JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
The U.S. Department of Agriculture lamb reports paint a rosy picture of the American lamb industry, with a strong rebound in live lamb prices and a record-high wholesale market. However, the market information that we are not receiving suggests a celebration might be premature.
USDA doesn’t report on the volume of lamb that actually sells at foodservice and retail. We do have information on freezer inventory, but it is unknown what volume of lamb is being stored in private freezers and not reported by USDA. Therefore, it is uncertain how widespread the benefits of the hot wholesale market are.
The national lamb carcass cutout averaged $439.53 per cwt. in October – 4-percent higher monthly and 10 percent higher year-on-year – pulled up primarily by the higher loin. The cutout estimated value of a lamb carcass is based on prices paid for individual lamb items in dollars per hundredweight (cwt). The cutout is used by producers, packer/processors and retailer/distributors as “a price barometer for trade negotiations with other parties.”
The loin has found a loyal customer in the stay-close-to-home lamb lover. The loin – as well as its more competitive substitute, the shoulder blade – is a popular grill item and favored during the warmer fall days. The loin, trimmed 4 x 4, averaged $682.86 per cwt. in October, 5 percent higher monthly and 33 percent higher than a year ago. The loin started off 2020 following average seasonal trends, took a nosedive in May – falling 8 percent – before doing an about-face and charging upward. In June, the loin jumped 15 percent, regaining lost ground, and then gained an average 6 percent in each month June to October.
Other primals such as the rack and leg have not performed as well, but the shoulder has seen parallel gains. The shoulder, square-cut, averaged $353.80 per cwt., up 4 percent monthly. The medium, 8-rib rack averaged $830.73 per cwt., up 4 percent monthly in October. The leg, trotter-off, averaged $380.47 per cwt., up 3 percent monthly.
The loin and shoulder were the only two primals to see year-on-year gains. The shoulder was up 8 percent year-on-year. The rack was down 5 percent year-on-year in October and the leg lost 2 percent year-to-year.
The lamb cutout is defined per a 100-lb. carcass. Thus, a lamb cutout value of $300 per cwt. is for a 100-lb. lamb carcass and is thus worth $300. Therefore, given an October cutout of $439.53 per cwt. for a 60-lb. carcass (the average dressed weight in October), its total value is $263.72 per 60 lbs. ($439.53 x 0.60).
AMS deducts a $59 per cwt., processing/packaging cost to arrive at a net carcass value. In October, the net carcass value was $380.53 per cwt., up 4 percent monthly and up 9 percent compared to a year ago. The lamb cutout does not include revenue from either pelts or offal products, and does not account for operating costs.
Slaughter Lamb Prices Strengthened
Slaughter lamb prices saw a slow rally since crashing last spring; however, they have yet to make a full recovery. In October, the Equity Cooperative Livestock Sales Association reported slaughter lamb prices averaged $149.81 per cwt., down 12 percent from last October for 142- to 144-lb. lambs. In the first week of November, Equity reported slaughter lambs receiving $149.75 per cwt., down 6 percent year-on-year for 145-lb. lambs.
Lambs sold on a formula or grid are no longer reported by AMS due to confidentiality concerns, but it did report live, negotiated slaughter lamb prices in October. In October, live, slaughter lamb prices averaged $169.21 per cwt. for an average 141-lb. lamb. Prices averaged 14 percent higher year-on-year.
It is believed that increased competition for slaughter lambs and lower imports coupled with strong demand at grocery stores is helping to strengthen lamb prices. In September, foodservice and drinking places were down 14 percent in the month year-on-year; however, grocery sales were up 10 percent, according to the Livestock Marketing Information Center.
On Nov. 12, Equity reported a sale of 525 head of lambs out of Wyoming at 78 lbs. for $215.25 per cwt. In October, there was one direct feeder lamb trade reported by USDA. Nearly 2,000 head traded out of Wyoming at $171 per cwt. for 95-lb. lambs. Livestock auctions remain an important source of feeder lambs for the packers. In October, in St. Onge-Newell, S.D., feeder lambs at auction sold for $160 to $243 per cwt. for 45- to 122-lb. lambs. In Billings, Mont., feeders brought $158 to $192 per cwt. for 74- to 131-lb. lambs.
In New Holland, Penn. – the second largest livestock auction – wooled and shorn 90- to 100-lb. lambs brought $217.19 per cwt., up 5 percent monthly. For roughly the same quality lambs, 90- to 100-lb. hair sheep averaged $205.96 per cwt., down 1 percent monthly.
The industry might see some further lift in live lamb prices in preparation for Chanukah and Christmas this month.
Colorado Lamb Processors Open for Business
With the closure of Mountain States Rosen – the nation’s second largest packing plant – and the recent opening of Colorado Lamb Processors and moves for another plant to open in Texas as soon as this month, industry change is afloat. Not only is there likely increased competition among packers, but there is also increased competition from a much smaller, but growing market – the lighter weight lamb market. This market is often characterized by lambs going to market at about 100 lbs. to ethnic markets or local, niche foodservice and grocery outlets. Lighter weight lambs – often hair breeds, such as Katahdin or smaller wool breeds, such as Cheviot – are gaining market share in the United States relative to heavier commercial breeds.
The proportion of lambs processed in state-inspected or custom-exempt slaughter facilities has increased relative to lambs processed in federally inspected facilities. It is hypothesized that the share of lighter weight maturing lambs is also increasing within federally inspected facilities. This is suggested by the lower dressed weights observed in the federally inspected plants. In that last five years, dressed weights have fallen 5 percent from 70 lbs. to 66 lbs. Some of this reduction is due to the fact that the industry has become increasingly current, with market-ready lambs sent to the processing plant.
There is a market for every lamb in America. It is hypothesized that the largest lamb packers/wholesales will increasingly incorporate lighter weight lambs among their accounts. One packer will have many different consumer accounts, each with unique lamb specifications. Increased market segmentation and increased communication from consumer to producer will improve profit centers throughout the industry.
Lamb Slaughter Lower Year-on-Year
In January through October, estimated lamb harvest in federally inspected facilities was 1.5 million head, down 6 percent year-on-year. Lamb production was down an estimated 9 percent year-on-year to 70.8 million lbs. Some of this reduction might be attributed to a lower sheep inventory this year, but also might reflect increased state-inspected lamb processing – particularly in recent months after the closure of Mountain States Rosen. Many producers were forced to scramble to find processing facilities for their lambs this summer and early fall.
In the eight months through August, lamb imports were down 12 percent to 139.7 million lbs. Australia’s imports were down 8 percent to 106.6 million lbs. and New Zealand’s lamb were down 25 percent to 30.9 million lbs.
Investments in Lamb Processing
COVID-19 exposed an impending emergency in the livestock industry: A shortage of regional livestock processing facilities. As the pandemic destroyed many lamb foodservice accounts – shattering robust demand – it became clear that existing processing facilities were insufficient. The industry made do, and disruptions were not as extreme as first feared, but it became clear that the lamb industry needs more processing facilities.
Some states – such as North Carolina and Minnesota – have made recent investments in rural livestock processing. In recent months, Montana Gov. Steve Bullock dedicated $12 million to the Montana Meat Processing Infrastructure Grant program to aid small- and medium-sized meat processors in responding to the COVID-19 crisis.
In early November, LMIC estimated that the fourth quarter could see an uptick of sheep and lamb slaughter to 593,000 head, up 2 percent year-on-year. With heavier dressed weights from a year ago, LMIC also estimated that lamb and mutton production could rally to 37.5 million lbs., up 4 percent year-on-year. However, LMIC anticipates that lower imports will translate to lower per capita consumption in the fourth quarter, down 15 percent year-on-year.
In early November, the number of lambs in Colorado feedlots was 227,548 head, up 2 percent from October, and up 11 percent from November’s five-year average. Imports are lower, but the domestic industry is well situated to meet holiday retail demand and recent COVID-fueled demand.
A second wave of COVID-19 is putting pressure on meat prices as consumer buying sees an uptick driven by concerns of safer-at-home mandates. December retail holiday sales should be solid; however, recall restaurants are harder hit, and facing a slow recovery.
Wool Market Volatility Continues
Market volatility – supply volatility as well as demand volatility – is routine under the shadow of the pandemic.
“Because of the uncertainty in the supply chain and of demand (due to COVID-19) our clients changing their ideas very rapidly this year (switching production from traditional suiting and uniforms to next-to-skin, active wear and casual wear to meet market opportunities), it means our market has been incredibly volatile,” Peter Morris, head of Australian wool exporter PJ Morris Wools, told Farm Weekly.
With a few setbacks, the Australian wool market has been strengthening since early September. In early November, the Australian Eastern Market Indicator averaged Australian 1,188 cents per kg clean, down 24 percent year-on-year.
In U.S. dollars, the EMI averaged U.S. $3.87 per lb., down 20 percent year-on-year.
In October, 240,438 lbs. of clean American wool traded and 58,978 lbs. of greasy wool. The finer microns brought 6 to 10 percent higher prices compared to prices this spring and the broader microns averaged 41-percent higher. Unfortunately, the industry doesn’t have 2019 wool prices available for comparison, but October clean wool prices averaged 34 percent lower than prices reported during the fall of 2018.
American prices of wool in the West, and some Californian wool (Territory States) averaged $3.40 per lb. clean for 20 micron wool, $3.22 per lb. for 21 micron, $2.98 per lb. for 22 micron, $2.56 per lb. for 23 micron, $2.45 per lb. for 25 micron, $2.20 per lb. for 26 micron and 28 micron saw $1.55 per lb. The finer American wools averaged 90 percent of Australia’s EMI.
On a greasy wool basis – wools often shorter than 2 inches – 21 micron averaged $1.28 per lb., 23 micron averaged $1.22 per lb., 25 micron saw $0.88 per lb. and 29 to 30 micron averaged $0.32 per lb. for black-faced wools.