Lamb Carcass Cutout Posts Rapid Value Increase
December 13, 2013

The following report was received from the U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service Livestock (AMS), Poultry and Seed Program. 
In the 10 weeks since Sept. 1, and following USDA bonus buys of lamb products, the lamb carcass cutout has posted a 117 percent increase in value. 
The lamb carcass cutout represents the value of a dressed lamb carcass based on the current market prices for its various cuts. In the past 10 weeks, the value of the lamb carcass cutout increased 117 percent. The last time the cutout posted such a gain during a comparable 10 week period was three years ago when it rose 120 percent in value between Jan. 28 and May 6, 2011. That rapid increase was attributable to demand for lamb legs for the Easter marketing period, the single largest marketing period of the year for lamb cuts. At that time, the leg primal value, fully one third of the value of a lamb carcass, increased by 124 percent. Lamb meat supplies were reduced at that time as fewer lambs were processed and at lighter average dressed weights. In addition, due to drought conditions in Oceania, lamb imports fell nearly 10 percent in 2012 from the prior-year levels. The lamb market would largely hold its value through the December holiday season of that year before beginning a value decline over the next 18 months. 
During those 18 months, lamb weights increased, resulting in the production of heavier, over-finished and less desirable lamb meat. This product placed domestic lamb producers at a disadvantage to imported products in the marketplace. The result was a decline in market prices for lamb meat over the 18-month stretch, culminating in a 17 percent decline in the value of the lamb cutout from the level it had achieved on May 6, 2011, driven by a 37 percent decline in the value of leg cuts. Also, by the start of 2013, lamb imports returned to 2011 levels, increasing the competition with domestic product. 
The lamb industry took measures to correct the situation, reducing lamb weights and producing more desirable lamb products, but a backlog of product in cold storage continued to hamper the market. In an effort to help reduce this inventory, AMS conducted three bonus-buy surplus removals, the most recent one was 1.1 million pounds (two-thirds leg cuts, one-third shoulder cuts) beginning in August 2013, to help strengthen the producer’s position in the marketplace. Deliveries of this product are scheduled between Sept. 16, 2013, and Jan. 31, 2014. Following the announcement of the surplus removal, the 18-month slide in lamb-cut market prices ceased. 
In September 2013, retail and foodservice buyers entered the spot marketplace to fill out their needs for the upcoming holiday season. Combined, the Thanksgiving/Christmas marketing season rivals the Easter season for lamb demand. A year earlier, buyers had been stung by lackluster demand for the over-finished, less desirable lamb cuts that had been in the marketplace. At that time, the lamb cutout had lost 14 percent of its value. As a result, buyers sought to lessen their risk by contracting less lamb product in advance of the holiday. As buyers entered the marketplace, they found a reduced supply of desirable weight and quality cuts, more than competitive with imported lamb for consumer demand. Competition in the spot market for available supplies of lamb cuts quickly heated up and lamb prices rose sharply. Led by a 163 percent increase in the value of lamb racks, the lamb cutout has quickly increased in value by 117 percent over the last 10 weeks. 
As of Dec. 11, sales of lamb cuts by retailers for the holiday season are hitting the ad circulars with lamb featured prominently in many major supermarket circulars. As supplies move into the marketing chain to support these features, spot market demand has begun to recede and, on Wednesday, the lamb cutout declined $4.92, driven by an $11.93 decline in the value of legs. Racks, however, remain strong and increased $5.72, indicating continued good interest from the restaurant sector (about 40 percent of the lamb market) for these white tablecloth staples, even as retail interest begins to decline.