.org or by phone 970-812-6873.

U.S. consumers spent an average $44.30 on beef, pork, chicken and turkey in April in inflationadjusted terms. That figure is $1.08 higher than last year and nearly $3.00 (7 percent) higher than the average of 2007 to 2011 (Meyer/Steiner, 7/3/13). How much did consumers spend on lamb? An estimated 40 cents.

We know people are eating meat and more of it, so how does the lamb industry capture a portion of the $44.30? We know the answers; we need to figure out how to get there. First and foremost, we need consistency of product. Price is less of an issue if the product is consistently good. People want value and they want to know they will get the same eating satisfaction when they come back for more. Perhaps the generic cellophane-covered tray in the fresh meat case isn’t our fort. Maybe we could offer lamb loins or shoulder chops in a uniform, brightly branded box that contains lamb slaughtered under very narrow specifications. Can we do this and still offer fresh product?

Restaurant Sector Looking Better

The holding pattern that is the lamb industry might get a boost from recent good news out of the restaurant sector and from stronger meat demand.

The National Restaurant Association’s Restaurant Performance Index (RPI) saw its largest single-month gain since December 2011 in May with the index promising industry expansion (Meyer/Steiner, 7/3/13).

The gain was primarily driven by increases in samestore sales and an increase in customer traffic. While restaurant operators’ assessment of the current situation is strengthening, expectations for future restaurant performance is also looking up in coming months. Improved expectations for the next six months were the highest recorded thus far in 2013.

Another good sign for the lamb industry is that in the midst of high prices and sluggish economic recovery, beef demand expanded in 2010, 2011, 2012 and again in the first quarter of 2013. It is unknown how lamb demand fared over this time, but many of the same factors affecting beef demand affect lamb demand.

Third-Quarter Game Changer

The third quarter could be a turning point for the lamb industry with tight supplies and lower imports supporting stronger prices.

The Livestock Market Information Center (LMIC) forecasts that third-quarter commercial slaughter numbers could slow 6-percent quarterly and fall 3-percent from a year ago. Estimated commercial lamb supplies on feed in Colorado were the lowest going into the third quarter in five years. This forecasted quarterly slaughter drop is the largest in more than five years. At 66 lbs. dressed weight, lower slaughter weights will translate into much lower production. Production is estimated to fall 10-percent quarterly and 9 percent year-on-year.

In the third quarter lamb and mutton imports are anticipated to fall 11-percent quarterly which would contract total U.S. lamb and mutton availability by 5 percent, down 4-percent quarterly.

Lamb and mutton imports typically slow into the third quarter as the Australian and New Zealand markets are in mid-winter. Drier conditions in the last half of 2012 in Australia prompted a sell off that boosted production and exports, but supplies were slowing by June.

LMIC forecasted in early July that third-quarter national direct slaughter lambs on a carcass weight could range from $235 to $245 per cwt., up from an estimated $225 per cwt. quarterly, but down 5 percent year-on-year.

Sixty- to 90-lb. three-market feeder lamb prices at auction were forecasted to range between $125 and $135 per cwt., up 29 percent from a year ago and up from an estimated $114 per cwt. in the second quarter.

Beef Demand: Back to Basics

The goal of the American Lamb Board and all lovers of lamb – in this author’s opinion – is to encourage people to eat more lamb at current prices. Of course, if we can get people to get more lamb at higher prices, that would be even better. This is the essences of expanded lamb demand.

The million dollar question is how to do this? Insights from a recent beef check-off study can help. Food safety, product quality and price are the key factors affecting beef consumption. Price is difficult for the industry to control, but food safety and product quality are two demand drivers that the industry can influence. This is not to say social aspects and sustainability are not important to beef demand. However, given limited promotional funds, the greatest bang for the buck lies in promoting food safety and quality, not environmental or social concerns.

The lower ranking on social and sustainability aspects was a surprise, given recent media attention. The study authors proposed that factors related to antibiotic use, GMO use and/or growth hormone use and locally produced are actually captured in food-safety concerns which did rank high. Further, the research proposes that “these attributes are likely to evolve into niche market opportunities that will probably see slow aggregate growth in the future,” (2013).

Product quality and form included taste, juiciness, consistency, package/portion size, color/appearance, freshness/ shelf life, convenience/ease of preparation and tenderness. Food safety concerns include E. coli, Salmonella, Listeria, Campylobacter and BSE.

The study’s authors concluded: “The industry needs high-quality products that offer consistently excellent flavor, color, tenderness, juiciness, etc. and that is offered to consumers in product forms they prefer. Development of new products is certainly an important dimension of this opportunity, but consistency and integrity of product labels is another important component,” (Schroeder, T., Tonsor, G., Mintert, J. 4/30/13).

The lamb industry already knows it is challenged to offer a high-quality, consistent product. One bad lambeating experience can turn off a lamb lover.

Experts rank price collectively and unambiguously as the most important attribute affecting how much beef people eat, on average. Keeping costs under control is thus an important factor in maintaining price. “This means continued investment in production, processing and merchandising efficiency,” (Schroeder, T., Tonsor, G., Mintert, J. 4/30/13).

Yet price is not a demand driver. It affects the volume of beef eaten, but not whether people are valuing beef more — which is essential for industry growth. Prices can rise, if the value is there. Think about the lamb industry in 2011 when we had record-high prices. What other factors could have been turning shoppers away from lamb at that time. Inconsistent quality? Lower incomes? Unemployment?

In sum, price is not an attribute that the industry can collectively influence. What the industry can influence is ensuring that consumers are receiving value: getting the best product possible for the price paid.

The beef study made a revelation regarding its consumers that is particularly important in the lamb industry. There is “growing heterogeneity in U.S. consumer beef consumption patterns and desires.” There are also ongoing generational and cultural shifts. While some beef eaters are increasingly upgrading to higher-valued cuts, other beef eaters are opting out of beef, or targeting the lowervalued cuts. How do you shape promotional patterns to get both sets of consumers to eat more beef?

The lamb industry has documented that commercial lamb consumers are typically older, wealthier Americans; however, ethnic communities of all ages are eating lowerweight lamb in California, the Midwest, the Northeast and ethnic pockets all across the United States. Is there a onesize- fits-all promotional campaign?

Feeder Lamb Prices Weakened

Live, auction 60- to 90-lb. lamb feeder prices averaged $105.50 per cwt. in June, down 9-percent monthly and down 29 percent from a year ago. San Angelo feeders averaged $96.50 per cwt., Ft. Collins feeders were $108 per cwt. and Sioux Falls feeders averaged $111.99 per cwt.

Heavier lambs in the direct feeder lamb trade saw lower prices in June, as expected. Feeder lamb prices in direct sales averaged $97.31 per cwt., down 3 percent from May and down 29 percent year-on-year from $137.50 per cwt. Trades from California, Oregon, Nevada and Texas dominated June shipments. The number of trades jumped 59 percent in June to 23,500 head with weights averaging 112.50 lbs.

Feedstuffs Higher

High-priced feed and lower slaughter lamb prices likely are putting pressure on producer margins. Hopefully this fall, tighter lamb supplies, lower-priced corn and ample forage will prompt a rebound in feeder lamb prices into healthier margins at around $120 to $140 per cwt.

Lamb producers are currently challenged to seek out higher-return markets. We need to think outside the box.

Can producers find markets with better returns? Can they sell direct to consumers, can they sell straight off the grass, can they sell ‘natural’ product? How about seeking out neighboring markets? What are transport costs?

The U.S. lamb industry is diverse and with diversity comes pockets of opportunity. Remember that in January 2013, sheep inventory gained in 13 states across the United States from the Northwest to New York. What insights do these producers have?

Undoubtedly if you are a sheep producer you are also in the hay business. Managing forages under drought or extremely wet conditions can be challenging. Hay availability can make or break producers’ returns.

As the new hay season gets underway, prices in many regions are yet defined, but early signs point to prices as high as last year. Some parts of the country are still very dry while other regions are receiving excessive moisture. In early July in west Texas/Trans Pecos, premium/ supreme alfalfa, small squares, new crop were bringing up to $395 per ton. By comparison, the season average through April 2013 was $212.42 per ton across the United States.

To address the current drought in some areas and for general longerterm forage management, some agronomists are encouraging a return to warm-season and native grasses. Joseph Craine, research assistant professor at Kansas State University, found that the warming climate over the next 50 years will reduce the nutritional quality of grasses and thus reduce livestock growth and weights (High Plains Journal, 7/8/13). He found that every one-and-a-half degree Fahrenheit increase could cause roughly $1 billion in lost income for cattle producers.

Many producers are converting at least a portion of their land to native, warm-season grasses. Kyle Brazil, U.S. Department of Agriculture’s (USDA) Farm Service Agency, commented, “They are the ultimate multi-use range and land management tool because of their tremendous capabilities,” (High Plains Journal, 7/1/13). In general, native grasses are more drought-tolerant. A new website from the Rangeland Partnership found at www.globalrangelands.org is a onestop shop for range management. From an interactive map you can click on your state where you’ll find “Tools for Management.”

Corn averaged $7.02 per bu. in June, up 1-percent monthly and up 11 percent from a year ago. The real news is potentially lower feed costs this fall if the estimated higher acreage is realized and we get a bumper crop in spite of late plantings and potentially lower yields.

In June, corn price forecasts were revised upwards marginally as late plantings negatively impacted yield forecasts. Corn emergence was behind normal averages as many key corn states saw cooler and wet weather.

In mid-June, the USDA-projected 2013/2014 season-average farm price for corn was $4.40 to $5.20 per bu. with a resulting midpoint of $4.80 per bu. (USDA, 6/14/13).

Corn futures have also come down from current highs. The September 2013 corn future contract as of July 4 was $5.26 per bu. and $4.91 per bu. for December corn.

Slaughter Lamb Prices Gain

Slaughter lamb prices gained marginally in June, a market signal that lamb supplies are thinning as old-crop lambs are sent to market, fewer new-crop lambs sit in feedlots and imports slow.

Slaughter lamb prices at auction averaged $107.13 per cwt. in June, up 5-percent monthly and down 20 percent year-on-year.

San Angelo averaged $93.88 per cwt., up 4 percent in June, and South Dakota’s average was $116.75 per cwt., up 3-percent monthly. Insufficient trades were reported in Ft. Collins and at the Equity Electronic Auction to report on prices.

Slaughter lamb prices on a formula carcass basis were $224.85 per cwt. in June, up 1-percent monthly and down 23 percent year-onyear. The live equivalent price was $112.43 per cwt.

In June, about one-third of slaughter lamb prices were 85 lbs. dressed and heavier. Discussion of whether lamb weights are too heavy for consumers’ taste must be tempered by a discussion of breed. Some of the larger breeds carry the weight without affecting quality. The discussion more relevant is probably age. Lamb eating satisfaction might be more a factor of age rather than weight.

Dressed weights for slaughter lambs on formula have inched up from 79.55 lbs. in January to nearly 84 lbs. in May, then down to 83.35 lbs. in June.

Slaughter lambs in negotiated trades were $117.88 per cwt. in June, down 1-percent monthly and down 20 percent from a year ago. Weights in negotiated trade averaged 140.88 lbs. in June, down 2 percent from May.

Nontraditional Slaughter Lambs

Most lambs trading out of the nontraditional lamb auction at New Holland, Pa., are sold at weights below those in the commercial market. For example, at the end of June, most lambs sold weighed between 60 and 110 lbs. and received an average $164.50 per cwt.

If we compare the nontraditional and commercial market, 140- lb. lambs – for which there are few in the nontraditional market – brought $158 to $162 per cwt. in the nontraditional market compared to a range of $112 to $118 per cwt. in the commercial market.

Pelt Market Weaker

The USDA Agricultural Marketing Service reported in June that pelt prices weakened as demand waned relative to building supplies in early June. As the month progressed, prices remained steady with supplies becoming more in line with light demand.

In the United States, fall clip pelts averaged $13.19 per piece, down 7-percent monthly and down 11 percent year-on-year. No. 1 pelts were $10.25 per piece, down 8-percent monthly and down 23 percent from a year ago.

The Australian Meat and Livestock Market Information reported, “Good skins were in higher demand and the poorer styles were being discounted. The market remains quiet and demand variable, while the lower A$ helping to keep prices firm,” (June 2013).

Wholesale Market Steady

The gross carcass value — the wholesale average — was $282.76 per cwt. in June, practically steady with May and down 18 percent from a year ago. The rack was the biggest mover, reaching levels not seen since January. At $515.68 per cwt., the eight-rib rack, medium, was up 3-percent monthly, but down 20 percent year-on-year. While the price gain was welcomed, the rack is still far below the $900s seen in 2011.

The loins, trimmed 4×4, were the only other primal to gain in June. At $455.60 per cwt. it was up 1-percent monthly and down 15 percent year-on-year.

The leg, trotter-off, was $309.81 per cwt. in June, down 1-percent monthly and down 23 percent year-on-year. The shoulder, squarecut, was $224.71 per cwt. in June, down 3-percent monthly and down 3 percent yearon- year.

Carcass prices averaged $251.29 per cwt., up 1-percent monthly, down 21 percent yearon- year. Seventy-five to 85-lb. carcasses averaged $241.28 per cwt., up 1-percent monthly. By comparisons, heavier carcasses earned $28 per cwt. less than 75-85 lb. carcasses. Carcasses over 85 lbs. averaged $213.49 per cwt., down 1-percent monthly.

Retail Featuring Mixed

Retail prices held mostly steady in June with some week-to-week sharper movement of select cuts. At the end of the month, ground lamb dropped $3 per lb. in a week to $3.11 per lb. and loins chops moved up $1 per lb. to $9.66 per lb.

The shoulder accounted for a surge in feature activity in the third week of June. In a single week, the number of shoulder blade chops in features jumped from 450 to 2,170 with prices gaining 20 percent to $5.25 per lb.

In recent years the shoulder has edged into the spotlight. The Food Network offers 974 lamb recipes with 12 percent featuring the shoulder and 16 percent of these highlighting lamb shoulder chops. Shoulder chops are a competitive substitute to loin chops during summer grilling.

In the 12 months through June, retail prices offered in features averaged $6.72 per lb., down 3 percent from a year ago. In this period, feature activity was up 17 percent yearon- year. High lamb imports, lamb stocked in freezers and declining packer margins since April might help explain low slaughter and feeder lamb prices.

Total Lamb Availability Up in First Trimester

Total lamb availability through April was an estimated 99.65 million lbs., up 9 percent year-on-year. During this period, domestic production, less exports, was down 3 percent year-on-year to 47.20 million lbs. Lamb imports were up 23 percent through April to 52.45 million lbs.

Holding all other variables constant, increased lamb in the meat case and in restaurants can depress retail lamb prices. Lower feature retail prices – as we’ve seen – can help explain lower slaughter and feeder lamb prices.

Total lamb and mutton imports were up 31 percent through April to 65.6 million lbs. Lamb imports were up 23 percent year-onyear through April to 52.5 million lbs. Lamb imports from Australia were up 25 percent in this period and lamb imports from New Zealand were up 19 percent.

Total mutton imports were up 81 percent to 13 million lbs. in the first trimester yearon- year. Mutton imports from Australia were up 76 percent in this period and New Zealand imports were up 89 percent.

The number of estimated lamb slaughtered in the first-half of the year was up 6 percent year-on-year to 968,902 head. With weights down 6 percent to 142 lbs., estimated lamb production was down 0.4 percent to 69 million lbs. through June year-on-year.

Lamb exports through April were 111,000 lbs., down 7 percent year-on-year. In 2013, U.S. lamb lost market share to imports, accounting for less than half of all lamb sold in the United States. In the first trimester of the year, U.S. lamb supplies accounted for an estimated 47 percent of total lamb availability, down from 54 percent a year ago.

At the beginning of June, 21.1 million lbs. of lamb and mutton were in the freezers. To put the volume in perspective, in April (last available data) total lamb availability was 24.03 million lbs. – only 14-percent more.

Cold storage volume was up 7 percent in June but down 2 percent from a year ago. Unfortunately, we don’t know what portion of the freezer inventory is domestic or imported supply. If we assume half of the stock is domestic, then this is equivalent to about four weeks of slaughter.

International Wool Market Anticipates New Season

Leading economic indicators suggest that the world’s economies will turn up in the next nine months which brings hope for improved wool prices.

The Australian and U.S. wool markets were quiet in June as the Australian season came to a close at the end of July and the Australian dollar continues its depreciation.

Leading economic indicators suggest that the world’s economies will turn up in the next nine months which brings hope for improved wool prices (ASI Wool Journal, 6/2013). Australian wool prices are down sharply from the record highs enjoyed in mid-2011, but not as low at the 2010 market run up. The ASI Wool Journal points to lower U.S. wool clothing imports as negatively affecting wool textile conditions in the major wool-processing countries and dampened raw-wool demand.

At the beginning of July, the Australian wool market continued its downward trend, settling at 1,011 Australian cents per clean kg (418 U.S. cents per lb.). In U.S. dollar terms, the early July Australian Eastern Market Indicator (EMI) was at its lowest point over the past 12-month season.

Reports indicated that heavy price discounting was accompanied by patchy demand. In the weeks before the July 11 Australian wool market recess, it was evident that buyers didn’t need to purchase wool to fulfill any outstanding orders (WTiN Wool Market Report, 7/4/13).

The Australian 2012/2013 season ended in July only 6-percent lower from a year ago, but the last 12 months have been a wild ride with the Australian EMI starting the season at U.S. $5 per lb., falling to $4.25 per lb., climbing to $5.25 before falling again to $4.25 per lb.

The recent depreciation of the Australian dollar makes Australian wool more competitive on international markets. However, it’s steady weakening through May and June hasn’t provided much price support due to weak retail orders and the chance that further depreciation could benefit buyers. Under different circumstances, depreciation could bring more buyers to the market, supporting prices. The U.S.- Australian exchange rate held at 1 US$ to AU$ through early May, but then fell steadily to 90 U.S. cents per AU$ in early July.

There was neither greasy wool nor clean wool U.S. trades reported by the U.S. Department of Agriculture (USDA) in June.

In late May, U.S. Territory wools saw some clean-wool sales. Twenty micron averaged $4.12 per lb., 21 micron was $4.08 per lb., 22 micron was $3.94, 23 micron was $3.48 per lb., 24 micron averaged $3.12 per lb., 25 micron was $2.79 per lb., 26 micron was $2.73 per lb. and 27 micron was $2.20 per lb.

With a lack of established U.S. wool sales, imported Australian wool in early July can be a good reference for valuing growers’ wool. The USDA estimates that U.S. growers receive 75 to 85 percent of Australian imported clean wool. Clean, delivered prices were as follows: 19 micron was $3.57 to $4.05 per lb., 20 micron averaged $3.51 to $3.98 per lb., 21 micron was $3.50 to $3.97 per lb., 22 micron was 3.53 to 4.00 per lb., 23 micron was 3.55 to 4.02 per lb., 24 micron was 3.44 to 3.89 per lb., 26 micron was $2.69 to $3.05 per lb., 28 micron was $2.14 to $2.42 per lb., 30 micron was $1.95 to $2.21 per lb. and 32 micron was $1.66 to $1.88 per lb.

Australian imported wool was valued at 0.3-percent higher monthly in June and 7-percent less than a year ago. The coarsest wools were only 3 to 4-percent lower yearon- year, while the finer wools were up to 13-percent lower in the year.

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