Loin Sets All-Time HighJULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
In recent past, 2011 was an unforgettable year as lamb supplies tightened, driving prices to record highs. This year was equally as memorable: lamb demand was strong, commercial supplies shorter, and imports, at first on tract with last year, but then surging mid-summer. The wholesale cutout surpassed the 2011 high by 5 percent. The rack, 8-rib, medium, punched through $9 per lb. for the first time since 2011. The loins, trimmed 4x4, set a new record, surpassing the 2011 mark by 20 cents per cwt. The live, auction market matched records set in 2011.
However, with this year’s highs and lows came pronounced price volatility. As recent as 2012 and 2013, we saw similar trends. This year, slaughter lamb prices at auction swung from a low of $130 per cwt. to $187 per cwt. – a spread of $57 per cwt. The spread was $47 for live, negotiated lambs. The dynamics of tight domestic supplies, strong imports and a growing non-traditional market create an uncertain future, one characterized by record price highs, and new lows (the October auction price fell below its five-year average). The New Year will present itself with continued marketing challenges.
Integrated Market DynamicsWe live in a global economy. The domestic lamb market is part of the global lamb/sheepmeat market. Imports consist of about half of our lamb supplies and imported lamb helps support and promote U.S. lamb demand.
About half of our lamb consumption is imported, mostly from Australia. It is not surprising then that Australian lamb market dynamics could affect domestic lamb prices. It is most likely that imported prices and volume play a role in domestic price discovery. Late spring, Australian lambs at auction hit a high for the year, then quickly retracted (data through October). Australian carcasses followed suit, posting a high in early summer. Our lamb market tracked the Australian market within a couple months, the live and wholesale markets hit a high in the summer before entering a prolonged cool down period. We have seen that factors in Europe and other places also affect the domestic market and vice versa.
This years’ price trends were seasonal, but the magnitude of the highs and lows extreme.
Imported lamb prices closely tracked domestic lamb prices this summer, yet U.S. lamb prices continue to maintain a price premium compared to imported product. For example, in July and August, the U.S. leg at wholesale saw an 8 percent premium compared to the imported leg. The U.S. loins averaged a 17 percent premium; and the shoulder, 16 percent.
Feeder Market at Auction GainedFeeder lamb auction prices reported for Texas, Colorado, and South Dakota averaged $160.79 per cwt., up 1 percent from September and up 8 percent year-on-year. No feeder lamb trades were reported in the direct trade for feeder lambs.
Historical seasonal price trends forecast that feeder lamb prices rise through the fourth quarter. However, forecasts of higher imports and/or current feedlot inventories might temper this trend.
Slaughter Lamb Market LowerSlaughter lamb prices at auction in San Angelo, Texas, averaged $127.75 per cwt., 5 percent lower from September and 3 percent lower year-on-year (Livestock Market Information Center, 11/3/17). Prices averaged $131.73 per cwt. in Sioux Falls, S.D., down 9 percent monthly and 6 percent lower year-on-year (LMIC, 11/3/17).
Slaughter lamb prices at the Equity Cooperative Livestock Sales Association averaged $141.25 per cwt., down 6 percent from September and about even with a year ago.
Live, negotiated slaughter lambs averaged $144.43 per cwt. in October, down 12 percent monthly and down 2 percent year-on-year. Weights averaged 149.62 lbs.
In the slaughter-lamb market, formula lambs averaged $304.31 per cwt. in October, down 5 percent monthly. On a live-equivalent basis, the average was $151.68 per cwt. Formula lambs weighed an average 74.73 lbs. on a carcass basis and 149.92 lbs. on a live basis.
Since this spring, weights in the formula trade have fallen from more than 170 lbs. to 140 lbs. currently.
Domestic Lamb Supplies Tightened; Imports UpIn the 10 months through October, lamb harvest was down an estimated 4 percent year-on-year to 1.5 million head and lamb production was down an estimated 5 percent to 102.7 million lbs.
Lower dressed weights challenged production targets and are a testament to how tight supplies have been in recent months. In October, live weights averaged 132 lbs., below the 139-lb. average since 2000.
In the eight months through August, total lamb imports were up 8 percent year-on-year to 140.5 million lbs. Australian imports were up 2 percent to 99.6 million lbs. and New Zealand imports were up 19 percent to 38,920 lbs.
Meat Market Softened from Summer’s Record HighBy October, the wholesale lamb cutout had softened by 8 percent from its record high of $428.96 per cwt. this summer. The wholesale lamb cutout averaged $395.31 per cwt., down 3 percent from September and up 12 percent year-on-year.
The 8-rib, medium, rack saw a 2 percent drop from September at $863.22 per cwt., but was 20 percent higher year-on-year. In October, the rack slipped 6 percent from its high in July of $922.53 per cwt.
The loin, trimmed 4x4, averaged $600.93 per cwt. in October, down 0.23 percent from September and 10 percent from a year ago. By October, the loin had slipped 3 percent from its historic high of $616 per cwt. in July.
The leg, trotter-off, averaged $370.97 per cwt., 5 percent lower from September and 6 percent higher year-on-year. The shoulder, square-cut, fell 5 percent in October to $314.49 per cwt. and was 6 percent higher year-on-year. Ground lamb averaged $571.51 per cwt., down 1 percent from September and 6 percent higher from a year ago.
Packer Lamb Spreads Hit New RecordFor the first time since the second half of 2012, the live to wholesale (cutout) packer price spread topped $100 per head. The live to cutout lamb spread averaged $103 per head in October, up 9 percent from September and up 57 percent year-on-year. During this 12-month period, live lambs lost 2 percent in value while the value of the cutout plus pelt and drop credit jumped 14 percent.
In 2015, the total sales as a proportion of the total lamb industry value of the top four commercial lamb packers was 57 percent (U.S. Department of Agriculture, 2016). As concentration increases, competition can break down, and it becomes more likely that factors other than demand and supply set prices. Lamb packers represent an oligopsony – where the market consists of only a few buyers – in which the majority market share by the few means potential market power, keeping live prices lower.
A higher pelt value likely helped support the lamb spread in October. Unshorn supreme pelts saw an 11 percent increase in October to $5.50-$8.88 per piece, up 9 percent year-on-year.
ForecastsIn early November, the Livestock Market information Center released preliminary 2018 forecasts for the lamb industry. Overall, supplies could be tighter next year, with total lamb consumption down a forecasted 2 percent annually. Domestic production could be up a marginal 0.3 percent, but imports could be down 3 percent year-on-year. Tighter supplies for the year could be exacerbated by 26 percent lower stocks carried over from 2017.
LMIC forecasted that the fourth quarter of 2017 could see imports up 6 percent year-on-year, domestic production down by 3 percent from the fourth quarter of 2016, and total consumption could up 1 percent year-on-year.
The retail lamb market saw a sharp uptick in feature activity in early November for both roasts and chops. The uptick might be due to Thanksgiving, but also due to the upcoming Mawlid al-Nabi – the celebration of the birthday of the Prophet Muhammad, the founder of Islam – and shortly afterwards, Hanukah.
Lambs Graded Trended DownwardIn 2010-2012, more than 70 percent of lambs harvested were USDA graded. That percent slipped to 59 percent in 2016 and 50 percent in September 2017. By law, lambs do not have to be graded. One reason a smaller portion of lambs are being graded is that the lambs might be older, and therefore not graded. A lamb is defined as having two break joints – whereby young joints are not yet fused together by age. If one break joint is spooled (fused) and one remains a break joint, then the animal is older, a yearling mutton. Overall, if a break joint doesn’t break then it isn’t graded.
Another possible reason that fewer lambs are being graded is that the proportion of non-traditional packers are growing and getting larger. Typically, lambs channeled through the non-traditional market are not graded, but it is believed that increasingly non-traditional packers are reporting total harvest numbers to the federal government.
Yet another possible reason is that processor branding is worth more in retail pricing than USDA grades.
Wool Market Exceeded ExpectationsThrough October and early November, the Australian wool Eastern Market Indicator pushed higher, setting new records. On Nov. 2, the EMI climbed to Australian cents 1623 per kg, up 25 percent year-on-year. The EMI was $7.36 per lb. clean in Australian dollars and U.S. $5.68 per lb.
All wool types and descriptions saw price gains in early November. Finer wools, wools with less than 2 percent vegetable matter, and “better prepared lines attracted the most interest,” (Weekly Wool Market Report, 11/2/17). Nineteen micron made particularly strong price gains.
Imported Australian wool prices were high in October. Twenty micron brought $6.03 per lb. clean, 22 micron averaged $5.44 per lb., 24 micron averaged $4.86 per lb., and 26 micron averaged $3.87 per lb. The USDA Agricultural Marketing Service reports that U.S. wools typically receive 75 to 85 percent of imported Australian prices. This past U.S. wool season many wools were around the 85-percent mark, and even higher for good style and well-prepared wools.
Current tight supplies and particularly, forecasted tight supplies in coming months, are influencing wool prices. Higher Australian prices in October were likely due to “insufficient (supply) to meet buyer demand,” (Weekly Wool Market Report, 11/2/17). Chinese and European buyers continue to bid up Australian wool prices. All wools across “types and descriptions, and across the entire merino spectrum, attracted excellent competition,” (Weekly Wool Market Report, 11/2/17).
There is growing concern circulating among international buyers that demand will continue to outpace global wool supplies. Prospects are good for the upcoming American wool season. While supplies are tight, strong demand could continue to support prices at current levels, or even higher.
China – a significant market for global wool – reported a 7-percent growth rate between July and September, beating forecasts (Weekly Wool Market Report, 11/2/17).