JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
Last year was a good year as many wools brought $3 per lb. greasy. But this year, prices are even higher. Some clips are receiving $4 per lb. greasy as Western wools go to market. Each year Western wools are better prepared, and even finer as genetic investments are adopted.
This spring, raw wool prices were 4 to 5 percent higher compared to the spring of 2018, and wool was generally cleaner – 2 to 5 percent cleaner. While greasy wool often yields 50 percent clean, some yields were in the upper 60 percent yield range – which is on par with Australia.
Among Western wools traded in April, some were graded short, as if they were undergrown, and barely had 12 months of growth. Some wools were 2 to 2.5 inches long, and those that did make the 3 inch staple length threshold, were barely 3 inches long. Wools were shorter, but not tender, which is good for overall quality.
Nearly 1 million lbs. of clean wool sales were reported on May 10. For Fleece States, 20 micron brought $6.29 per lb. clean, 22 micron saw $5.79 per lb., and 24 micron averaged $5.11 per lb. In the Territory States, 18 micron averaged $6.61 per lb. clean, 20 micron brought $6.41 per lb., 22 micron averaged $6.12 per lb., 24 micron brought $5.13 per lb., and 26 micron averaged $3.54 per lb. Prices are reported at the wool warehouses, original bag or square pack, bellies out, some graded, and 76 mm or longer (3 inches).
In the second week of May, the Australian Eastern Market Indicator fell for its third consecutive week, to 1,952 Australian cents per kg clean – down 4 percent weekly and up 3 percent year-on-year. In U.S. dollars, the EMI fell to its lowest point this calendar year – USD $6.17 per lb. clean. Although the available supply of Australian wool was down, so too was quality. To date, Australian wool has been lower in staple length, staple strength, and about 0.5 micron finer due to lower quality feed.
Australian crossbred wools continued their hot streak in May, although prices of finer Merino wools softened. “The crossbreds continue to be the strongest performing sector of the market,” (Australian Wool Exchange, Ltd., 5/8/19). While finer Merino wool has seen price corrections this year, crossbred wools have trended up. There are multiple reasons for this bull market. The quality of crossbred wools has improved, the available supply of Merino wools is lower, and Merino prices are relatively high. Another factor is that substituting lower-cost crossbred wool into an otherwise Merino product enables processors to maintain costs without sacrificing quality and still uphold the 100 percent wool promise. Additionally, the fake fur market in China is helping to drive demand of crossbred wool.
This season, Australia is facing a relatively low level of wool supply, a factor that is likely to continue supporting raw wool prices this year, and into next year. Australian shorn wool production is forecasted at 298 mkg greasy in 2018-19, down 13 percent year-on-year due to persistent drought conditions across much of Australia (Australian Wool Innovation, Ltd., 4/12/19). In the first seven months of its 2018-19 season, adult sheep slaughter increased 25 percent year-to-year due to increased feed costs.
A potential downside to this 2019 wool season is the uncertainty regarding the United States-China trade war. Uncertainty can wear on markets, a cost that can lower margins for all.
As of May 10, the threat of higher tariffs on Chinese imports became a reality as the United States increased tariffs on $200 billion worth of Chinese goods. Then, China imposed retaliatory tariffs on $60 billion worth of American goods with a June 1 start date. If higher tariffs are enacted, the price offers from China on raw wool will drop sharply, if offers are still extended at all. On the consumer side, sheep producers might feel the pinch at retail in a few months as consumer prices rise, however, more American made products might be purchased.
China has been the No. 1 destination for American grease wool and sheepskins for more than a decade. If the raw export wool tariff that is currently 10 percent increases to 25 percent, then sales of wool and sheep industry products to China will fall to zero. After a 10 percent tariff was imposed, raw wool exports fell 68 percent year-on-year in the six-month period from October 2018 to March 2019.
During the same period, pelts fell 40 percent year-on-year.
On May 1, 98,568 head were reported in Colorado feedlots – the largest lamb feeding state – down 21 percent monthly, and down 33 percent year-on-year. In general, the volume of lambs on feed are down – 23 percent lower than the five-year May average. In general, feedlot supplies are a function of feeding conditions, and perhaps more so, demand. This spring has been generally wet in California, slowing the stream of California spring lambs heading to Colorado. And, some springers were reportedly sold straight from pasture to market.
In the few remaining commercial feeder lamb markets, trades were scarce. Commercial feeders averaged $186.88 per cwt. in Billings, Mont., in April – down 12 percent monthly and up 4 percent from a year ago. In St. Onge-Newell, S.D., trades were light – insufficient to allow Agricultural Marketing Service reporting and maintain confidentiality.
Slaughter lamb prices on formula in the first trimester have been sharply higher than last year’s trends and on par with 2017’s prices. Although the formula average was higher year-on-year, prices were still 4 percent lower than its five-year average for the first trimester. Strong seasonality is expected whereby prices continue to climb through July and then trend lower for the remainder of the year.
Slaughter lamb prices on formula averaged $286.55 per cwt. in April, up 7 percent monthly and up 7 percent year-on-year. Its live-equivalent price was $142.85 per cwt. Carcass weights were up 2 percent monthly to 83 lbs., but down 7 percent from 90 lbs. a year ago.
The live, negotiated slaughter lamb price was $152.39 per cwt. – up 8 percent monthly and up 2 percent year-on-year. At 152 lbs., weights held steady in April and were down 9 percent from a year ago.
Slaughter lamb prices at the Equity Cooperative Livestock Sales Association averaged $161.50 per cwt. in April – 6 percent higher monthly and 8 percent higher year-on-year.
The Muslim month of fasting – Ramadan – began May 6 and ends with a fast-breaking feast on June 5-7. The end of Ramadan will see an uptick in demand for lamb in ethnic markets, a precursor to the vigorous demand observed during the Muslim Festival of the Sacrifice, Eid-al-Adha, in mid-August.
In April, 90-110 lbs. lambs averaged $191.30 per cwt. at the New Holland, Penn., auction – steady monthly and down
15 percent year-on-year.
At the end of the first trimester, estimated lamb harvest totaled 629,425 head, up 2 percent year-on-year. Estimated lamb production was 43.9 million lbs., down 1 percent year-on-year. At 70 lbs. dressed weight, weights were down 3 percent compared to last year which likely contributed to lower production.
Given tight Colorado feedlot supplies, and depending upon Easter sales and imports, supplies might be particularly tight this summer, supporting the live lamb market.
In the first two months of the year, lamb imports were up 21 percent to 41.2 million lbs. year-on-year. Australian lamb imports were up 19 percent to 31.8 million lbs. and New Zealand lamb was up 23 percent to 91.2 million lbs.
More updated figures from Australia reveal that first quarter Australian lamb exports were up 19 percent year-on-year and were 27 percent above the five-year average (Meat & Livestock Australia (MLA), 5/2/19). The steady rise in lamb prices during the past six years is due to the development of China as a major buyer, growing demand in other traditional markets and a weakening of both the Australian and New Zealand dollar (MLA, 5/2/19).
In the second week of May, the Australian dollar slipped below 70 cents per U.S. dollar – the lowest level in 10 years. If sustained, this move could further Australia’s lamb export competitiveness worldwide, and soften American lamb import prices.
Lamb exports totaled 2,745 MT (6 million lbs.) in January and February – 67 percent higher year-on-year. Exports totaled $4.6 million in January and February – 37 percent higher year-on-year. The largest export market is Mexico, followed by the Caribbean, the Middle East, Central America and Canada. Lamb exports to Mexico consisted primarily of variety meats.
On July 12, 2018, Japan reopened its market to American lamb after a nearly 15-year absence. Japan closed its market to American lamb in December 2003 when bovine spongiform encephalopathy was found in U.S. cattle. Although the Japanese market reopened, exports are minimal. The only exports since the market opened were in November 2018, for 3,000 lbs. of lamb.
Looking forward, the Livestock Marketing Information Center anticipates that a reduction in the number of lambs on feed and lower freezer inventory support a strong seasonal increase in slaughter lamb prices.
In late April, LMIC forecasted that third-quarter slaughter lambs could be $290 to $298 per cwt. on a carcass basis – 4 percent higher year-on-year. Feeder lamb prices at auction in Colorado, South Dakota and Texas could average $166 to $176 per cwt. – 18 percent higher from a year ago.
Slaughter lamb prices typically increase steadily through June, then weaken until about late September, when they strengthen through the end of the year. Feeder lambs typically peak earlier in the year – around March – before weakening toward October when they reverse trend and increase through December. In the first quarter, feeder lamb prices at auction are typically 7 percent higher than the annual average, 3 percent higher in the second quarter, 6 percent lower in the third quarter, and 3 percent lower in the fourth.
As live lamb price levels rebound to 2017 levels it is more apparent that domestic production trends and heavy, overweight lambs in 2018 helped perpetuate last years’ live market collapse, not imports.
In the first trimester of 2019, the wholesale composite hit a seven-year high for January through March. The first trimester average was $380 per cwt. – a level not seen since 2012. Part of lambs’ strength is success at food service. According to the American Lamb Board, 62 percent of all fine dining restaurants feature lamb and lamb menuing is up 15 percent in the past 10 years (Spring 2019).
In April, the wholesale composite averaged $380.97 per cwt., up 1 percent monthly. Among primals, the shoulder, square-cut, saw the greatest advance of 3 percent to $284.19 per cwt. The rack, medium, averaged $888.73 per cwt., up 2 percent. The loin, trimmed 4×4, averaged $520.46 per cwt., down 1 percent monthly. The leg, trotter-off, held about steady with a 0.4 percent monthly gain to $363.97 per cwt.
The wholesale composite was up 2 percent year-on-year in April. The rack led the gain with a 6 percent strengthening year-on-year. The shoulder was up 4 percent annually. The loin and leg both lost 2 percent year-on-year.
In April, supreme unshorn pelts averaged $0.50 to $3.67 per piece – 7 percent lower monthly and up to 80 percent lower year-on-year. About twice as many wooled pelts compared to shorn pelts were processed in the first trimester. Shorn supreme pelts averaged -$1.00 to $3.75 per piece – down 67 percent monthly and down 167 percent year-on-year.