Lamb Industry Cools After Setting RecordsJULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
The hot lamb market cooled in August. After reaching significant gains from a year ago – and setting new record highs – the meat market lost 2 percent in August to $421.48 per cwt. This summer, the meat market surpassed the previous record high in November 2011 by 3 percent. A tight supply situation and the upcoming December holidays might have played a role in the run-up, but equally important are effects of a concentrated market, and market expectations of the key players.
The summer rise in wholesale prices was a welcome surprise after three years of sluggish, and downward-trending prices. However, the price surge was likely too fast and too high. Fresh lamb imports from Australia were down through August, which could have sparked the surge in prices, but total Australian lamb imports were up. It is difficult to assess whether speculation or current market fundaments led to the market rise.
The August weakening is likely a temporary cooling off period before regaining some ground toward stability closer to the December holidays. It is very possible that lamb packers and breakers were receiving some push back from retailers about lamb prices getting too high, facing some consumer resistance.
The gross carcass value averaged $421.48 per cwt. in August, down 2 percent monthly and up 19 percent year-on-year. After processing and packaging is deducted the net carcass value averaged $376.63 per cwt .
Packer margins between the cutout wholesale value and live, slaughter lamb prices in 2017 averaged $48 per head in the first quarter, $37 per head in the second quarter, and $89 per head in July and August. While slaughter lamb prices at auction began to weaken in early June, the meat market stayed relatively high, and climbing. It wasn’t until late July that it began to weaken, thus more than doubling the packer spread.
In August, all primals were down 1 to 3 percent monthly. The 8-rib, medium, rack posted $909.33 per cwt., down 1 percent monthly, yet up 30 percent from a year ago. The loin, trimmed 4x4, averaged $608.72 per cwt., down 1 percent and up 12 percent year-on-year. The leg, trotter-off, saw $405.60 per cwt. in August, down 3 percent monthly, up 14 percent from a year ago. The shoulder, square-cut, was $348.14 per cwt., down 2 percent and up 17 percent year-on-year.
Expectations Inject Market VolatilityThe laws of supply and demand generally prevail in setting market conditions. However, expectations by producers and packers in an increasingly concentrated industry can throw a monkey wrench into the mix. In general, if supply is greater than demand, prices fall. If demand exceeds supply, then prices rise. If there are fewer producers and packers making trades, then their expectations on where the lamb market is headed can play a significant role in setting current prices. Increased price volatility can ensue.
The lamb industry has seen increased volatility – higher margins between the year’s low and high prices. In the past five years, 2012-2016, the difference between the year’s low price at auction and the year’s high was $39 per cwt. In 2007-2011, the spread was $26 per cwt. and in 2002-2006 it was $21 per cwt.
Feeder Lamb PricesFeeder lamb prices in direct trade averaged $171.34 per cwt., up 2 percent monthly and down 0.4 percent from a year ago. A couple of hundred head traded out of Texas, and another 11,000 head traded from Idaho for September and October delivery. September typically sees many feeder lambs trade.
Sixty- to 90-lb. feeder lambs at auction averaged $171.34 per cwt., down 6 percent monthly and down 7 percent year-on-year. August prices averaged $171.10 per cwt. in San Angelo (Texas) and $171.58 per cwt. in Sioux Falls (S.D.).
Historically, feeder lamb prices are typically the lowest in September, but trend upward toward the end of the year, and continue climbing to March, the highest-priced month of the year.
Slaughter Lamb PricesSlaughter lamb prices softened in August, but were coming off a high not seen for six years.
Live, slaughter lamb prices at auction averaged $156.81 per cwt. in August, slipping 2 percent monthly and about even with a year ago. Prices were mixed at auctions, some weaker, some stronger. Prices averaged $147 per cwt. in San Angelo, $156 per cwt. in South Dakota; $172.88 per cwt. in Fort Collins (Colo.); and $152.75 per cwt. in Kalona (Iowa).
Slaughter lamb prices on a carcass-based formula averaged $325.83 per cwt. in August, down 4 percent monthly. The equivalent live, converted price was $164.80 per cwt. Dressed weights came down by 5 percent in August to average 85.58 lbs.
Live, negotiated slaughter lamb prices averaged $171.13 per cwt., down 6 percent monthly, but still 5 percent higher than a year ago. Weights averaged 140 lbs. in August, down 11 percent.
Pelt prices remained steady through August. The highest-valued pelts – unshorn supreme pelts – saw $5 to $8 per piece. Premium pelts, with a smaller square footage, averaged -$0.75 to $2.50 per piece.
Muslim Holiday Boosted Auction SuppliesOn Sept. 1-4, Muslims worldwide celebrated Eid-al-Adha. According to the Maryland Small Ruminate Page, Eid-al-Adha is second in the series of Eid festivals that Muslims celebrate. It concludes the Hajj and is a three-day festival recalling Abraham’s willingness to sacrifice his son.
The Muslim holidays will likely become increasingly important to the lamb industry, as younger Muslims are assimilated into the U.S. culture, the impact might be seen more at retail (feature activity did rise) and food service, and perhaps less at livestock auctions. Beginning in 2016, New York City public schools – with 1 million kids – close for Eid-al-Adha and Eid-al-Fitr.
The U.S. Department of Agriculture reported on the New Holland, Penn., livestock auction on Aug. 30: “Compared to last week, a very heavy supply of lambs and sheep on offer for the Eid-al-Adha holiday on Sept. 1-4. Slaughter Lambs sold mostly steady to 10.00 higher on very good demand with most movement in lambs weighing over 60 lbs.”
More than 7,000 head of lambs sold the last week of August, compared to about 4,000 head in non-holiday weeks, and 7,900 head last year for Eid-al-Adha. Prices ranged from roughly $190 to $227 per cwt. for 60 to 90 lbs., choice 1 and 2. Prices were comparable to last year, and more than half of these sheep were reported as hair sheep.
Lamb Production Down Through AugustEstimated lamb harvest numbers in the first eight months of the year totaled 1.18 million head, down 4 percent year-on-year. Estimated production through August totaled 81.9 million lbs., down 5 percent year-on-year.
Lamb imports through June (latest USDA data) were up 2 percent year-on-year at 104.9 million lbs. Australian lamb imports were down 3 percent in the first six months of the year at 75.6 million lbs., while New Zealand imports were up 14 percent.
In more recent data from the Australian Government Department of Agriculture and Water Resources, fresh lamb exports to the U.S. were down 2 percent in the year through August. Frozen exports were up 8 percent and total lamb exports were up 3 percent.
Harvest weights in federally-inspected lamb production have hovered around 140 lbs. this year. However, since formula lamb reporting was reinstated, its average harvest weight has been 86.33 lbs. carcass weight (172 lbs. live weight).
ForecastsAfter Easter, the Christmas holidays are the second-highest consumption period of the year. Contracts are being set in September and into the fourth quarter to secure supplies for the December holidays. The Livestock Market Information Center forecasted in early September that fourth quarter lamb harvest and production could be tighter than a year ago. Symptomatic of tighter available supplies is that weights could be lower (down to 64 lbs. carcass weight), which further constrains production.
LMIC forecasted that slaughter lamb prices in national, direct trade are estimated at $295 to $300 per cwt. on a carcass basis in the fourth quarter, down 0.4 percent year-on-year. As has occurred during the past three years, slaughter lamb prices might have peaked for the season by August, forecasted to trend downward through December.
LMIC forecasted that feeder lamb prices (60 to 90 lb.) in the fourth quarter are estimated at $195 to $203 per cwt., up 19 percent year-on-year.
Wool Market Remains StrongOn Sept. 7, the Australian Eastern Market Indicator averaged AU cents 1556 per kg and U.S. cents 564 per lb. In Australian dollars, prices were up 19 percent year-on-year and up 24 percent in U.S. dollars. In this period, the U.S. dollar rose 4 percent against the Australian dollar, supporting wool prices in U.S. dollars. On Sept. 7, $1 AUD brought 79.91 U.S. cents.
As Australia begins its 2017-18 season, it is becoming clearer that supply might hold, and that any price divergence from its upward trend could come from demand factors. The Australian Wool Production Forecasting Committee forecasted that wool production in its 2017-18 season will hold steady with the 2016-17 season, a forecasted total of 340 million kg greasy. This volume is about 5 percent higher than the 90-year low recorded in 2015-16, (Woolnews.net, 8/2017). In general, wool weights could be lower this year due to mixed seasonal conditions across Australia, but the number of sheep shorn is likely to be higher, due, in part, to higher wool prices.
Woolnews.net explained in its August report, “Following surges in the market we seem to be experiencing a short lull, then a swift retreat and then a steady recovery which inevitably places the market average price above that of the previous surge. Exactly when this trend changes is unknown and now likely dependent on the willingness of the consumer to keep buying wool at retail.”
In late August, there were nearly 70,000 lbs. of U.S. wool that traded on a clean basis. Twenty micron averaged $4.56 per lb. clean, 21 micron was $4.55 per lb., 22 micron brought $4.26 per lb., 23 micron averaged $4.18 per lb., 24 micron was $3.60 per lb., and 26 micron was $2.95 per lb. Prices were an average 7 percent higher than prices during the summer of 2016.