“U.S. Takes $80 Million Wroth of AU Lamb”

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.

Australia’s The Land chronicled Australia’s record breaking first quarter: Australian lamb exports at record high of $271 million, 80-precent rise in mutton export volumes and 2.5 million sheep slaughtered, up 98 percent on same time last year (5/22/13).

“Deteriorating seasonal conditions” was cited as the reason for the record number of sheep slaughtered which meant there was a lot more lamb and sheep available at lower rates. In turn, increased production and the devalued Australian dollar bolstered Australian exports. Since January, the U.S./Australian exchange rate fell 6 percent from U.S. $1.05 per Australian dollar to $0.97 per Australian dollar.

The weaker Australian dollar makes its exports more competitive on world markets. In turn, it makes our lamb exports less competitive when selling to the same Australian export markets. At 44,000 lbs., U.S. lamb exports in the first quarter were down by half quarterly and down 60 percent from a year ago.

The devalued Australian dollar also means U.S. lamb importers have to give up fewer U.S. dollars to buy one Australian dollar worth of lamb. This makes lamb imports relatively more competitive.

Sheepmeat Council of Australia (SCA) chief executive officer, Ron Cullen, reported, “Fundamentally export demand should remain firm for the next quarter given there had been a reasonable drop in the Australian dollar. The thing that has been hurting our industry is the high Australian dollar and with that coming down we will be able to capitalize on more export opportunities,” (The Land, 5/22/13).

Australia’s currency could devalue further making U.S. lamb imports even more attractive to U.S. importers. However, much of the Australian sell-off has passed and prices could strengthen — due to improved weather and fewer lambs and sheep available for slaughter — taking the edge of its competitive advantage.

In the first quarter, the United States retained its position as the largest export market for Australian lamb, having taken 21 percent of the total volume. Volumes to this market were 20-percent higher on the year. The Middle East and China were also important lamb markets.

A testament to the severity of the drought, Australian mutton exports were also up. According to Department of Agriculture Fisheries and Forestry (DAFF) data, mutton exports had an 80-percent lift from the same period last year and up 29 precent from the five-year average (The Land, 5/22/13).

If significant restocking occurs next season we might see a slow-down in Australian lamb imports, but remember Australia’s devalued dollar, strong export demand and improved weather might induce restocking next season which could raise farm prices and thus slow lamb import prices.

Feeder Market Mixed

Feeder lamb prices at auction averaged $31 per cwt. higher than feeders in direct trade through May. However, the difference declined from $49 per cwt. in January to $18 per cwt. by May. Weight difference in markets accounted for some of this price discrepancy with directly traded feeders averaging 104 lbs. this year and auction feeders defined here as 60 lbs. to 90 lbs.

Feeder lamb prices in direct trade for May were 19-percent lower than its May average over the past five years, but did see a monthly gain. Feeder lamb prices in direct trade averaged $100.71 per cwt. in May, up 3 percent monthly, but down 29 percent year-on-year.

We haven’t seen a monthly direct trade volume over 20,000 head in more than a year. We will have to see close to 22,000 head traded each of the remaining 2013 months to match last year’s volume. Are more feeders traded from auctions? Maybe. What are lower feeder lamb numbers doing to feeders’ unit costs?

Feeder lambs in direct trade for May totaled 14,800 head, 13-percent lower monthly and 18-percent lower year-on-year. The largest monthly trade was from California in early May at 11,500 head, 105 lbs. and for $97.50 per cwt.

The three-market 60-lb. to 90-lb. auction feeder lamb average was $118.83 per cwt. in May, down 1 percent monthly and down 34 percent year-on-year. The San Angelo market fell 10 percent in May to $111 per cwt.; the Sioux Falls market was at $121 per cwt., up 3 percent monthly; and the Ft. Collins market averaged $124 per cwt. with no prices reported in April.

Corn Planting Slow

Corn and hay prices are important determinants of feeder and slaughter lamb prices and the probability of both. This summer, many might sit tight until late summer to see what pastures, feeder supplies and the corn harvest look like before making significant marketing decisions.

In mid-May, the U.S. Department of Agriculture (USDA) reported, “The 2013/2014 corn crop is projected at a record 14.1 billion bu., 3.4 billion above last season’s drought-reduced crop. Yields are forecast to average 158 bu. per acre, down 5.6 bu. from earlier expectations as mid-May plantings are likely to fall well short of the pace seen in recent years.”

According to Iowa State research, while there is a negative impact on yields for a late-planted crop, the impact may not be as severe as some expect (Meyers/Steiner, 6/4/13). Darrel Good, University of Illinois-Urbana agricultural economist, commented that even though more corn is currently being planted at a less-than-optimum time, there is optimism that the 2013 corn crop will be large enough to meet market needs at lower prices, (High Plains Journal, 5/27/13). The CME group priced corn into the high $5 per bu. range come fall (Meyers/ Steiner, 6/4/13).

USDA reported that the 2013/2014 season-average farm price is forecasted at $4.30 to $5.10 per bu., compared with $6.70 to $7.10 for 2012/2013. In May, corn averaged $6.88 per bu., down 1 percent monthly yet up 9 percent from a year ago. Lower prices are forecast on the basis of higher production, moderately higher use and record global supplies (5/14/13). USDA added: Increasing poultry and hog inventories and lower feed prices are expected to boost demand for feed in the livestock industry, but increased demand will not significantly raise corn prices. On May 7, the July corn future settled at $6.63 per bu., September corn was $5.73 per bu. and the December contract was $5.48 per bu.

Slaughter Lamb Market Mixed

Slaughter lambs at auction on a live, negotiated basis saw monthly gains in May, yet the carcasses-based formula trade weakened. This suggests that the lambs bought on formula out of Colorado feedlots might be particularly heavy.

In May, the carcass-based formula price was $222.76 per cwt., down 2 percent monthly and down 25 percent yearon- year. The live-equivalent price was $111.38 per cwt. In May, USDA started to separate out the 95-lb. lambs on its formula purchases price report. Twenty-three percent of lambs slaughtered on a formula basis were 95-lbs. and heavier.

The average dressed weight of slaughter lambs on formula was 83.88 lbs. in May, up 1 percent monthly, but down 10 percent from a year ago. There continued to be a spread between the heaviest lambs and lighter lambs on a carcass basis in May. There was an average $21 per cwt. discount for lambs over 85 lbs. dressed compared to 75-lb. to 85-lb. lambs.

Live, negotiated slaughter lamb prices were $119.29 per cwt. in May, up 2 percent monthly but down 21 percent from a year ago. Live, slaughter lambs at auction averaged $101.88 per cwt., up 3 percent monthly but down 27 percent from a year ago. The San Angelo auction average was $90.70 per cwt. and the South Dakota average was $113.50 per cwt. Neither Ft. Collins; Kalona, Iowa; nor Equity Livestock saw May trades.

A steady stream of lamb bought on formula is sent to market which is good because it means the heaviest lambs are moving and not getting heavier. Slaughter lamb trades on formula totaled 264,300 head through May, up 13 percent year-on-year. By comparison, live, negotiated trades were up 10 percent for the year through May at 97,300 head. It was estimated that formula trades comprise of an estimated one-third of all commercial slaughter lamb trades with another 11 percent live, negotiated trades and 10 percent being packer-owned slaughter. The remaining 48 percent of trades is estimated to be sourced from auctions.

Pelt Market Lower

The U.S. pelt market might be one sector of the industry that benefitted from the Australian devaluation as U.S. pelts can follow Australian pelt price trends. U.S. prices were lower in May, but could have fallen further given the lower-quality Australian offerings combined with increased supplies. The weaker Australian dollar helped support its pelt prices.

Meat and Livestock Australia reported, “Quality is poor for both lamb and sheep skins, while supply still remains at higher levels. The lower A$ has helped to keep the market stable,” (5/2013).

May’s U.S. pelt averages were lower monthly yet still higher than 6 months ago in December. Fall clip pelts averaged $14.25 per piece, down 2 percent monthly and up 7 percent year-on-year. No. 1 pelts received $11.10 per piece, down 2 percent monthly and down 17 percent from a year ago. No. 3s and No. 4s averaged $7.23 per piece and $4.63 per piece, respectively. Both pelt types were down over 30 percent from a year ago.

Feeder and Slaughter Lamb Forecasts

The Livestock Market Information Center (LMIC) forecasted that third-quarter national direct slaughter lambs on a carcass basis could range from $235 to $245 per cwt., 5-percent less than a year ago. Sixty- to 90-lb. feeders could range between $135 to $145 per cwt., up nearly 40 percent from a year ago.

LMIC’s forecasts suggest that retail could remain sluggish into the third quarter while feeders will be looking forward, to lower corn and a higher-demand fall and holiday season.

Commercial Weights Still High

In May, dressed weights of slaughter lambs on formula averaged 83.88 lbs., up 1 percent monthly yet down 10 percent from 92.88 lbs. a year ago. At 168 lbs. slaughter weights on formula were higher than the 144-lb. average seen in live, negotiated trades. By comparison, packer-owned lambs weighed even higher – 90 lbs. in May on a dressed basis. Commercial slaughter lamb weights are higher than reflected in national slaughter data which includes the Midwest and Northeast lamb markets. Federally inspected dressed weights held at 71 lbs. in April and May, compared to 77 lbs. a year ago (with reports of 94 lbs. in some cases).

LMIC reported that slaughter weight gains for cattle and hogs as well as lamb have been a function of genetic selection and management systems (5/28/13). LMIC reminded us that in 2012, slaughter-ready lambs were not marketed in a timely way and over-weight animals eventually caused a market disaster. LMIC added that slaughter lamb weights look to remain down year-on-year throughout the summer and to stay in a normal range for the balance of 2013, bottoming in early August.

By comparison, cattle weights were up, but for a different reason: “Some of the abovenormal increase very early this year in the cattle industry could be due to more cattle being fed beta-agonists than a year earlier,” (LMIC, 5/28/13). However, the use of betaagonists might be tempered by the demands of our export customers.

Production and Trade

Estimated U.S. lamb slaughter was up 9 percent year-on-year through May to 813,796 head with a 3-percent increase in production to 58 million lbs. Mutton slaughter was up 9 percent as well to 50,241 head and 3.4 million lbs. (up 2 percent).

In May, 21.8 million lbs. of lamb and mutton was in cold storage, up 24 percent monthly and up 10 percent from a year ago. This increase was a surprise for we’ve seen four consecutive months of freezer volume contractions.

In the first quarter, lamb imports were up 22 percent quarterly and up 27 percent from a year ago. Australian lamb imports were re- sponsible for 28 million lbs. out of the 40 million lb. total. Australia’s lamb imports were up 18 percent quarterly and up 32 percent year-on-year. New Zealand’s 12 million lbs. in the first quarter was up 33 percent quarterly and up 18 percent from a year ago.

In both Australia and New Zealand, increased lamb production has been met with lower prices. As mentioned, low domestic prices and a pro-export exchange rate means exports are particularly competitive on world markets.

During the first quarter, the New Zealand leg and loins were imported into the United States at increasing competitive (lower) prices while the shoulder saw some lift. Australian lamb imports saw the price of the imported leg come in at lower and lower prices yet the loins and the shoulder saw some price gains.

Total Lamb Availability Up

In the first quarter of 2013, total U.S. commercial lamb availability was 75.6 million lbs., up 10 percent quarterly and up 11 percent from a year ago. In the first quarter, lamb imports were 40 million lbs. compared to 36 million lbs. of domestic production.

Could increased imports and increased lamb available to customers explain lower domestic lamb prices? Very possibly.

Starting June 13, the American Lamb Board (ALB) received an increased lamb checkoff assessment rate. This rate increase — the first in 10 years — is estimated to generate an additional $700,000 for promotional activities. The board’s administration expenses are limited to 10 percent or less of total revenue.

We can all help, however. Lamb producers are encouraged to tell their story about how lamb is cared for and raised, but how about promoting lamb the old fashion way? Who is sporting an American lamb ball cap right now? Or sipping from an American lamb travel mug? We can all be walking reminders of American lamb.

Promotional items are available from ALB at www.americanlamb.com/store/products/ category/gear/.

Cull Ewe Market Down

Cull ewe prices have been lower this year and in some markets, sharply lower. One of the largest cull ewe markets is Producers Livestock Auction, San Angelo, Texas. May’s cull ewe average was $29.69 per cwt., down 30 percent from its five-year May average and down 36 percent year-on-year.

In other parts of the country, particularly in South Dakota in early May, ewe prices were not as favorable. A combination of an increased supply of ewes and reduced body condition (due to lack of feed) and reduced marketing outlets had a price depressing effect in the country. Given limited demand, one ewe load more or less at auction is enough to generate price swings. Prices dipped below 20 cents per lb. in South Dakota in early May.

U.S. mutton imports are up and U.S. mutton exports and live sheep exports are down which can mean reduced demand for ewes at auction. There is no place for ewes to go. One USDA reported likened today’s ewe market to when the Mexican border was closed.

Mexico is not the mutton or live sheep market it once was. In the first quarter, total U.S. mutton exports were down 19 percent quarterly to 2.2 million lbs. and down 32 percent from this time a year ago.

One possible reason sheep meat sales to Mexico are down is because Mexico’s mutton imports from Australia are up. In the first trimester of 2013, Australian mutton exports to Mexico were 16-times higher than the last four months of 2012, while the year-on-year increase was four-times higher, or up 315 percent, to 1,338 tons. Again, increased sheep slaughter and the devalued Australian dollar were probably catalysts to this influx.

The bottom line is that with increased mutton imports both domestically and in one of our major export markets, reduced exports and increased seasonal supplies especially in drought-stricken areas, the prices for cull sheep are lower. Unfortunately this collision of factors has depressed cull ewe prices, but hopefully rain will bring greener pastures, lower feed costs and more optimism about breeding stock.

Wholesale Lamb Cuts Weakened

Increased imported and domestic supplies don’t help a struggling demand rebound. The carcass market averaged $249.73 per cwt. in May, up nearly 1 percent monthly and down 24 percent from a year ago.

Many carcasses are heavy which is reflected in price offers: discounts to the heavies. In the carcass trade about one-third of trades were 85 lbs. and up. About half of trades ranged from 65 to 85 lbs. The lightest-weight carcass trades — from less than 45 lbs. to 65 lbs. — received price premiums. For example, carcasses weighing between 55 lbs. and 65 lbs. received $286 per cwt. at the end of May compared to $240 per cwt. for 75-lb. to 85-lb. lambs. While the per-pound price is higher for the lighter-weight lambs, on a per head basis, the heavier carcasses bring about $20 more.

The wholesale average (gross carcass value) was $283.13 per cwt. in May, down 2 percent and down 21 percent year-on-year.

The leg might be to blame. The leg accounts for about one-third of the total volume of lamb cuts, so when its price weakens, so typically does the value of the whole lamb. The leg, trotter-off, averaged $312.48 per cwt., down 3 percent monthly and down 25 percent from a year ago.

The loins lend price support to the carcass in early summer, but this May the loins didn’t help. The loins only held steady at $450.50 per cwt., down 13 percent from a year ago. Ground lamb gained 1 percent in May to $531.89 per cwt., but down 11 percent from last May.

The eight-rib medium rack averaged $501.97 per cwt. in May, down 2 percent monthly and down 27 percent from a year ago. The shoulder square-cut also fell 2 percent monthly to $232.01 per cwt., down 10 percent from a year ago.

Retail Ads Up

In early May, lamb feature activity at retail increased nearly a thousand features from the previous week. The extra activity was spread throughout the carcass; however shoulder blade chops and loin chops remained the most frequently quoted items. The Greek Orthodox Easter on May 5 contributed to an added emphasis on roast items.

The USDA’s Agricultural Marketing Service explained that further increases in lamb feature activity in mid-May was due to Mother’s Day, “The extra activity was mainly in the area of loin chops as many outlets featured this center-of-the-plate item for Mother’s Day at higher prices.

After Mother’s Day, retail featuring fell, but shoulder chops and ground lamb were starting to see some Memorial Day feature activity with ground lamb gaining $1.50 per lb. week-to-week. In the last week of May, feature activity rebounded, featuring the shoulder and rack. The traditional grilling favorite – the loin chop – wasn’t mentioned. During the week leading up to Memorial Day weekend, shoulder chops were advertised at $5.48 per lb. compared to $9.33 per lb. for loin chops.

U.S. Wool Season Gets Rolling

In May, the western United States saw continued shearing amidst some rain showers; however, in the Midwest, shearing was just getting started.

Western Territory States wool averaged 17-percent lower than a year ago. May’s clean-priced Fleece States (Midwest and some Californian wool) wool averaged 22-percent lower than a year ago, but primarily reflected California wool. Clean wool was 14-percent lower in Texas and New Mexico.

The U.S. Department of Agriculture’s Agricultural Marketing Service reported that clean wools shorter than 75 mm were often discounted 10 to 20 cents per lb. clean. Also, classed and skirted wools traded at a 10- to 20-cent per lb. premium to original bag prices.

While the commercial lamb market is characteristically different from the ethnic market, so too do wool markets look different across the country. The Midwest wool market has different wools, much smaller flocks, different marketing practices and outlets and different pricing methods compared to the West. Many wool growers in the Midwest sell on a greasy basis, not on a clean basis.

David Rowe, Mid-States Wool Growers Cooperative general manager, commented that as the Midwest wool season gains momentum, growers are encouraged to better prepare their wools to improve their returns. Rowe reported that most producers can increase their wool check if they reduce wool defects such as vegetable matter contamination (Mid-States Wool Management). Minimal changes from shearing dry sheep to keeping the shearing floor clean can improve price. More tips for better preparing wools are available at www.midstateswoolgrowers. com/resources.html.

Also, Rowe stresses that while white wools, in particular, hold value; there is a market for all types of (clean) wools.

On a clean basis in the Territory States in May, 18 micron brought $5.47 per lb., 20 micron averaged $4.31 per lb., 21 micron was $4.03 per lb., 22 micron was $3.92 per lb., 23 micron was $3.67 per lb., 24 micron was $3.22 per lb., 25 micron was $2.92 per lb., 26 micron was $2.73 per lb. and 27 micron averaged $2.02 per lb.

On a clean basis, in the Fleece States (Californian wools) 20 micron averaged $4.03 per lb. clean, 21 averaged $3.98 per lb., 22 micron was $3.85 per lb., 23 micron was $3.25, 24 micron was $3.15 per lb. and 25 micron was $2.84 per lb.

In Texas and New Mexico, 21 micron averaged $4.07 per lb. clean and 23 micron was $4.08 per lb.

In early May there were some Fleece States greasy wool sales. Wool prices trended lower as in the West. Twenty-two micron ewe wools averaged $1.61 per lb., 23 micron was $1.55 per lb. Yearling wools at 20 micron received $2.23 per lb. to $1.38 per lb. for 24 micron. Twenty-six micron lamb wools averaged 92 cents per lb. greasy. Through May, Territory States ewe wools also sold on a greasy basis.

In Australia the EMI was U.S. $4.53 per kg clean on May 6, 2013. Prices ranged from 501 cents per lb. per kg for 18 micron to $2.75 per kg for 28 micron.

On June 6, the Australian EMI closed at U.S. cents 451 per lb., 36-percent down from 487 U.S. cents a year ago. Prices ranged from 510 cents per lb. for 19.5 micron and 501 cents per lb. for 23 micron.

Moving forward into the summer, the wool market looks strong, bolstered by the weaker Australian dollar and reduced endof- season wool offerings. “The forecast for improved economic conditions in the second half of 2013 and into 2014 is more encouraging for increased orders through the wool textile pipeline and to the raw-wool market. This, however, may not be seen until late 2013 and the first half of 2014,” (ASI Wool Journal, 5/2013). The United States is the largest consumer market and it has seen signs of growth in sales and improved employment, but its national growth prospects will continue to be slow.

Well, thank goodness wool isn’t average. On the margins, there are pockets of growth. Luxury goods sales were up 10 percent in 2012 in spite of a sluggish global economy (eMarketer.com, 5/2/13). Demand for high-quality products will continue to grow, spurred by growth in Asia. McKinsey & Company reported that even during the global recession in 2009, sales of luxury goods in the mainland China rose by 16 percent, to about 64 billion renminbi — down from the 20-percent growth of previous years but far better than the performance of many other major luxury markets (April 2011).

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