Market Report

Eid ul-Adha Stimulated Nontraditional Market Demand

By Julie Stepanek Shiflett, Ph.D.

The Muslim Festival of Sacrifice – Eid ul-Adha – was held between October 4- 7, 2014. Eid-al-Adha is second in the series of Eid festivals that Muslims celebrate. It concludes the Hajj and is a three-day festival recalling Abraham’s willingness to sacrifice his son in obedience to Allah. It is marked by slaughtering animals to feed the poor.  

 “In a symbolic act, Muslims who can afford it slaughter a cow, goat, sheep or camel, keeping a portion to feed themselves and distributing the rest to friends, family and the needy. Those who can’t afford it, buy meat from a Halal butcher to distribute. Giving out this meat, in addition to the morning prayers, is considered an essential component of Eid al-Adha,” (Huffington Post, 10/6/14).

The holiday is significant to the nontraditional lamb market, and likely the commercial market. Up to 2 to 3 weeks prior to the holiday, lamb sales spiked at the nontraditional market, New Holland Sales Stable, in Lancaster County, Pennsylvania. Within four weeks lamb sales offerings jumped 137 percent to 3,605  head at one sale. The volume was about 60 percent of weekly commercial formula sales. Concurrently, prices jumped 30 to 40 percent and averaged $192.50 per cwt. for 90-110 lb. lambs.
There are regular Islamic buyers present at New Holland every week, but the holiday brings in new interest. Reportedly, the market couldn’t find enough volume to sale. Lambs typically come from the south and Texas, but also from Midwestern states this year including Nebraska. Higher sales and higher prices: the lamb industry gains from this increased demand. 

For Eid al-Adha Muslims will look for a blemish free goat or lamb which means not docked or castrated or have broken horns (Penn State University, 2014). Additionally, the animal shouldn’t have open wounds, lame or torn ears. “Heavier lambs and goats are preferred for this holiday since the meat is shared. Yearling lambs and goats are preferred, but older sheep and goats are also acceptable. Weights of lambs and goats should be heavier than 60 pounds,” (Penn State University, 2014).
The effect of the Muslim holiday was also likely felt in the commercial market. The U.S. Department of Agriculture, Agricultural Marketing Service (AMS) reported in late September that shoulder blade chops and loin chops were the highest featured items followed by mutton stew meat (9/26/14). Overall mutton stew meat has appreciated over the past year with this September’s average at $3.50 per lb., 15 percent higher year-on-year. Muslims might prefer a more competitively-priced sheepmeat in order to share it more widely with the needy. 

Lamb Pool Trade Affects Market

This September, for the first time, commercial feeder lamb pools were reported by name on the U.S. Department of Agriculture (USDA) “Mountain Area and Western U.S. Direct Sheep Report.” Prices received by lamb pools have always been reported, often with a notation of a “Pool,” but never by name.
The decision to list pools by name came about because for the first time, it was believed that the pools had a “bearing” on the market. As trades dwindled in mid-September, dropped to zero and then jumped to 17,000 head the following week, it was clear that producers were stalling, most likely waiting for regional lamb pools to trade. 

AMS reported, “Many producers are opting not to market their lambs until the Manti Pool trades this weekend.  It added: “We are expecting a large volume of trade in the next couple of weeks.”

Lamb pools are common across the western U.S. with a couple in Utah (Manti, Spring City), Wyoming, California and Colorado (Mt. View pool) The Manti Pool in north central Utah is one of the largest, trading around 6,500 head this year. It used to trade up around 10,000 head, but has lost volume as the industry contracted and ranchers retired. Lamb pools can be advantageous way for producers and feeders to buy lambs. Producers gain if they can receive a premium prices without paying the yardage and commission at a sale barn. Whether a producer has 50 head or 800 head, there are significant marketing costs in getting lambs to market. 

Feeders gain because of the marketing costs saved in purchase one large load lot. In general, a lamb pool will assemble lambs at one or several pick up points. Additionally, pools are beneficial to feeders because often in a good pool, the weight ranges and genetic variation are minimized. Ideally, a feeder might be better off buying from one large ranch where weights, genetics and feeding management are even more uniform, but there are fewer and fewer larger ranches around. 

Over 5,000 head traded in the Montana Northern Video sale. USDA typically reports and identifies these trades. The video auction might also set the market. It is very transparent: weights and prices are known and producers can see a description of each animal. 

Managing Shrink

Shrink is a cost of doing business in the lamb industry. It is the difference between the weight at the ranch or farm and pay weight. In the direct feeder lamb trade, for example, trades occur FOB with an overnight stand or equivalent 3-4 percent shrink. If a 100-lb. lamb is sold based upon a 4-percent shrink then the producer is actually paid on 96 lbs. In September, if a 4-percent shrink was agree upon in the case of all feeder lamb direct trades, then the cost of shrink for each lamb was $7.29 per head, totaling $306,000 for the industry. This is a producer loss and a feeder gain. 

While producers may have little control over prices received, they may have some leverage in negotiating shrink. A producer can opt to pay for shrink in a sale barn sale, or perhaps negotiate better terms in a direct trade with a feeder. Alternatively, there might be options to manage shrink on the farm before loading lambs.  

Industry experts estimate shrink loss for market ready lambs (120-150 lbs.) at 4 percent, but it can range from 1 to 6 percent based upon a wide array of factors (Held, J. et al., South Dakota State University, 8/2013). South Dakota State University (SDSU) found that although transport is an important source of shrink loss, on-farm management decisions – such as sorting, comingling and feed management treatments — can have the greatest impact (8/14). 

The SDSU study found that the management practice that results in the least lamb shrink loss is sorting and loading immediately prior to transportation to a marketing destination. Conversely, when lambs were sorted into different pens overnight, there was significantly higher shrink loss — regardless of diet — after a 50-mile trip. That is, sorting led to a shrink loss of close to 4 percent compared to the non-sorted and commingled group shrink of less than one 1 percent.

Feeder Lamb Prices Higher

Feeder lamb prices in direct sales posted an 11-percent gain September to $192.72 per cwt., 60 percent higher than $120 per cwt. this time last year and 44-percent higher than the 5-year high for September.

In the week of September 12, 10,000 head were traded out of Colorado at $185 per cwt. for 97.5 lbs.
In Colorado, 1,100 head traded in the Mt. View Pool at $185 per cwt. for 95 lbs. In the Utah Spring City Pool, 1,300 head traded at $197.33 per cwt. for 90 lbs. and 5,500 head traded in the Utah Manti Pool at $195.57 per cwt. for 95 lbs. 
Feeder lambs at auction – Colorado, South Dakota and Texas – brought $212.54 per cwt., 4-percent higher monthly and 70-percent higher year-on-year.


Corn to Hit $3 per Bushel?

The USDA Economic Research Service reported that the 2014/15 corn crop may yet be a record high with 171.7 bu. per acre and 83.8 million acres yielding a 14.4 million bushes, higher than the 2013/14 record (9/15/14). This record high yield is 22 bushels above the 5-year average, and 7 bushels above the previous high of 164.7 bushels in 2009/10. “The crop has been favored by adequate moisture and advantageous temperatures,” explained USDA/ERS (9/15/14).

USDA/ERS forecasted that 2014/15 corn prices could average $3.50 per bu. –nearly as low as the 2006/07 $3.04 per bu. average. 

The Daily Livestock Report commented that “corn futures are approaching long‐term support at $3.00 per bushel. That support dates back to 2009. It’s hard to remember that corn actually got that cheap after the initiation of the biofuels subsidies and mandates — but it did!” (10/1/14).

In recent months we’ve seen lower corn because ending stocks were higher than expected. By September, corn prices fell again, from $3.63 per bu. in August to $3.38 per bu., 37-percent lower from a year ago. 

Aside from California and surrounding regions, this year’s hay crop has also been favorable with ample supplies putting downward pressure on prices. Nationally, alfalfa weakened this fall, from $209 per ton in August to $197 per ton. By comparison, in early October in southeast California good to premium alfalfa averaged $251 per ton and good hay brought $220 per ton. Large square bales of good alfalfa in north.

Slaughter Lamb Prices Stronger

The upcoming December holidays and the stronger meat market likely supported the 3-5 percent price gains seen across slaughter lamb markets in September.  

Slaughter lamb prices at auction jumped 5 percent in September to $162.25 per cwt., 38-percent higher year-on-year. All reported markets saw gains with San Angelo at $164.75 per cwt., South Dakota at $161.41 per cwt., Iowa at $157 per cwt. and Equity Livestock Auction at $166.88 per cwt. 

Meat Market Gained

The net carcass value – wholesale composite – was $335.51 per cwt. in September, up 2 percent from August and up 35 percent year-on-year. In September, wholesale lamb was supported by the higher rack, 8-rib, medium, that came in at $809.54 per cwt., up 2 percent monthly and up 57 percent year-on-year. 

Sub-primal racks prices saw mixed September trends. The rack, roast-ready, frenched saw a 3-percent gain to $1,531.05 per cwt., but the frenched rack, special, cap-off, saw only a 0.10-percent increase to $1,986.93 per cwt. The leg, trotter-off, partial boneless fell 1 percent to $465.44 per cwt.  

The shoulder, square-cut, also gained, up 4 percent to $308.13 per cwt. in September, 36-percent higher year-on-year. The loin, trimmed 4×4, saw a 2-percent jump to $518.65 per cwt., up 17 percent from a year earlier. The leg, trotter-off, was the one primal that lost value in September, falling 0.4 percent to $348.80 per cwt., although it was up 16 percent year-on-year. 
Ground lamb averaged $535.82 per cwt. in September, down 0.3 percent yet 2-percent higher year-on-year.

Carcass prices averaged $332.04 per cwt. in September, 3-percent higher monthly and up 27 percent from a year ago. Only about 14 percent of weekly federally-inspected slaughter is traded as carcasses. 

Longer-Wooled Pelts Gained
In the second week of September USDA/AMS reported “Fall Clips were $0.50-$1.00 per piece higher on improved demand for pelts with greater than an inch of growth. All other pelt types were mostly steady,” (9/1/214).
In September, pelts averaged $2.79 per piece, 5-percent higher monthly, but down 68 percent year-on-year. 
Fall Clips jumped 22 percent monthly to $4.81 per pelt and No. 1 pelts saw a 2-percent gain to $3.50 per piece.. 

Freezer Inventory Record High

At the beginning of September, total lamb and mutton in freezers was 40.1 million lbs., up 18 percent monthly and up 83 percent from a year ago. By comparison, the U.S. produces about 11 million lbs. of lamb and mutton a month. 
As LMIC explained, “through July, increased domestic commercial production and import volume are two players contributing to increased cold storage numbers,” (10/3/14). 

Through August, total lamb imports were up 6 percent year-on-year. Australian imports were up 13 percent and New Zealand’s were down 10 percent.  Although some expected a slowdown in lamb imports by August, imports were up 2 percent monthly.
LMIC reported in early October that “The takeaway from this is the increase in cold storage is mainly being fueled by a decrease of product moving through the retail market.” 

What are the industry options in how to deal with the freezer inventory? 

First, economists love to explain that there is a market for everything and anything….at some price.
One idea is to keep the lamb market segmented by as many markets as possible: by retail and food service; ethnic and all-natural; or regionally. By offering “clearing prices” in each market lamb producers and packers will be able to capture a greater share of what consumers are willing to pay.
Meat & Livestock Australia reported that for the first half of 2014, the Australian lamb industry was “again one of the shining lights of the Australian agricultural sector, with robust export demand absorbing historically high kill numbers – reflected in very favourable comparative returns to Australian lamb producers,” (2014).

Lamb Exports Up

One solution to chip away at our freezer inventory is to increase exports. Any effort to reduce domestic supplies could support domestic prices.

In the first eight months through August, total lamb exports jumped 135 percent year-to-year to 830,000 lbs. Mutton exports, by contrast, fell 15 percent through August year-on-year to 4.0 million lbs. Total lamb and mutton exports through July were 4.8 million lbs. compared to our freezer inventory of over 40 million lbs. Our largest lamb export market is Mexico with a distant second going to the Bahamas and then much smaller shipments to other Caribbean nations.  Mexico is also our largest mutton importer with Canada coming in at a distant second.  The Caribbean nations are also important mutton importers, but we do have some other, surprising outlets. Panama, the Philippines, Germany, the United Arab Emirates and Saudi Arabia were all significant mutton importers this year. 
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