- December 2016
‘Tis the Season To Be Jolly
JULIE STEPANEK SHIFLETT, Ph.D.
Juniper Economic Consulting
The election is over, which is certainly cause for celebration. Another cause for cheer is that the lamb industry is in good shape moving into the holiday season. Supplies are ample and quality is excellent. U.S. lamb continues to carve out its niche as a high-valued protein.
This fall, feeder and slaughter lamb prices struggled to find their footing, weakening month after month. Live, negotiated slaughter lamb prices did find a foothold in October; however, hopefully initiating the seasonal gain we often see toward December. Formula slaughter lamb prices remain unreported by the U.S. Department of Agriculture, a disservice to the entire industry.
Harvest weights dipped below 130 lbs. in October, indicating tight supplies in the commercial market. If supplies are tight; however, we should see higher – not lower – prices. Simultaneous bearish retail demand is likely exerting downward pressure on the slaughter lamb market.
Speculation abounds by pundits for what 2017 holds. A couple of scenarios include a weaker U.S. dollar and higher interest rates. The U.S. dollar has been strong in recent years – compared to our trading partner’s currencies – which makes lamb imports cheaper and leaves U.S. wool exports less competitive on global markets. It is also possible that interest rates will begin to rise from their historic lows – raising costs for many lamb producers. Agriculture is one of the most capitalized U.S. industries, so lamb producers already face unprecedented costs. Their ability to manage risk in volatile lamb markets is curbed given the suspension of the LRP-Lamb insurance program.
Lamb Supplies Expand
Total estimated lamb availability through August was 228.7 million lbs., up 7 percent year-on-year. This estimate, together with three consecutive months of lower lamb and mutton cold storage stocks makes lower prices predictable. At the beginning of October, lamb and mutton freezer inventory was 32.6 million lbs., down 11 percent monthly and 20 percent lower year-on-year.
Increased lamb supplies have a price-depressing effect without the counter-balance of expanded lamb demand.
Estimated domestic lamb harvest through October was up 1 percent to 1.6 million head, while lamb production fell 0.6 percent to 110.3 million lbs. Live weights at harvest slipped about 2 percent to 138 lbs. on average this year.
Total lamb imports through August were 130.7 million lbs., up 13 percent year-on-year. Australian imports were up 20 percent in this period while New Zealand imports fell 1.5 percent.
Should lamb imports in the remainder of 2016 keep pace with imports last year, lamb imports will be up 8.2 percent year-on-year, about steady with the 8.6 percent gain seen last year.
The lamb import share has continued to grow. This year, through September, lamb imports accounted for 57 percent of total lamb supplies, up from 54 percent a year ago. Five years ago, lamb imports accounted for 65 percent of total domestic production and today imports account for an estimated 133 percent.
The non-traditional lamb market adds an estimated 38 percent more lambs to commercial figures. If the non-traditional market is included in calculating market shares, the import share drops to about 45 percent last year through August and 48 percent this year.
Feeder Market Hits Three-Year Low
Feeders at auction hit a new low in October – prices not seen for three years, since August 2013. Sixty- to 90-lb. feeders at auction averaged $149.15 per cwt. in October, down 11 percent monthly and down 17 percent year-on-year. Feeders at auction lost 28 percent since January.
San Angelo (Texas), Fort Collins (Colo.) and Sioux Falls (S.D.) auctions saw lower feeder prices in October. San Angelo averaged $149.56 per cwt., Fort Collins averaged $152.33 per cwt., and Sioux Falls averaged $145.56 per cwt.
No feeder lamb prices were reported in direct trade.
Slaughter Lamb Prices Lower
Slaughter lamb prices at auction averaged $135.44 per cwt. in October, down 13 percent monthly and down 10 percent year-on-year. All reported auctions saw lower trends with market prices determined by number and quality of lambs sold.
San Angelo saw $130.50 per cwt., Equity Electronic auction averaged $131 per cwt. while South Dakota posted $132.50 per cwt. Both Fort Collins and Iowa averaged $142 per cwt.
Live, negotiated trades averaged $146.77 per cwt., down 9 percent monthly and 7 percent lower year-on-year.
In the year through October, 44 percent of commercial lambs were harvested without corresponding price reports. Within this, 24 percent were unreported formula/grid trades.
Wholesale Market Slipped 1 percent
The wholesale composite (after processing and packaging) slipped 1 percent in October to $320.49 per cwt., down 2 percent year-on-year. The strengthening rack supported the net carcass value in October while other primals weakened. When compared to last year, the loin and leg saw higher values compared to other primals, helping to prevent more severe year-to-year losses.
The 8-rib rack, medium, averaged $717.56 per cwt. in October, up 1 percent monthly and down 2 percent year-to-year. Both the shoulder and loin were down about 1 percent for the month. The shoulder, square cut, averaged $295.51 per cwt., down 2 percent from a year ago. The loin, trimmed 4×4, averaged $546.49 per cwt., up 4 percent from a year ago. The leg, trotter-off, saw $349.10 per cwt., down one-quarter of a percent monthly and 1 percent higher year-on-year.
In October, 11 percent of lambs harvested were traded in the carcass market. Due to reduced trades of lighter-weight lambs, few prices were reported by USDA.
Sixty-five to 75-lb. carcasses averaged $324.68 per cwt., down 2 percent monthly and one-half of a percent lower from a year ago; 75-85 lb. carcasses averaged $319.62 per cwt., down 2 percent monthly and up 1 percent year-on-year; 75-85 lb. carcasses averaged $309.11 per cwt., down 2 percent monthly and about steady from year ago.
USDA reported that higher quality unshorn pelts saw a 50-cent to a dollar gain in October. Supreme unshorn pelts jumped from an average of $5.00 per piece in September to $6.63 per pelt. Premium unshorn pelts were still in negative territory on the low end, but on average gained from about 38 to 50 cents.
Higher-valued Lamb Cuts Performing Well at Retail
Lamb featuring in October saw a boost from the Jewish holidays of Yom Kippur and then a few weeks later Shmini Atzeret and Simchat Torah. Lamb consumption is highly seasonal, which warrants a fine-tuned pricing strategy.
If total lamb sales spike in a month – such as for Easter or Christmas – a retailer can still get ahead by lowering lamb prices (offering features) because the increased tonnage of lamb sold outweighs the revenue lost due to the lower price at their level of the market continium.
Retail lamb prices in features suggest that higher valued cuts are performing well; however, the lower valued cuts must help sustain lamb production in off-holiday periods. In October, the rack saw $12.09 per lb., up 14 percent year-on-year. Rib chops averaged $16.34 per lb., up 48 percent year-on-year.
Perhaps the most popularly featured lamb cuts are shoulder blade chops and loin chops. Shoulder blade chops averaged $5.12 per lb., down 5 percent year-on-year. Loin chops were $8.50 per lb., 2 percent lower year-on-year.
Brexit Vote and Lamb Trade Flows
The U.K. Brexit vote this past summer might shake up global lamb trade flows. Australian lamb currently faces a lamb quota in the European Union. There is no tax on imported lamb within the set volume of imports, but there exists a prohibitively high tariff on any volume above the quota (Sheep Central, 11/3/16). Australia often meets its quota and is challenged to fulfill any additional consumer demands in the European Union.
By contrast, New Zealand enjoys a lamb quota to the EU that is significantly higher than the Australian quota. The Brexit vote might lead to relaxed Australian trade restrictions and a diversion of some product away from the U.S. to the U.K.
Wool Market Moves Higher Year-on-year
The Australia Eastern Market Indicator averaged $1,320 cents per kg clean in October, 1 percent higher monthly and 9 percent higher year-on-year. The U.S. wool market has been quiet, but Australian imported wool prices can be used as a proxy for any upcoming fall sales. USDA reports that 75 to 85 percent of the Australian import price range can be used to estimate U.S. wool grower prices. Although, some wools in the U.S. bring Australian prices based on quality. Current estimated market value, based on various qualities of wool, can be found on the ASI Market News App, under ASI Tools.
Imported Australian wool was 3 to 4 percent higher for the finer 19 and 21 micron wools and mostly 1 to 4 percent lower for the mid-micron and broader wools. However, when compared to wool prices a year ago, only the coarsest wools – 28 micron and higher – posted year-to-year losses with the remaining microns up anywhere from 11 to 23 percent higher.
In October, imported Australian 21 micron averaged $4.99 per lb., 23 micron averaged $4.84 per lb., and 25 micron averaged $4.22 per lb.
The Australian Wool Innovation Ltd. recently released its annual report. AWI research and development investments are funded through a wool levy paid by woolgrowers (currently 2 percent of the sale price received for their shorn greasy wool) and a matching contribution from the Australian Government. A similar measure might be effective in the U.S. to expand wool demand; however, more likely is the growth of partnerships, or cooperatives, among growers that produce like wools and that can pool resources for investments in genetics, production, shearing and marketing.
The 28th International Wool Trade Fair & Information Conference was held in China in September. According to WoolNews.net, reports indicated that conference attendees held mixed reviews about the future of the industry (10/2016). Optimism abounded regarding finer wool because government uniform orders in China are using finer wools. However, the forecast for crossbred wools was bleaker with some reporting large Chinese stocks.
“More positively, Chinese manufacturers of winter wear are using much more wool in their garments than they used previously,” (WoolNews.net, 10/2016).