JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
By September, Colorado feedlot numbers returned to pre-COVID-19 normal and live lamb prices in some markets saw a healthy recovery. Additionally, a new slaughter lamb plant in Colorado came online and another plant in Texas is being outfitted for lamb harvest.
This is all good news, but does this mean the industry has turned a corner and is back on track for sustained growth? With the restaurant sector still only a shadow of its former self, the recent lamb industry gains suggest the lamb industry is turning a corner, but perhaps taking a new, innovative path by expanding into previously untapped markets outside of the commercial chain groceries and high-end, fine-dining establishments.
Live Lamb Markets Posted September Gains
September feeder lamb prices surpassed five-year averages in the direct feeder lamb trade. Lighter-weight lambs (60 to 90 lbs.) averaged $172.44 per cwt. in the three auction markets in San Angelo, Texas, Sioux Falls, S.D., and Fort Collins, Colo., up marginally from August and 2-pecent higher year-on-year. On Oct. 8, Equity Cooperative Livestock Sales Association saw 94-lb. feeders bring $181.50 per cwt.
Lambs on feed in Colorado feedlots nearly tripled seasonally in October to 200,883 head – 99 percent of October 2019’s tally. After a tumultuous summer of severely low feedlot numbers, the rebound bodes well for short-term industry forecasting.
At the New Holland, Penn., livestock auction lambs weighing 80 to 90 lbs. brought $215.96 per cwt. in September, up 6 percent monthly and up 30 percent year-on-year. Ninety to 100-lbs. lambs averaged $208.12 per cwt., up 3 percent in September and up 28 percent from a year ago.
Strong lamb prices in the light-weight market suggest COVID-19 has reinforced family traditions. From Rosh Hashanah in September to Mawlid al-Nabi – the celebration of the Prophet Muhammad’s birthday, the founder of Islam – in late October, lamb is the choice for these celebrations.
Lamb prices at Equity saw an early October sale that was 98 percent of pre-COVID levels. In mid-March the auction saw $167.25 per cwt. for a lot of 350 lambs, prices dipped to $80 per cwt. for many weeks, fell further to $71.75 per cwt. in mid-May, before rebounding to $164.25 per cwt. on Oct. 1.
Federally inspected harvest was an estimated 1.3 million head January to September, down 6 percent year-on-year. Estimated lamb production was an estimated 63.8 million lbs. during the same nine months, down 8 percent from a year ago.
Lamb and mutton harvest in federally inspected plants is down an average 7 percent per week from April to September at 36,192 head. The sheep and lamb market has been more resilient than first dreaded. Some of the year-to-year difference in harvest numbers comes from different dates for Easter.
Lamb and mutton in the freezers totaled 42.4 million lbs. at the beginning of September, down 5 percent monthly and down 9 percent from a year ago.
In January to September, cold storage inventory averaged 6-percent higher than comparable months in 2019.
Lamb Imports and Exports Down
Total lamb imports were 139.7 million lbs. from January to August, down 12 percent from a year ago. Australian lamb imports totaled 106.6 million lbs. in this period, down 8 percent; and New Zealand imports were down 25 percent to 30.9 million lbs.
By contrast, mutton imports were up 100 percent in January to August to 71.7 million lbs., with New Zealand mutton up 67 percent to 4.2 million lbs. and Australia up 102 percent to 66.5 million lbs.
Lamb and mutton exports saw a boost this year due to record-high mutton exports. In January to August, mutton exports jumped 370 percent year-to-year to 14.6 million lbs. while lamb exports fell 23 percent to 311,000. Ninety-one percent of American mutton exports are shipped to Mexico.
Lamb at Wholesale Higher
The loin continued its red-hot run, surpassing $6 per lb. at wholesale for the second time on record, and hitting a record $6.48 per lb. at the end of the month. We know that wholesale and hence, retail lamb prices are strong, in part, due to limited offerings at retail. It is known that a lot of lambs that are being harvested are headed to the coolers, but also perhaps into new markets that are not necessarily reflected by wholesale prices reported by the largest lamb packers.
It is possible that the U.S. Department of Agriculture wholesale lamb price series doesn’t necessarily reflect wholesale lamb in all markets.
The wholesale lamb composite – the cutout – averaged $364.22 per cwt. in September, up 2 percent monthly and up 5 percent year-on-year. The loin, trimmed 4×4 was particularly strong, gaining 6 percent monthly to $648 per cwt. The shoulder, square-cut, also gained, up 3 percent in September to $339.24 per cwt. The leg, trotter-off, averaged $368.96 per cwt. in September, up 1 percent monthly. The rack, 8-rib medium, lost 2 percent in September to $800.43 per cwt.
The loin gained 25 percent in September from a year ago. The shoulder was also up, 4 percent year-on-year; the leg, trotter-off, fell 4 percent year-on-year; and the rack was down 8 percent year-on-year.
The Livestock Marketing Information Center estimated year-on-year lower fourth-quarter slaughter and feeder lamb prices. It is expected that national slaughter lamb prices on a carcass basis average $220 to $225 per cwt., down 25 percent from a year ago. The live equivalent average is $111.25 per cwt. It is also estimated that 60- to 90-lb. feeders average $161 to $166 per cwt., down 10 percent year-on-year.
Forecasting during a pandemic yields obvious challenges, but forecasting in an industry that is perhaps undergoing profound structural changes in response to a fractured packing sector yet resilient consumer demand poses a tough obstacle for any national forecast. What we do know is that consumer incomes are down, and with that lamb demand will contract.
The recovery of the United States restaurant industry will be central to further rebounds in lamb harvest and prices. The National Restaurant Association Current Situation Index for August revealed that the restaurant industry has been in a period of contraction since last spring, albeit the index saw a modest lift in August (last available data).
The index saw a contraction in same-store sales, traffic, labor expenditures and capital expenditures. Seventy percent of operators reported lower year-on-year same-store sales in August. Furthermore, “the vast majority of full-service operators reported lower same-store sales in August 2020 compared to August 2019.”
The National Restaurant Association Expectations Index which measures restaurant operators’ six-month outlook gained 1 percent in August. The National Restaurant Association explained, “While still a pessimistic reading in historical terms, the uptick in the Expectations Index suggests that more operators may be seeing a light at the end of the tunnel, compared to recent months.”
Australian Wool Market Continued to Rebound
By early October, the Australian Eastern Market Indicator had strengthened through September from its annual low of 858 Australian cents per kg clean in early September. The early October price gain was felt across all microns; however, keener gains were seen for the 19 micron and finer wools. On Oct. 7, the Eastern Market Indicator reported Australian wool prices were 1,022 Australian cents per kg clean, down 34 percent year-on-year. In U.S. dollars the EMI was U.S. $3.30 per lb. clean (727 U.S. cents per kg clean), down 30 percent year-on-year.
The American wool market was quiet in September with no USDA reported trades. Due to differences in preparation, American wools typically bring 75 to 85 percent of Australian wools. Australian wools imported to the United States slipped 6 percent in September monthly and were down 39 percent, on average, year-on-year. Nineteen micron averaged U.S. $3.72 per lbs. clean, 20 micron was $3.38 per lb., 21 micron averaged $3.30, 22 micron averaged $3.38 per lb., 26 micron saw $2.13 per lb., 28 micron saw $1.63 per lb., 30 micron averaged $1.35 per lb., and 32 micron slipped below a $1.00 to $0.83 per lb.
Both Australian and American wool markets face the parallel concern of an uncertain amount of wool being stored on-farms. As wool prices recover, a potential headwind is the unknown wool volume offerings, potentially dampening price gains.
As the global community emerges from the pandemic, the International Wool Textile Organization reported wool will be poised for a sustainable fashion movement, a movement that “embraces a shift toward greater environmental integrity and social justice.” IWTO explains sustainable fashion involves more than tackling textiles or products, it involves addressing the system of fashion as a whole from farm to processing to consumers.
To cope with an ever-changing competitive environment during COVID-19 and in the post-coronavirus marketplace, lamb and wool industries are encouraged to be market driven. This means closely monitoring changing consumers demands, and determining how lamb and wool can meet those demands at a price that reflects consumers’ valuation.
Consumer demands for sustainability start at the farm, which means demands at retail must be communicated back to producers. Gaining a sustainable competitive advantage can help any business owner establish a self-sustaining position in the marketplace, (Hatten, T., 2020).