On the back of persistent dry conditions in Australia, strong global demand and the lower Australian dollar, Australian lamb prices hit record highs – about 30 percent higher year-on-year – in early July.
In May, Australian lamb export values averaged Australian $8.79 per kg (U.S. $2.79 per lb.), a lift of 11 percent from 2018 and 16 percent higher than the five-year average (Meat & Livestock Australia, 6/27/19).
By early July, the domestic lamb market was buoyed by higher import prices, but still wrestled with heavy freezer inventory overhang, cleaning up heavy lambs in feedlots and relatively lower demand in June due to cooler temperatures.
In coming months, MLA reported, “Demand fundamentals remain strong despite record prices from key suppliers. Limited availability in the months ahead from the two leading global sheepmeat exporters will sustain pressure on lamb prices, certainly until new season lambs enter the market,” (MLA, 6/2019).
It’s a Numbers Game
The American lamb industry is relatively small, thus unanticipated supply situations – in imports, in freezers or in feedlots – can prompt large swings in live lamb prices.
However, by early July, old crop lambs, those lambs stretched out from last year were likely “cleaned up,” helping to support higher prices.
Lambs on feed in the largest feeding state – Colorado – have been relatively lower this year. In 2019 through June, Colorado feedlot lambs were 75 percent from a year ago. By early July, 74,301 head were reported in Colorado feedlots, 69 percent of last July’s report and 94 percent of its five-year average. While feeding capacity exists in the Midwest and California, volume is not reported.
Slaughter Lambs Mostly Unchanged
June lamb prices remained strong but unimpressive, likely reflecting the clean-up of heavier lambs in the pipeline.
Slaughter lamb prices on formula/grid averaged $294.16 per cwt. on a carcass basis, down 0.5 percent monthly and up 4 percent year-on-year. The live equivalent was $146.93 per cwt. Carcass weights averaged 85.58 lbs., up 4 percent monthly and down 2 percent year-on-year.
Live, negotiated slaughter lamb prices averaged $159.93 per cwt. in June, up 2 percent monthly and down marginally from a year ago. Weights averaged 151 lbs.
Production Down, Imports Up
Estimated lamb harvest in the first-half of 2019 was 967,435 head, up 3 percent year-on-year. Estimated lamb production was 66.5 million lbs., down 1 percent year-on-year. Production was lower in spite of heavier slaughter rates due to lower carcass weights: 69 lbs. in January to May, down 4 percent year-on-year.
Lamb and mutton in cold storage averaged 38.5 million in July, down 6 percent monthly and up 8 percent year-on-year. January’s carryover was a three-year high.
Lamb imports totaled 92.0 million lbs. in January to May, up 32 percent year-on-year. Imports from Australia were up 28 percent year-on-year to 67.1 million lbs. and imports from New Zealand were up 43 percent to 24.3 million lbs.
In early June, the Livestock Marketing Information Center forecasted that third quarter national slaughter lamb prices on a carcass basis could be $294 to $300 per cwt., up 5 percent year-on-year. Feeder lamb prices (60 to 90 lbs.) could be $167 to $177 per cwt., up 19 percent.
The boost in domestic prices is likely due to a combination of factors. LMIC forecasted that lamb imports could fall 11 percent year-on-year. Furthermore, domestic production is expected to slow and exports increase, which could result in total disappearance (consumption) slipping marginally year-on-year.
In the third quarter, Australia faces continued drought-stricken supplies, but also a seasonal low before new crop lambs are born in its coming spring. Another possible reason for lower imports is heightened competition from China. In the first half of 2019, China imported as much lamb from Australia as mutton, likely due in part to reduced pork production from the African swine flu (Farmonline, 7/8/19). Furthermore, in the 12 months to June, China’s lamb imports from Australia were 98 percent of the United State’s lamb imports from Australia.
Pelt Market Lower (Still)
The lambskin market continues to slide due to lower demand, increased use of synthetic leather and environmental regulations in China – the largest hide/lambskin market (Meat & Livestock Australia, 7/4/19). “Increased environmental regulation in China impacts their capacity to process hides, while also driving up overheads.” Higher costs in China are being passed onto processors and hide traders, and lowering pelt offers to sheep producers.
In January to May 2019, the total value of American pelt exports was $3.3 million, down 53 percent year-on-year. The total quantity exported was down 22 percent to 363,187 pieces. The United States is heavily dependent upon China for its export market: 71 percent of American 2019 pelt exports by value were exported to China, and 74 percent by volume.
In June, unshorn supreme pelts averaged $1.63 per piece, down 73 percent year-on-year. Shorn supreme pelts were down 82 percent to 88 cents per pelt.
In coming months, pelts are likely to remain depressed. MLA forecasted, “In the short term, prices (pelt) could continue to come under pressure as the aforementioned trends appear set to continue,” (7/4/19).
Meat Market Ticked Upward
The wholesale composite averaged $343.73 per cwt. in June, 1 percent higher monthly and up 4 percent from a year ago. For the first half of 2019, the wholesale composite averaged $383.56 per cwt., 3 percent higher year-on-year.
The rack, 8-rib, medium, has held historically high at $878.69 per cwt., down 1 percent monthly. Gaining 3 percent monthly, the shoulder, square-cut, topped $3 per lb. for the first time in nearly two years at $303.27 per cwt. The loin, trimmed 4×4, saw a 1 percent gain to $528.09 per cwt. The leg, trotter-off, averaged $383.78 per cwt., up 1 percent monthly.
The shoulder gained 9 percent year-on-year and the rack was up 2 percent year-on-year. The leg saw a 5-percent lift from a year ago. The loin – a popular grilling feature – slipped 2 percent year-on-year likely due to cooler June temperatures.
Ground lamb averaged $570.10 per cwt. in June, down 1 percent monthly and up 1 percent year-on-year.
U.S. Lamb Primed for Gen Z
There are several key attributes of Generation Z that make it a particularly noteworthy target for boosting American lamb. Gen Z – of which the older cohort is now 18-22 years old – is forecasted to reach 32 percent of the United States population this year, surpassing millennials (Meatingplace.com, 6/2019).
Lamb marketing notes: Gen Z’s are the most ethnically diverse generation thus far. They are also the most adventurous. Instead of seeking “Asian” or “Latin” foods, they seek Indian, Thai, or Vietnamese offerings. Second, this generation grew up recognizing red meat as just one protein choice among others such as yogurt and peanut butter. Meatingplace.com reports that this means red meat processors need to remind young consumers that meat is an excellent source of protein (6/2019). Third, Gen Z seeks out convenience. They aren’t cooks, but assemblers…and snackers. Gen Z will eat six times a day, not four. Lastly, Gen Z gets meal inspiration from social media.
Australian Wool Market Hits 15-Month Low
After a tumultuous 15 months, and a four-month slide, early July saw signs of the Australian market gaining some strength. The Australian Eastern Wool Indicator averaged 1,722 ac/kg, or 1,212 usc/kg (U.S. $5.50 per lb. clean) in early July, up 0.5 percent weekly, but down 15 percent from June 2018.
Imported Australian wool prices are a good proxy for American clean wool prices. Typically, well-prepared American wool can receive about 80 percent of Australian wool. In June, 21 micron Australian wool averaged $6.82 per lb. clean, down 4 percent monthly and down 14 percent year-on-year. Twenty-eight micron Australian wool averaged $3.59 per lb. clean, down 9 percent monthly and down 1 percent from a year ago.
Domestic clean wool prices have not been reported since May. As the wool clip contracts and the number of buyers is challenged by United States-China trade war uncertainty, it is sometimes challenging for the U.S. Department of Agriculture’s Agricultural Marketing Service to report prices due to confidentiality concerns.
By early July, the Australian wool market saw a promising uptick.
“Confidence is key to the wool market’s fortunes and that is present at the moment, but conversion to fresh forward business in volume needs to be achieved for a complete stabilization of the supply chain,” (AWEX, 7/5/19).
However, underlying concerns remain that could drag on the market. Poor global economic conditions remain a threat, as well as wool’s “overvalued position” relative to competing apparel fibers could put a drag on the market (AWI, 7/5/19). Furthermore, an Australian newspaper reported that Australian and Chinese traders report a slow-down in orders and softer prices, “largely because of escalating tension between the U.S. and China,” (Australian ABC News, 7/8/19). United States retailers are also reportedly reluctant to place orders for yarn and fabric, prompting a depressing ripple effect back to China.
What is important to remember amidst this wool market downturn is that Australian wool prices are still historically high: first-half 2019 prices were 157 percent of Australia’s 10-year price average.
It’s not Easy Being Green
A recent survey by AT Kearney of United States consumers found that while they appreciate “green credentials” in shopping for apparel, they are “unlikely to settle for higher costs in exchange for environmental benefits,” (WoolNews.net, 6/2019).
Reportedly, 38 percent of consumers purchased green apparel last year, (WoolNews.net, 6/2019). “Over 70 percent of respondents reported that that they consider their impact on the environment when shopping, and apparel is likely to be a major beneficiary with almost 50 percent of respondents stating they intended to shift their apparel purchasing behaviors to be greener into the future,” (WoolNews.net, 6/2019).
Another important survey finding was that consumers are skeptical of “green” claims and search for “credibility and authenticity.” Similar to lamb, it is critical to spread the story of wool, and be careful to avoid misinformation.
The American Wool Council’s AmericanWool.org website offers fact sheets delineating the many natural and environmental benefits of wool.