Market Report

Meat Demand Remains Strong

By Julie Stepanek Shiflett, Ph.D.

The Daily Livestock Report (DLR) reported in early December, “Demand for meat protein is very strong, in part because of the growing popularity of low carb diets but also because an improving economy tends to benefit meat protein consumption,” (12/2/14). The DLR added that strengthening macro-economic factors (321,000 new/replaced jobs in November!) and lower gasoline prices have kept beef demand strong since October and will likely continue to do so (12/9/14).

Other proteins responded to this strong demand by adding weight to the very tight supplies available. Slaughter numbers were down from a year ago, but weights were up, leaving production almost unchanged. By December, cattle weights were 2 percent above year ago levels, hog weights were up 1.4 percent and chicken was up 5 percent. The DLR added, “In the short term, the safest and quickest way for producers to respond to this strong demand is to add more pounds on the stock they have on the ground, ( 12/2/14).

It appears that the lamb industry is following suit, but to a degree. Domestic production is adding weight but because slaughter rates are down, production is also down. Slaughter weights in November were 3 percent above a year ago at 133 lbs., but slaughter rates were lower, an average of 38,531 head per week in November, down 4 percent year-on-year.

Consequently, production was down 1 percent to 2.53 million lbs. It appears the feedlots supplies were there, but perhaps there were insufficient market-ready lambs to increase November’s production over last year’s total . About half of our domestic lamb supply comes from imports, and we know imports were up over last year, so perhaps domestic slaughter was constrained by how much lamb packers thought the market could bear.

In data compiled by the Livestock Market Information Center (LMIC), the number of lambs in Colorado feedlots was an estimated 236,000 head in November, which is 15 percent lower than its 5-year average for the month, but 10-percent higher than a year ago.

December is the second most important season for lamb after Easter, with increased demand for fresh legs and fresh racks. Slaughter lamb prices are high, but it is uncertain whether lamb can add profitable weight to take advantage of higher seasonal prices.
High Slaughter Lamb Prices a Sign of Optimism
High slaughter lamb prices are a good sign that packers are optimistic about the future.

Slaughter lamb price offers by packers are a function of the expected sale price of the meat, pelt and offal minus its expected costs, including the live lamb and slaughter and processing fees, transport, cooler shrink and possible damaged pelts and condemned lambs.

For the past three months slaughter lambs at auction have hovered around $162 to $163 per cwt. with $162.02 per cwt. in November. This is 7-percent higher than November a year ago and 34-percent higher than the 5-year average for November.
Since June the slaughter lamb price on formula trades has made advances every month, gaining $49 per cwt. over five months.

The carcass-based formula slaughter lamb price averaged $325.71 per cwt. ($164.81 per cwt. on a live basis) in November, 2-percent higher monthly and 18-percent higher year-on-year. To this price point in perspective, at its historic-high slaughter lambs on formula hit $384 per cwt. so November’s average is 85 percent of that value. Live, negotiated prices were also relatively high in November, with a 1-percnent monthly gain to $164 per cwt. and 8-percen higher year-on-year.
Meat Prices at 2014 High
Another reason slaughter lambs are moving is that the lamb wholesale market is high. After a small dip after Easter, the carcass has been charging upward, gaining 13 percent in 5 months. In January the carcass value was around $300 per cwt., but passed $340 by November. November’s carcass value jumped 1 percent to land at $344.87 per cwt. and was 20 percent higher than a year ago. By November, the carcass had inched up to 94 percent of its 2011 third-quarter high.
The wholesale composite (gross carcass value) also saw its 2014-high in November. The wholesale cutout value less processing and packaging averaged $346.95 per cwt. in November, up 1.2 percent monthly and 15-percent higher year-on-year. Apart from the shoulder, all primals gained in November with the leg trotter-off seeing the greatest gain with the racks seeing some strengthening as well.

The leg, trotter-off, saw a 2.2-percent gain monthly to $365.28 per cwt. The leg, trotter-off, semi boneless averaged $549.47 per cwt., 11-percent higher monthly.

The rack, roast-ready, frenched averaged $1,527.71 per cwt., up 0.2 percent monthly and 2-percent higher year-on-year. The rack, roast-ready, frenched special (cap-off) averaged $1,988.56 per cwt. in November, up 0.14 percent monthly and 32-percent higher year-on-year.

The loin, trimmed 4×4, was $528.02 per cwt., up 1 percent monthly and up 11 percent in a year. The shoulder, square-cut, weakened by 1 percent in November to $312.63 per cwt. yet was 18-percent higher year-on-year.

Relatively high beef prices continue to support lamb demand. The all‐fresh beef price set another record in November at $5.96 per lb.
Is Lamb Demand Expanding?
In 2011 we saw slaughter lamb and meat prices rise to record highs and then weaken sharply. Is the industry currently replaying that record, should we brace for leaner times? In 2011 the price spikes were likely due to a global price/supply response. This year, we have a very different situation. Domestic production was marginally lower, but imports were sharply higher. As a result, we had more, not less, product on the market. Increased supplies – holding other factors constant – has a price depressing effect on the market. It is therefore deducted that higher prices this year is due to expanded lamb demand. As the economy improved and lamb quality maintained its excellence, consumers have returned to lamb.

Estimated total lamb available (not including cold storage stocks) was 253.45 million lbs. from January through October, up 5 percent year-on-year.

At 132 million lbs., lamb imports were 11-percent higher January through October year-to-year. Lamb imports slowed in September, but rebounded by 7 percent in October. Imports from Australia, alone, were up 18 percent year-on-year through October and down 6 percent from New Zealand.

Estimated total domestic supplies this year through October were down 1.2 percent at 121.48 million lbs. In the first ten months of the year the domestic lamb share in total availability was 48 percent, down 6 percent from 51 percent during the same period a year ago. However, including cold storage stocks in calculating marketing shares and actual retail and foodservice sales can change the dynamics of the market. Some industry experts maintain that most of the cold storage stocks are imported product. If so, then the domestic market share would be a few percentage points higher, giving the U.S. and equal share with imported product.
2015 Forecasts
Higher prices across sectors in 2015 is a real possibility. The USDA Economic Research Service forecasted this year’s “other meats” prices to rise 2.5 percent annually at retail and expects price to rise another 3 percent in 2015. The Livestock Market Information Center (LMIC) forecasted slaughter lamb and feeder lamb prices to rise 3.7 percent and 5.5 percent, respectively in 2015.

LMIC forecasted that a 0.8-percent drop in commercial slaughter, coupled with a forecasted 5-percent slowdown in imports could leave commercial supplies down 2 percent next year. In theory, if supplies contract then this puts upward pressure on prices. If lamb demand also expands then it is possible that prices could climb ever higher. If demand contracts, then price could fall, offsetting the price-increasing effect of a supply squeeze.

Given continued tight global lamb supplies and strengthening global lamb demand, it is expected that lamb prices in the U.S. and abroad will remain high for the next few years. Perhaps in the next three or four years, Australian lamb prices will ease as its inventory gains and lamb slaughter increases.
Lamb Exports Strengthen
One avenue to support domestic prices (and reduce cold storage stocks) is to increase lamb exports. In the ten months through October total lamb exports were 1.2 million lbs., up 128 percent year-on-year. Mutton exports were down 15 percent to 4.7 million lbs.

Most lamb exports were shipped to Mexico this year, with very small volumes to some Caribbean islands such as Jamaica. Lamb exports to Mexico saw a 292-percent jump in the ten months through October to 919,000 lbs.

Strong exports to Mexico appears counter-intuitive given the U.S. strong dollar. In general, the strong dollar makes our exports less competitive for foreigners, but helps our importing sectors. Since January, the Mexico Peso has remained relatively stable at 0.7 MXN. It is possible, however, lamb imports into Mexico have slowed from other countries such as Australia, which makes U.S. lamb more attractive.
Feeder Lamb Trade Slowed
Feeder lamb prices in direct trade swelled to over 80,000 head in August and September, but slowed to 1,100 head by November. Prices averaged $184 per cwt., 7-percent lower monthly. At the auctions, 60-90 lbs. feeders averaged $206.50 per cwt., up 1 percent monthly. Auctions reported included Texas, Colorado and South Dakota.

Lower corn will continue to bring down the feedlot cost of gain such that margins could be maintained if slaughter lamb prices come down a little (but this also depends on feeder lamb price). The USDA forecasted the corn price received by farmers at $3.80 per bu. on the high end and $3.20 on the low end, for a midpoint of $3.50 per bu., nearly $1.00 less than a year ago but up $0.10 per bushel from the midpoint of the October projection (11/1/314).
Pen vs. Pasture in Ethnic Trade
Last year was the third and final year of the pen vs. pasture study at the University of Maryland’s Western Maryland Research & Education Center.

According to Susan Schoenian – sheep and goat specialist at the University – part of the motivation of the study was a hypothesis that goat and lamb returns could be improved with a pen production system over a pasture system. It was hypothesized that there were both health and market value benefits. The research team knew that previous slaughter of pasture raised goats yielded mostly Selection 3s and 2s (relatively thin) and wondered whether a pen production system could yield Selection 1s – it did.

A Selection No. 1 goat is thickly muscled throughout the body as observed in a pronounced (bulging) outside leg, a full (rounded) loin, and a moderately thick outside shoulder. It also has the highest yield at 50 percent relative to thinner-looking Selection 2 or 3 goats. Similarly with lambs, yield grade 3 lambs are often thought of as ideal.

The pen goats received good quality hay and barley. The pasture goats were rotated between cool season grass paddocks and warm season annual grasses and legumes and received dwarf pearl millet, cow peas and Sunn Hemp. Mid-way through the feeding period, the pasture goats were supplemented with soybean hulls. It is hypothesized that pasture goats and lambs may not receive sufficient energy in their feed to build muscle and produce fuller-looking figure at market time.

At the end of the study, the pen goats were heavier than the pasture goats and consequently also had a higher rate of gain. The pen goats had a higher percentage of carcass lean than the pasture goats. Ms. Schoenian believes as similar study with lamb would yield similar results. An interesting supplement to this study would be to compare the costs (including labor costs and death losses) and prices received at market. Which production system yielded higher returns?
The University of Maryland study begs the question to whether the eastern U.S. ethnic lamb trade has sufficient market information to make informed marketing decisions.

In general, at the nontraditional auction in New Holland, Pennsylvania, lambs that are yield grade 2 and 3 are higher valued than yield grades 1s and 2s. In 2014 through November, the 90-110 lbs. lambs at New Holland received an average $29 per cwt. more per head that were prime and choice and yield grade 2 and 3 compared to prime and choice and yield grade 1 and 2. Quality and grades are determined visually by the USDA Agricultural Marketing Service reporter at the market. The yield grade 2s and 3s are visually more “filled out” and likely more muscular looking.

It is hypothesized that because the ethnic trade is often direct trade with producers and some unregulated slaughter houses there is a lack of market information available to possibility improve returns to producers in selling more yield grade 3s. Or, perhaps returns are maximized in producing a yield grade 1 lamb. We don’t know.

Reportedly, the success of on farm direct sales to ethnic consumers is because the consumers want to pick out a live animal themselves. Most Americans do not care to pick out their meat live, so why is this important to some segments of our population? On several levels, the demands of ethnic lamb consumers might not be met from commercial outlets. First, this consumer group often wants to buy one whole carcass – and one that is a lot smaller than the 140-lb. lamb typically sold in the commercial market. Second, the ethnic consumer often wants the variety meats, the intestine sometimes and even the skin – all often not available in commercial grocers. A third hypothesis – yet to be confirmed – is that this group has been unsatisfied (even not trusting) with their commercial purchases from small, local butchers. Perhaps they got goat when they asked for lamb or perhaps they were suspicious whether the lamb was really Halal.

In the case of a Halal practice, the live animal must be “treated with respect and be well cared for. When the animal is harvested, the jugular vein is cut and the blood from the animal is allowed to drain. The animal is also blessed at the time of slaughter, “(Penn State Extension, “Marketing Lamb and Goat for Holidays,” Accessed 12/8/14). Without a doubt, these needs can be met by buying direct.

As the ethnic trade becomes more regulated and more assimilated into the commercial market it will gain the trust and fulfill the demands of consumers that currently purchase lambs direct from farms.
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