So Far, So Good: There’s a Different Feel to This Year

By Julie Stepanek Shiflett, Ph.D.

This year is different. By the end of February, wholesale values were 91 percent of the 2011 record-high before the crash, yet prospects were much brighter for a less volatile market and real demand growth.

In 2011 when feeder, slaughter and wholesale lamb prices charged upwards before trending downward for nearly two years, the week-to-week and month-to-month push was more aggressive, bolder, than this year’s upturn. As lamb markets began to strengthen last fall the wholesale also began to gain aggressively, around 9 percent. However, its growth slowed to 1 to 2 percent monthly by February compared to the 6 to 8 percent advances in 2011 before hitting the price ceiling.
Are retailers pushing back at lower price points this year? Are packers being less aggressive? Are feeders – finally seeing positive profits – not willing to push their luck? From the limited retail data we do have, prices have been relatively flat for many cuts over the past six months in spite of the increases from feeder to wholesale. This year slaughter is current without lambs getting over fat, quality is still very good, there are reports that demand is rebuilding and meat is moving at these relatively high price levels. Tread softly – rebuild that demand – and the industry can see record-high prices again. Substitute proteins – beef, pork and poultry – have seen steady price advances and record highs, which can help support further lamb price gains.

Feeders Hit $2
Average prices of 60- 90-pound feeders at auction were $220.71 per cwt., up 2 percent monthly and up 52 percent from a year ago. At San Angelo, prices were $205.67 per cwt., up 2 percent monthly and up 40 percent from a year ago. At Sioux Falls, the average was $235.75 per cwt., 7 percent higher monthly and up 62 percent from a year ago.
In February, feeder lambs in direct trade jumped 10 percent to $202.69 per cwt. and were up 84 percent from early last year. Prices were 41 percent higher than the 5-year average for February.
Feeders were shipped in droves in February compared to limited trades a year ago. The total 36,800 head reported in direct feeder trade in both January and February was a 4-year high.
Close to 20,000 feeders were shipped from California to Colorado in February. Due to the drought, Californian sheep producers began to sell lambs early. These Imperial new crop lambs were born in California last fall. U.S. Department of Agriculture (USDA) Agricultural Marketing Service (AMS) explained, “Most of these lambs are 2-3 months early and 20-30 pounds light,” (2/7/2014). Typically, California springers are delivered to Colorado feedlots anywhere from April to June. This year, “cattlemen and sheep farmers need winter rain to grow range grass. Without it, they have to depend on expensive feed, which delivers only a fraction of the nourishment provided by natural pastures,” (The Los Angeles Times, 2/4/2014).
Producers are shipping lambs earlier than usual, which raises the cost of gain for these lambs to the industry by placing them in feedlots versus pasture. However, the real economic losses to the California sheep industry likely lays in the impact on its ewes. A veteran sheep herder Martin Etchamendy commented: “Lack of water is slowly turning the natural pastures his sheep once fed on into dirt, jeopardizing his ewes for next year,” (The Weather Network, 2/7/2014). “If we don’t have adequate feed. The reproduction system could be hurt for the following year,” said Etchamendy.
At the end of February, alfalfa ranged from $235 to $280 per ton in southern and southeast California, depending upon quality, compared to the national average of $188 per ton.
In February Imperial Valley old crops also began shipping in February. These are lambs that were born during the first-half of last year across the West and were sent to the California Imperial Valley last fall to slow growth on alfalfa fields. These lambs ship to Colorado feedlots from 120 to 140 lbs. and are placed on feed for several weeks before market.
This unique production structure of slowing growth allows the U.S. lamb industry to provide fresh lamb through the year. The old crop Imperial lambs will likely be ready for Easter while the new crop California feeders will go to market during the summer and fall. This also means that, depending upon the time of year, some of our product is around 1 year old and some around 6 to 9 months.
In March, old crop Imperial lambs will continue shipping; however, and depending upon the recent rains in California, the shipment of new crop Imperial lambs might slow and continue during more normal shipping times of April through June.
Slaughter Lambs Hit $1.60
Live, auction slaughter lambs averaged $164.93 per cwt. in February, up one-half percent monthly and 48-percent higher year-on-year. The average live, auction value was 30-percent higher than its 5-year average for the month.
Live, negotiated slaughter lambs traded at $161.20 per cwt. in February, up 3 percent monthly and up 37 percent year-on-year. Weights were up 6 percent monthly to 155.50 lbs., down 1 percent from a year ago.
Slaughter lamb prices on a carcass-based formula averaged $301.99 per cwt. ($150.91 per cwt. on a live-equivalent basis) in February, up 3 percent from January and 33-percent higher year-on-year. Slaughter weights slipped 3 percent in February to 77.53 lbs. and were down 3 percent from a year ago.
Slaughter lambs on formula are about $10 per cwt. lower than live prices. Most of the formula-priced lambs are those that are under supply contracts with feeders, so it is possible that the lower price might mean that there are insufficient feedlot lambs for market, forcing packers into higher-priced markets. Packers might be bidding up slaughter lamb prices at auction and in the negotiated trade to secure supplies. Perhaps insufficient feedlots supplies also can account for the higher percentage of weekly slaughter that is packer-owned.
In February, the portion of weekly slaughter that was packer-owned jumped to 22 percent, up from 17 percent in January and 10 percent a year ago. This is the second highest percentage after June 2011’s 28 percent. Packers likely utilize their own supplies to secure supplies in a short market, but also when slaughter lamb prices are on the rise.
Further slaughter lamb price gains might be constrained by a slowdown in wholesale price advances, but also by a weaker pelt market. USDA/AMS explained that pelt priced weakened toward the end of February as the quality of pelts was lower because the seasonal unshorn are more undesirable,” (2/21/14). At $10.69 per piece, the longer length Fall Clips were 3-percent lower monthly and down 18 percent from a year ago. No. 1 pelts averaged $9.06 per piece, were down 3 percent in February and were down 17 percent from a year ago.

Rack Holds above $8, and Climbing
The weighted-average lamb wholesale cutout value was $368.59 per cwt. in February, up 1 percent monthly and 28-percent higher year-on-year. The cutout gained 31 percent since its 2013 low last August. The February net carcass value – after deducting a $33.75 per cwt. processing and packaging cost – was $334.78 per cwt.
A turning point occurred last September when lamb primals switched into higher gear, and posted week-on-week price gains not seen in the sluggish meat market for some time. Primals gained 8 to 30 percent in the six months to February 2014, with the exception of the rack. The rack took off with a 60-percent gain over six months.
The cutout was supported by a higher rack and shoulder. In February the rack, 8-rib, medium, gained 3 percent to $828.85 per cwt., up 64 percent from a year ago. The rack, roast-ready, special averaged $1,528.75 per cwt. in February, 2-percent higher monthly and up 26 percent from a year ago.
The shoulder, square-cut, averaged $296.35 per cwt., up 1 percent monthly and 20-percent higher year-on-year.
At $481.23, the loins, trimmed 4×4, saw a 1-percent monthly drop yet was 7-percent higher year-on-year. The leg, trotter-off, also fell 1 percent to $371.53 per cwt., 18-percent higher year-on-year.
Ground lamb averaged $550.87 per cwt. in February, up 5 percent monthly and 1-percent higher year-on-year.

In February, the carcass market averaged $312.64 per cwt., 2-percent higher monthly and 26-percent higher year-on-year.

At Retail
Lamb – particularly racks –received increased attention over Valentine’s Day as retailers featured red meat chops. In general, the shoulder and shoulder blade chops received significant ad space through February with relatively steady price offerings through the month.
The lack of price gains at retail is a concern. In the six months through February, slaughter lamb prices jumped 27 percent and the wholesale cutout gained 31 percent. Except for the 10-percent gain in the price of rack in grocer ads, many cuts– including the popular shoulder blade chop and loin chops – remained flat.

Imports Up
In 2013, lamb imports were up 14 percent annually to 147 million lbs. Of this total, Australian lamb imports were up 11 percent to 101.5 million lbs. and New Zealand’s imports were up 21 percent to 44.3 million lbs.
Last year Australia set many records: record slaughter, record-high production and record-high export volume. According to Meat & Livestock Australia it is believed that its lamb production will contract some in 2014; however, lamb exports to the U.S. could increase 7 percent. In January and February Australian lamb imports were up 5 percent year-on-year (Australian Ministry of Agriculture (ABARE), 2/2014).
The U.S. was the most valuable Australian export market in 2013, at a record $350.1 million, due to demand for higher value cuts (legs, racks, shanks, shoulders and shortloins) (Meat & Livestock Weekly, 2/28/14).
By contrast, Australian lamb exports to China are typically lower-value cuts, including an increased volume of shoulder. Lower value bone-in cuts include the breast and flap (65%), manufacturing lamb, especially rack cap (20%), neck (7%) and shoulder (6%). This meat is used primarily in traditional hotpot style cooking and soups, where the fatty content and bones are natural flavor enhancers (Meat & Livestock Australia, 2/2014).
If Australian imports increase, there is a concern that within this increase is a larger share of chilled, rather than frozen, product. In fact, according to the ABARE, “much of the export growth in 2014 is expected to come in the form of chilled product, which would continue the long term trend. In 2013, chilled lamb accounted for 45 percent of all Australian lamb shipped to the U.S., compared with 30 percent in 2003 (M&LA, 2/2014). In early 2014 chilled Australian lamb accounted for 60 percent of imports, but perhaps partly explained by the upcoming Easter.
The depreciating Australian dollar might challenge the competitiveness of domestic sales, making imports more attractive compared to a year ago. However, Australian lamb prices have also increased – up an estimated 30 percent within the first two months of the year.
However, the increased volume of chilled product remains a concern. Although Australian cuts are smaller in size, is the chilled lamb more of a threat to domestic fresh/chilled product?

Freezer Inventory Hits Record
February’s freezer inventory was the highest on record – higher than in 2012 when we saw lambs backed up in feedlots and in cold storage. Lamb and mutton in cold storage at the beginning of February was 25.6 million lbs., 5-percent higher monthly and 37-percent higher year-on-year.
As a reference, in February we produced 10.6 million lbs. of lamb and mutton – less than half the volume in the freezer. In the early 2000s, the average monthly volume in the freezer ranged from four to 13 million lbs. The sheer volume of freezer inventory raises more questions than answers. What share of this is imports? Why have slaughter
raises the cost of gain for these lambs to the industry by placing them in feedlots versus pasture. However, the real economic losses to the California sheep industry likely lays in the impact on its ewes.
A veteran sheep herder Martin Etchamendy commented: “Lack of water is slowly turning the natural pastures his sheep once fed on into dirt, jeopardizing his ewes for next year,” (The Weather Network, 2/7/2014). “If we don’t have adequate feed. The reproduction system could be hurt for the following year,” said Etchamendy.
At the end of February, alfalfa ranged from $235 to $280 per ton in southern and southeast California, depending upon quality, compared to the national average of $188 per ton.
In February Imperial Valley old crops also began shipping in February. These are lambs that were born during the first-half of last year across the West and were sent to the California Imperial Valley last fall to slow growth on alfalfa fields. These lambs ship to Colorado feedlots from 120 to 140 pounds. and are placed on feed for several weeks before market.
This unique production structure of slowing growth allows the U.S. lamb industry to provide fresh lamb through the year.
The old crop Imperial lambs will likely be ready for Easter while the new crop California feeders will go to market during the summer and fall. This also means that, depending upon the time of year, some of our product is around 1 year old and some around 6 to 9 months.
In March, old crop Imperial lambs will continue shipping; however, and depending upon the recent rains in California, the shipment of new crop Imperial lambs might slow and continue during more normal shipping times of April through June.

Slaughter Lambs Hit $1.60
Live, auction slaughter lambs averaged $164.93 per cwt. in February, up one-half percent monthly and 48 percent higher year-on-year. The average live, auction value was 30 percent higher than its 5-year average for the month.
Live, negotiated slaughter lambs traded at $161.20 per cwt. in February, up 3 percent monthly and up 37 percent year-on-year. Weights were up 6 percent monthly to 155.50 pounds, down 1 percent from a year ago.
Slaughter lamb prices on a carcass-based formula averaged $301.99 per cwt. ($150.91 per cwt. on a live-equivalent basis) in February, up 3 percent from January and 33 percent higher year-on-year. Slaughter weights slipped 3 percent in February to 77.53 pounds and were down 3 percent from a year ago.
Slaughter lambs on formula are about $10 per cwt. lower than live prices. Most of the formula-priced lambs are those that are under supply contracts with feeders, so it is possible that the lower price might mean that there are insufficient feedlot lambs for market, forcing packers into higher-priced markets. Packers might be bidding up slaughter lamb prices at auction and in the negotiated trade to secure supplies. Perhaps insufficient feedlots supplies also can account for the higher percentage of weekly slaughter that is packer-owned.
In February, the portion of weekly slaughter that was packer-owned jumped to 22 percent, up from 17 percent in January and 10 percent a year ago. This is the second highest percentage after June 2011’s 28 percent. Packers likely utilize their own supplies to secure supplies in a short market, but also when slaughter lamb prices are on the rise.
Further slaughter lamb price gains might be constrained by a slowdown in wholesale price advances, but also by a weaker pelt market. USDA/AMS explained that pelt priced weakened toward the end of February as the quality of pelts was lower because the seasonal unshorn are more undesirable,” (2/21/14). At $10.69 per piece, the longer length Fall Clips were 3 percent lower monthly and down 18 percent from a year ago. No. 1 pelts averaged $9.06 per piece, were down 3 percent in February and were down 17 percent from a year ago.

Rack Holds above $8, and Climbing
The weighted-average lamb wholesale cutout value was $368.59 per cwt. in February, up 1 percent monthly and 28 percent higher year-on-year. The cutout gained 31 percent since its 2013 low last August. The February net carcass value – after deducting a $33.75 per cwt. processing and packaging cost – was $334.78 per cwt.
A turning point occurred last September when lamb primals switched into higher gear, and posted week-on-week price gains not seen in the sluggish meat market for some time. Primals gained 8 to 30 percent in the six months to February 2014, with the exception of the rack. The rack took off with a 60 percent gain over six months.
The cutout was supported by a higher rack and shoulder. In February the rack, 8-rib, medium, gained 3 percent to $828.85 per cwt., up 64 percent from a year ago. The rack, roast-ready, special averaged $1,528.75 per cwt. in February, 2 percent higher monthly and up 26 percent from a year ago.
The shoulder, square-cut, averaged $296.35 per cwt., up 1 percent monthly and 20 percent higher year-on-year.
At $481.23, the loins, trimmed 4×4, saw a 1 percent monthly drop yet was 7 percent higher year-on-year. The leg, trotter-off, also fell 1 percent to $371.53 per cwt., 18-percent higher year-on-year.
Ground lamb averaged $550.87 per cwt. in February, up 5 percent monthly and 1 percent higher year-on-year.
much product already on hand? Does this lamb prices strengthened when there is so mean lamb is not selling at retail and foodservice?
Does this mean the U.S. lamb industry is offering less fresh, chilled product? Is this the new normal?
Forecasted Production and Prices Higher Year-on-Year
Increased total forecasted lamb supplies this year, coupled with higher prices, is a good sign that lamb demand will remain solid in coming months.
In the first two months of the year, estimated lambs to market totaled 283,159 head, up 4 percent year-on-year.
Estimated lamb production was 19.4 million lbs., 0.5-percent higher. With market weights at 140 lbs., the market is current which means good quality.
Looking forward, the Livestock Market Information Center (LMIC) forecasted in early March that second-quarter production will likely be higher than a year ago. This might be due to the heavy influx of first-quarter California springers.
In early March, the LMIC forecasted that slaughter lamb prices on a carcass basis could range from $320 to $325 per cwt., 43-percent higher year-on-year. Sixty- to 90-lb. feeders could see $225 to $235 per cwt., up 101 percent.
We don’t fully appreciate the magnitude to which Australian lamb prices affect the U.S. market, but there is a link.
The Australian Department of Agriculture (ABARE) forecasted a rise in its sheep prices over the next few years as its national flock numbers recover from the current drought. Lamb prices – supported by strong export demand –are forecast to average 15 percent higher in 2013/14 and another 8-percent higher in 2014/15 as supplies tighten (ABARE, 3/2014).
If realized, the U.S. lamb market could be supported, in part, by higher imported prices.

Lamb Quality Good
In January, the breakdown of yield grades for lambs going to market was typical with 78 percent of lambs receiving Yield Grades 2 and 3. This compares to 65 percent of lambs receiving Yield Grades 2 and 3 in 2012 when back fat became an issue and we saw proportionally more Yield Grade 4s and 5s.
While Yield Grades are a good proxy for quality, there is room for improvement.
Larger-framed lamb breeds might get up to a 170-pound market weight and still Yield Grade 2, but how is the quality? Are the sizes of some cuts too big for consumer demands?
Questions we will have to answer in 2014.

Australian Wool Price Forecasted to be Stronger

As the shearing season quickly approaches for many, wools prices are on the minds of many. What are current wool prices? Where will price levels be in a couple months?

This February, U.S. clean wool prices (where traded) were about 12-percent lower than a year ago – based on imported wool price levels. Last spring (March, April and May), U.S. clean wool in the Territory States (the West and some California wools) received $4.32 per lb. for 21 micron, $4.13 per lb. for 22 micron, $3.79 per lb. for 23 micron, $3.25 per lb. for 24 micron and $2.87 for 25 micron.

In the Fleece States (Midwest and some California wools), 21 micron received $3.90 per lb., 22 micron was $3.90 per lb., 23 micron was $3.61 per lb., 24 micron was $3.20 per lb. and 25 micron was $2.83 per lb.

Australian imported wool prices can be used as a proxy for U.S. domestic prices. It is estimated that U.S. wools receive 75 to 85 percent of imported wool prices. In February, estimated U.S. wool prices ranged from $2.86 per lb. clean for 25 micron to $4.04 per lb. clean for 21 micron.

Where prices are headed through May is very uncertain. On one hand, wool supplies are tight which can help support prices and on the other hand, demand is soft which can have a price depressing effect.

In the last couple months, Australian wool prices weakened. Through most of November and December, Australian wool prices gained weekly, but after the Christmas recess prices began to slump, losing 1 percent weekly, on average, through the end of February.

Overall, Chinese woolen exports were down in 2013 due to lower demand from the U.S. and the European Union. However, reduced export demand was partly offset by growing Chinese demand domestically for woolen goods. “Increasing local demand in mainland China for top quality fashion is helping to support prices for Australian wool,” (Business Insider Australia, 1/17/2014). Wool, considered a “luxury fiber,” is now experiencing a new surge in demand as wealthy Chinese have taken a shine to fine wool products like tweed, tartan, and cashmere (Quartz, by The Atlantic, 2/17/2014). China now consumes around half of the wool garments it produces, putting it on track to overtake the U.S. as the world’s largest apparel market by 2017 (Business Insider Australia, 1/17/2014).

Some reports, however, are less optimistic. In February 2014 there has been a “lacklustre buying interest from Chinese processors and mills,” (WTiN Wool Market Report, 3/3/2014). Business prospects in China are very uncertain, with manufacturers in that country facing a sluggish downstream demand for wool products and more restricted access to credit (WTiN Wool Market Report, 3/3/2014). With lower woolen product exports, there is a concern that China’s stocks of yarn and fabric may have increased and already – in late 2013 and early 2014– its raw wool demand purchases have been reduced (ASI Wool Journal, 3/2014).

Wool price trends in April and May will be a function of what happens in China. The Australian Department of Agriculture (ABARE) is hopeful. According to the ABARE, the wool eastern market indicator (EMI) was forecasted to see a 6-percent lift in its 2013/14 season and then gain another five percent in 2014/15 (ABARE, 3/2014). By comparison, the EMI averaged $10.93 Australian per kg in February (ABARE, 3/2014). The ABARE explained that strengthening world economic growth and the depreciating Australian dollar had created a sweet spot for Australian wool. With increasing product knowledge and surging purchasing power, mainland consumers in China are developing higher demands for quality and comfort in clothing. Surveys revealed that Chinese consumers prefer apparel made of natural fabrics, (International Trade Centre (ITC) of the World Trade Organization/United Nations, 2011).

Australian Wool Innovation’s Allan Wang reported that better wool prices for growers were largely due to China’s “growing love affair with wool garments.” Mr. Wang said Chinese consumers held a positive view of wool.

In the past, these downturns in wool prices have lasted several months, but this time there is hope that the cycle will be shorter, due to lower wool supplies in the next six months (ASI Wool Journal, 3/2014).

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