JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
The lamb industry has done a good job of catching up on lamb processing after a two-month cutback in slaughter. In March, one major packing plant cut harvest by about one-third and another stopped slaughtering altogether: consumers just weren’t buying.
In April, federally inspected lamb and mature sheep slaughter was down 26 percent year-on-year, down 3 percent in May and then up 1 percent year-on-year in June. By June, the lamb industry was back in business.
Estimated lamb harvest in January to June was 902,906 head, down 6 percent year-on-year. Estimated lamb production was 44.0 million lbs., down 9 percent year-on-year. June’s slaughter and production were up 1 percent and 2 percent year-on-year, respectively.
Higher rates of slaughter and a bump in production after an extreme slowdown in March and April doesn’t necessarily mean consumers are eating more lamb. A concern for the industry moving forward is the growing volume in the freezers. In early June, lamb and mutton in cold storage hit a new record high of 48.0 million lbs., up 18 percent monthly and up 25 percent from a year ago. The stickiness of continued depressed slaughter lamb prices supports the notion that increased lamb production is not necessarily all going to restaurants and grocery stores, but into freezers.
A slowdown in imports helps keep supplies current. In the first trimester, lamb imports totaled 79.5 million lbs., down 14 percent year-on-year. Lamb imports from Australia were down 12 percent year-on-year to 59.2 million lbs., and lamb imports from New Zealand were down 21 percent to 19.1 million lbs.
Although many restaurants reopened in June, sales are down and take-out lamb is a relatively new concept. The American Lamb Board reported that the projected loss of American lamb sales in 2020 is 35 to 45 percent, depending upon its severity (7/6/20).
“With the shutdown of dine-in restaurant services, many restaurant operators pivoted to expanded delivery, take out and grocery markets to survive,” ALB reported. “Quick service restaurants – especially burger, chicken and pizza – weathered the storm better than others due to wider availability of off-premise options. Unfortunately, restaurants where lamb is most likely menued (fine dining/casual dining, cruise ships, resorts and hotels, as well as independent restaurants in general) were most impacted.”
Feeder and Slaughter Lamb Markets Depressed
Slaughter lamb prices in direct trade under “comprehensive information” averaged $214.11 per cwt. in June, up 1 percent for the month and down 29 percent from $301.40 per cwt. a year ago. The live-equivalent price in June was $107.47 per cwt., down from $151.02 per cwt. in June 2019.
Weights had been below a year ago until May and based on weekly data, weights look to be similar to a year ago for June. Federally inspected lamb and mature sheep weights at slaughter averaged 135 lbs., 2 percent higher year-on-year. When weights increase we wonder whether the industry is moving lambs in a timely manner, had really good feeding conditions or both.
The number of lambs on feed in Colorado feedlots was 65,543 head in early July – 88 percent of last year’s volume and 86 percent of July’s five-year average. In the first half of the year, federally inspected lamb and mutton harvest averaged 36,761 head per week, down 6 percent from last year’s January to June weekly harvest rate.
Sixty- to 90-lb. feeder lambs at auction in South Dakota and Texas averaged $165.42 per cwt. in June, down 6 percent monthly and up 2 percent from a year ago.
Slaughter lamb prices at the New Holland, Penn., auction were higher year-on-year in June. Eighty- to 90-lb. lambs averaged $197.21 per cwt., 15 percent higher; 90-100 lb. lambs averaged $181.86 per cwt., up 9 percent; and 100-110 lbs. lambs averaged $171.68 per cwt., up 7 percent from a year ago.
In the year ending March 19, lamb sales at retail were up 4 percent year-on-year and retail volumes were up 3 percent – a good indicator that lamb demand strengthened during this period. This puts lamb on solid footing to fill in for possible shortages in competing proteins. According to Acosta research, 53 percent of shoppers noticed purchase limits when buying meat; 46 percent noticed out-of-stocks; and 35 percent noticed higher prices (Supermarket News, 5/28/20). Chicken, beef and fish, respectively, were the most popular protein choices to fill freezers.
Higher-priced protein gives lamb – itself a higher-priced protein – a competitive advantage in the meat case, but price is only one factor in a decision to choose lamb. According to Supermarket News, an educated consumer is your target protein buyer because health, wellness and sustainability issues played a bigger role in meat and seafood purchases in 2019. Even in this time of economic stress, lamb education is a must.
The Livestock Marketing Information Center forecasted on June 10 that the lamb industry will continue to keep pace with slaughter and production, and will manage COVID-19 by putting product in storage. In 2020, slaughter and production is forecasted to be down only 1 percent and imports up 5 percent year-on-year, supporting a 2-percent higher level of total disappearance, or consumption. However, live lamb prices are not expected to rebound fully by year’s end.
In the third quarter, slaughter is expected to reach 3-percent higher than a year ago, and production up 7 percent year-on-year. Slaughter lamb prices are expected to see a lift, yet still sharply lower than a year ago. The national direct lambs are forecasted at $235 to $240 per cwt. on a carcass basis in the third quarter, down 20 percent year-on-year. The live-equivalent forecast is about $118 to $120 per cwt. Sixty- to 90-lb. feeders could range $150 to $155 per cwt., down 8 percent year-on-year.
For the year, LMIC forecasted on June 10 that slaughter lambs could be down 15 percent year-on-year and feeders down 2 percent.
Loin Puts Lamb in the Spotlight
In June, the wholesale composite remained monthly unchanged, but the loin saw a welcome lift as consumers remained at home and “grilled out.” The loin chop is a popular backyard grilling choice and likely saw a Memorial Day and Father’s Day bump, buoyed by safer-at-home recommendations in some regions. The American lamb industry is challenged to pivot from its popular foodservice accounts to increased grocery sales, and this might be the start of a trend. In many parts of the country grilling season can extend through the fall.
The wholesale composite value averaged $412.29 per cwt. in June, up 0.4 percent monthly, and up 5 percent year-on-year. The 8-rib rack, medium, averaged $832.05 per cwt. in June, down 3 percent monthly. The shoulder, square-cut, averaged $329.56 per cwt., down 1 percent monthly. The loin, trimmed 4×4, saw $549.65 per cwt. in June, up 15 percent monthly. The leg, trotter-off, averaged $378.89 per cwt., down 2 percent monthly.
Among lamb primals, the rack and leg softened in June, below year ago levels while the shoulder and loin remained higher year-on-year.
Ground lamb averaged $513.10 per cwt. in June, down 9 percent monthly and down 10 percent year-on-year.
The American lambskin market was already struggling pre-COVID, and the pandemic has further depressed the market. The unshorn supreme price ranged from -$3.00 to $0.50 per piece in June – 208 percent lower year-on-year. Meat & Livestock Australia explained that the Australian lambskin pelt market is also depressed.
“Offshore markets are unlikely to facilitate an uptick in prices in the short term, with buying activity remaining low and restrictions still in place,” (M&LA, 6/1/20).
Wool Loses 40 Percent of Value in One Year
The American wool market was relatively active until mid-June when it slowed considerably. Although prices were down an average 46 percent, many wool growers sold wool shorn this spring, as well as held over from last year.
The American wool market saw some relief in June as wool prices on a clean basis gained, but were still severely depressed compared to last spring. Across all microns reported, prices were up 6 percent monthly and down 46 percent year-on-year. Eighteen micron fine wool averaged $3.64 per lb. clean in June, up 10 percent monthly and down 44 percent year-on-year. Twenty-one micron averaged $3.19 per lb. clean, up 3 percent monthly and down 44 percent year-on-year. Twenty-five micron averaged $1.61 per lb. clean, up 19 percent compared to May and down 55 percent year-on-year. In general, finer wools saw more movement compared to coarser wools.
With more than 60 percent of American wool exported, the virus has all but halted foreign trade. Reportedly, domestic buyers for export accounts were in the market this spring, although export sales were down 41 percent in the first seven months of the October-to-September marketing year. This spring more domestic interest was evident as well as interest from relatively new export markets including Bangladesh and South Africa.
The price gap between Australian and American wool has narrowed. Fifteen years ago, American wools would typically bring 60 to 75 percent of Australian wools, but currently can bring anywhere from 75 to 90 percent of Australian wool prices due to improved clip quality and wool preparation. In June, finer American wools remained relatively competitive with Australian wools, however, coarser micron wools didn’t fare as well. This June, 18 and 19 micron wools averaged 77 percent of Australian wool; 20 micron was 81 percent; and 26 micron was 56 percent.
In the week ending July 8, the Australian Eastern Market Indicator averaged Australian 1,134 cents per kg clean, or U.S. $3.56 per lb. clean. Demand was enhanced by the need to fill orders before Australia’s three-week annual recess in July.
“Any wool required for export orders during that time, needed to be purchased this week, pushing demand higher, as exporters fought hard over the wool on offer,” (AWEX, 7/8/20).
In June, the EMI averaged Australian $1,151 cents per kg clean, down 2 percent monthly and down 36 percent year-on-year. In U.S. dollars, the EMI averaged $3.61 per lb. clean in June, up 3 percent monthly and down 36 percent year-on-year.
NSW Farmers Association James Jackson commented that first the U.S.-China trade war and now COVID-19 are devastating international wool markets.
“You don’t go out buying suits and high-end clothing in this situation,” Jackson said. “A lot of the shops are shut and the wool market has certainly collapsed,” (ABC Rural News, 6/26/20).
American wool growers are encouraged to take advantage of the U.S. Department of Agriculture nonrecourse marketing assistance loans and loan deficiency payments for wool and lambskins. Growers marketing graded and ungraded wool are eligible. The programs aim to help sheep producers manage risk in inherently volatile agricultural markets. The ASI website link with LDP information is SheepUSA.org/issues-governmentprograms-woolldp.
All sheep producers are also encouraged to apply for the Coronavirus Food Assistance Program payment. Information can be found at SheepUSA.org/covid-19-resources.