Livestock Marketing Information Center
Two unusual developments could factor into the lamb market calculus during the next 12 to 24 months.
First, the growth rate of American lamb and mutton imports might moderate significantly as the Australian flock has downsized due to drought, and China imports more-and-more of all animal-based proteins driven by African Swine Fever epidemic inducing reductions in its pork production. However, in the near-term, the China story has a new dimension of uncertainty with the Novel coronavirus epicenter in Wuhan, China.
Second, 2020 brings on line both opportunities and potential disruptions to the sector – the opening of a modern, federally inspected lamb packing plant in Colorado (Colorado Lamb Processors, near the town of Brush). That state-of-the-art plant is scheduled to begin harvesting animals late in the first quarter of the year, or early in the second.
In the face of the developments listed above, for the next two years, annual changes in the supply of American lambs are expected to be rather modest. Across the lamb complex, prices in 2019 were mostly stronger. For the year, the lamb cutout (carcass equivalent wholesale) value increased by 3.2 percent ($10.63 per cwt.), slaughter lamb (national formula dressed) by 5.4 percent ($14.61 per cwt.), and feeder lambs (three-market average, 60 to 90 pounds) were essentially unchanged. It is realistic to post year-over-year increases in lamb and sheep prices in 2020, and at least well into 2021.
Importantly, the two unusual developments described above, provide uncertainty regarding how much prices increase and how volatile markets are.
Sheep & Lamb Numbers in the United States
As of Jan. 1, the American sheep and lamb count totaled 5.2 million head, slipping year-over-year by about 30,000 animals (down 0.6 percent), according to the annual U.S. Department of Agriculture’s National Agricultural Statistics Service survey of producers. The national number of ewes 1 year and older declined by 20,000 head compared to a year ago. Even though those counts were record-small, the NASS report showed signs of stabilization.
Animals under 1 year old being held for replacement (future breeding) purposes were up by 10,000 head (rising 1.5 percent). In terms of total breeding animals (ewes, replacement lambs and rams), of the 33 states individually reported by NASS, 18 increased from a year ago.
NASS reported the 2019 American lamb crop was a modest 5,000 head below 2018. At 3.23 million animals, the 2019 lamb crop matched the record low set in 2017. The lambing percentage rebounded from that of recent years to the highest since 2014. As of Jan. 1, there were 1.39 million market lambs, which was an annual drop of 20,000 animals (-1.4 percent).
USDA’s Agricultural Marketing Service (Market News Division) estimates the number of lambs on-feed in Colorado, the largest American lamb feeding state. That number was below a year ago throughout 2019. The latest monthly count (Feb. 1) was 127,621 animals – down more than 25,000 head (-16.5 percent) compared to a year ago. Those reductions are in line with the national drop in inventory numbers reported by NASS.
Domestic Production & Stocks
In 2019, domestic commercial lamb and mutton production totaled 148.1 million pounds. That was down 3.3 percent year-over-year, yet it was 2 percent above the record low set in 2017.
Commercial slaughter in 2019 was just more than 2.3 million animals, a 2.3 percent increase compared to the prior year. Average dressed weights dropped during each quarter of the year, with a large annual decline of 5.6 percent as animals were sought-out by packers. Demand for slaughter lambs by commercial packers kept pulling animals through finishing programs quicker than in recent years, keeping carcass weights down.
Frozen Tonnage Large, But Diminishing
As of the end of December 2019, frozen stocks (cold storage) in the United States of lamb and mutton were 4.7 percent below 2018’s level at 34.8 million pounds (product weight). That was down from the end of December all-time high set in 2015 (41.5 million pounds). Still, that was 13.8 percent above the prior five-year average (2013-17) and burdensome by any long-term historical measure. Critically, that tonnage is equivalent to about 10 weeks’ worth of domestic production and 19 percent of annual disappearance. In comparison to other red meats, lamb and mutton stocks are a much more important market factor and deserve close monitoring.
Year-over-year for the first nine months of 2019, American lamb and mutton frozen stocks were above 2018. But then, the last three reports of the year had declines. Most, if not all, of 2020 is forecast to bring declines compared to a year ago. Still, a significant seasonal build-up into August is to be expected. Little, if any, increase in domestic production combined with lower lamb and mutton imports should continue trimming frozen stocks relative to 2019.
Output Forecasts: 2020 and 2021
For calendar year 2020, American commercial production is forecast to be slightly lower year-over-year (147 million pounds carcass weight), if average dressed weights remain subdued like what occurred in 2019. Declines in carcass weights are forecast to be much less impactful during 2020 than they were in 2019. Carcass weights could post increases year-over-year during the second half of 2020. Indeed, lamb feeders need to plan ahead and not back-up market-ready animals as the industry incorporates the timelines and potential challenges that result from the packing plant adjustments occurring in Colorado and possibly elsewhere.
In 2021, American commercial lamb harvest is forecast to increase with modest growth in the national flock. Those increases might be compounded by heavier carcass weights resulting in production rising 1 to 3 percent. That translates into commercial production in the range of 148 to 151 million pounds, which would be the largest since 2018 (153.2 million pounds).
International Trade Dimensions
The United States exports a small percentage of its lamb and sheep meat (mutton) production. Most of the tonnage is mutton to Mexico, Caribbean countries and the United Arab Emirates. However, the United States imports more lamb and mutton than is produced domestically. Almost exclusively, imports are from Australia and New Zealand, and the bulk was lamb (80 percent in 2019).
Importantly, for several years, and throughout 2019, Australia faced a multi-year drought, which was especially problematic in their regions with the largest sheep numbers. Meat and Livestock Australia recently forecast that as of June 2020, that their national flock would be 63.7 million head and 12 percent smaller than mid-year 2017. Australian sheep and lamb slaughter declined in 2019 even with high ewe slaughter due to a smaller lamb crop (fewer ewes and historically low lambing rates). New Zealand did not face drought.
Demand for Oceana (Australia and New Zealand) lamb and mutton by China and the United States, was exceptionally strong in 2019, supported in part by depreciating currencies, especially the Australian dollar. The rapidly emerging pork shortage in China caused by African Swine Fever has underpinned demand. Mainland China – for the last 12 months (through January 2020) – increased lamb and mutton purchases by 43 percent (product weight) year-over-year. In 2019, lamb imports were 6.2 percent above 2018, continuing the long-term trend of setting new records. In contrast, for the year, mutton imports dropped by 19.5 percent. Combined lamb and mutton imported tonnage declined slightly (below 1 percent) year-over-year. Compared to five years ago (2015), last year the United States imported 32.8 percent and 77.5 percent more lamb and mutton, respectively.
Even though the Australian drought induced large slaughter levels, strong international demand helped underpin their lamb and mutton prices. That provides an economic foundation and confidence for many producers to begin rebuilding their flocks as forage conditions improve. Still, there are biological lags to the recovery of grasslands and establishing larger lamb crops.
LMIC forecasts a small drop (1 to 4 percent) in lamb and mutton tonnage imported into the United States in 2020, but relatively high prices adjusted for exchange rates might continue attracting lots of foreign products, especially lamb items. A more modest slight year-over-year decline could be repeated next year. Still, imported tonnage is expected to remain above the 2017 level.
American Price Prospects
A new packing plant in Colorado and uncertain lamb and mutton imports from Australia are just two factors that make price forecasts for this sector even more difficult than usual. Indeed, the potential for price volatility is magnified.
As always, Mother Nature could throw a curveball in the United States and/or Australia. Flock changes in the United States have been rather constrained in recent years, and there is potential for modest growth during 2020 and into 2021. To maintain wholesale, slaughter, and feeder prices at or above 2019 levels, we have two cautions or keys for the American industry:
1. Keep frozen stocks from returning to burdensome levels;
2. Feedlots should resist any temptation to delay marketings of slaughter-ready animals.
With the American production levels and imports discussed in prior sections of this article, the supply side of the marketplace suggests steady to higher annual prices in both 2020 and 2021. The retail demand profile for lamb in the United States looks like it has been strong, and there might not be much slippage.
To date, a very robust American consumer has more than counterbalanced weakness in the manufacturing sectors. However, there are reasons for some key big picture concerns. Specifically, the potential headwind is the intersection of two forces. First, would be a slow-down in macroeconomic conditions. Alone that would be negative, but it could become a major headwind because of the huge ramp-up that is occurring in United States pork and poultry production. United States per capita supply of all red meat and poultry was record large in 2019, and 2020 will bring significantly more, and that assumes exports of beef, pork, chicken and turkey all establish new all-time highs.
Through the years, economic analysis has shown that large domestic pork supplies – which in-turn depress ham prices – tend to impact lamb demand negatively. Lamb legs and hams are both “holiday meals.”
Overall, for the first three quarters of 2020, look for lamb prices (slaughter and feeder) to be at or above 2019. For slaughter lambs, the largest percentage year-over-year gain is expected to be in the first quarter (see table at left). The second quarter might bring the biggest gain from 2019 for feeder lambs. Note that the first quarter of 2019 had very low slaughter lamb prices compared to the balance of that year. Even though lamb supplies should remain tight during the fourth quarter, the LMIC price forecast incorporates some pressure from competing meats, especially huge pork supplies. Still, lamb prices that quarter might be very close to 2019.
Regarding longer-term producer planning prices, 2021 has the potential for further macroeconomic challenges. Another Great Recession does not look likely this year or next, and any recession might be much more modest in magnitude and duration.
LMIC’s preliminary outlook is for prices to remain close to unchanged year-over-year.