Imports Rebounded, Weakening Domestic MarketsJULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
Uncertain imports have fueled the run-up and then drop in the feeder and slaughter lamb markets this year. In February and March, Australian imports were only slightly above last year’s levels. By April imports began to slow – in a big way.
Imports were down 25 percent, 12 percent and 17 percent, respectively, in April, May and June. The domestic market reacted: Prices were bid up in an effort to secure domestic supplies. By August, however, imports rebounded, up 32 percent year-on-year. In September, imports surged, up 25 percent year-on-year. The stream of imports put the brakes on domestic purchases by the largest packers and prices weakened. The rebound in Australian imports was primarily due to an increase in Australian supply – dry conditions “incentivized turn off and supplemental feeding boosted carcass weights,” (Meat and Livestock Australia, 10/5/17).
Feeders Lower MonthlyFeeder lamb auction prices reported for Colorado, South Dakota and Texas averaged $146.56 per cwt. in September, down 10 percent from August and down 10 percent year-on-year. Direct trade prices were higher at $159 per cwt. in September, but still down 7 percent monthly and down 4 percent year-on-year. However, September’s prices were still 13 percent higher than the five-year average.
According to U.S. Department of Agriculture’s Agricultural Marketing Service the number of feeder lambs channeled into direct trade was sharply lower this year through September. Volume was down 54 percent year-on-year to 39,600 head, and 72 percent lower than its 2012-2016 average for the first nine months of the year.
Slaughter Lambs WeakenedSlaughter lamb prices also softened in September. Auction prices for 130 to 180 lb. slaughter lambs in Colorado, South Dakota and Texas auctions averaged $139.45 per cwt. in September, down 9 percent from the prior month and down 8 percent year-on-year.
Live, negotiated slaughter lambs averaged $164.26 per cwt. in September, down 4 percent monthly and up 2 percent year-on-year. Dressed weights increased to an average 150 lbs., up 15 percent year-on-year.
Prices in formula trade averaged $318.79 per cwt. on a carcass basis, down 2 percent monthly and up from $270.49 per cwt. that was reported in March when the series was reinstated. Weights also increased in September to an average 76. lbs. on a carcass basis.
2017 Forecasts Increased Lamb AvailabilityIn early October, the Livestock Market Information Center updated its 2017 forecasts. Domestic lamb production is forecasted to be down 4 percent this year; imports, up 8 percent; and total supplies (after accounting for exports and ending stocks) are forecasted to rise 1 percent annually.
Commercial domestic production has been lower this year. Lamb harvest through September totaled an estimated 1.4 million head, down 4 percent year-on-year. Lamb production was an estimated 93.6 million lbs., down 5 percent.
Australian lamb imports were up 2 percent year-on-year through August to 99.6 million lbs. New Zealand imports were up 19 percent in this period, and total lamb imports were up 8 percent to 140.5 million lbs. year-on-year.
Preliminary 2018 forecasts from LMIC put domestic production stabilizing, imports lower (perhaps due to the weaker U.S. dollar or stable domestic supplies), and tighter supplies overall.
U.S. Lamb Exports Enter New MarketIn recent months, the U.S. exported lamb to Taiwan. Market access was due, in large part, to the efforts of the American Sheep Industry Association. High-quality lamb exports, and the relatively weak U.S. dollar against trading currencies can help carry this momentum.
Through August, the U.S. exported 13,000 lbs. of lamb to Taiwan, the largest volume recorded, and the first significant volume since 2000. The Caribbean is still the largest consumer of American lamb at more than 723,000 lbs. in the first half of 2017, followed by the Middle East.
U.S. lamb exports exceeded year-ago levels for the second straight month in June, reaching 642 MT (up 40 percent) valued at $1.75 million (up 58 percent) (U.S. Meat Export Federation, 8/7/17).
First-half lamb exports were still down 13 percent from a year ago in volume (3,755 MT), but increased 10 percent in value to $9.6 million (USMEF, 8/17/17). For lamb muscle cuts only, first-half exports were up 20 percent in both volume (1,079 MT) and value ($6.6 million) including year-over-year growth to Mexico, the Caribbean, Central America and Taiwan. Thus far this year, U.S. lamb and mutton exports account for 4 percent of total domestic lamb production, similar to prior years.
Wholesale Market Down; Yet Higher AnnuallyAfter an unprecedented climb since March, the wholesale market cooled in September. The market was sluggish for three years before posting month-on-month increases beginning in March.
In the first nine months of the year, the wholesale composite (gross carcass value) averaged $382.68 per cwt., 10 percent higher on average year-on-year. It is hypothesized that strong domestic demand, and lower Australian lamb imports due to a relatively weaker U.S. dollar through June helped strengthen prices.
The wholesale lamb cutout dropped 3 percent monthly to $407.85 per cwt. as all major primals declined in September, but still remained 14 percent higher year-on-year. The 8-rib rack, medium, averaged $880.40 per cwt., down 3 percent and up 24 percent year-on-year. The trimmed, loin, 4x4 at $602.31 per cwt., was down 1 percent monthly and up 9 percent year-on-year. The leg, trotter-off, averaged $388.79 per cwt., down 4 percent in September, yet up 11 percent year-on-year. The shoulder, square-cut, was down 5 percent to $330.53 per cwt. and up 11 percent year-on-year.
The portion of wholesale lamb sold as carcasses versus primals dropped from 13 percent in the first nine months of 2016 to 9 percent in 2017. It appears industry practices are shifting to a more cutout-based market that values the purchasing of primal and subprimal cuts over carcasses. Perhaps higher labor costs, changes in product demand, and/or greater value at retail are contributing factors. Carcass prices have not been reported by AMS since March 2017.
Unshorn supreme pelts remained unchanged through September at $5 to $8 per piece. Pelts are, on average, 30 percent higher year-on-year.
U.S. Dollar WeakerU.S. economic indicators are mixed. The Dow Industrial Average continues its historic levels, hitting a 14-year record high in January, and remaining above 22,000 in early October. However, Since January, the U.S. dollar index – tracking U.S. dollars against trading partner currencies –fell 10 percent. The U.S. dollar is in its first five-month declining streak since 2011.
The U.S. dollar might be weakening due to stagnant, low interest rates, and general economic outlook for the United States relative to the rest of the world. Specifically, some weakening might be due to European growth. In early October, “The economic rebound in Europe and easing worries about the breakup of the Eurozone lifted the euro to a two-and-a-half-year high against the dollar,” (CNN Money, 8/3/17).
A weaker U.S. dollar impacts the sheep industry in two ways. It makes U.S. wool more competitive overseas and raises the price of imported lamb to importers.
In general, the U.S. dollar is still strong, but lamb importers will have to pay more than a year ago, for the same-priced foreign lamb. This might erode some importers’ profits. In contrast, a relatively weaker U.S. dollar can give U.S. wool exports a boost in competitiveness on international markets.
This can help bolster economic growth for U.S. wool exporters. If anything is certain, it’s that we don’t know where the U.S.-Australian currencies will trade in the coming months. The U.S. dollar could dip to 74 cents Australian, or stronger at 80 cents.
Wool Market Weakened MarginallyBy early October, the Australian Eastern market Indicator had lost 6 percent since mid-August. The EMI averaged Australian cents 1,550 per kg on Oct. 5, up 19 percent year-on-year. In U.S. dollars, the index was 551 cents per lb., up 23 percent year-on-year.
Wool prices have been on a roller coaster of ups and downs this year, yet each successive up has surpassed the last. In mid-August the EMI began to weaken, but then reversed its trend by late September and has again begun to climb.
Price gains through the year can be attributed to increased demand from China coupled with reduced available Australian supplies.
In September, imported Australian wool was down 3 percent monthly, yet up 10 percent year-on-year. Twenty micron averaged $5.99 per lb., 22 micron saw $5.53 per lb., 24 micron averaged $4.82 per lb., and 26 micron posted $4.17 per lb. Seventy-five to 85 percent of Australian imported wool prices are typically used to estimate the value of American wools.
It has been a good year for U.S. exports. In the 11 months to August, 8.4 million lbs. of clean wool were exported, up 21 percent during the same period a year ago. Export value in this period totaled $21.4 million, up 23 percent year-on-year. China and a distant second, Bulgaria, were the two largest export destinations in this period.
Wool textile exports including wool apparel and wool floor coverings also grew.
However, wool yarn, thread and fabric exports declined in the past two years. The rise in wool apparel exports might be a reaction to both the relative weaker U.S. dollar and expanded European growth, after years of sluggish economic indicators.