Lamb Demand off to Strong Start in 2018JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
By many indicators, 2017 was a strong year for lamb demand. In spite of slow growth in the United States – increased competition from ample supplies of competing meats – lamb prices held high. Preliminary research revealed that both retail prices and amount of lamb sold in the United States last year increased.
This is potentially the fourth year of lamb demand expansion. It is hypothesized that the lamb industry does a really good job of catering to the myriad of demands by fickle consumers. Today’s consumers want more: new products, diverse flavor profiles, products of different price points, and products that adhere to self-prescribed goals of animal welfare, environmental sustainability and nutrition.
December Holiday CheerIn December, retail feature activity jumped, with legs and racks seeing the most attention. Forty-five percent of sampled stores featured lamb specials in mid-December, up from about 25 percent in early December. In general, American and imported legs saw higher prices compared to a year ago. Of note is that the leg with the most value added – the semi-boneless leg – saw a $1 gain per lb. year-on-year while the bone-in leg saw a 20 cent gain.
The American rack roast-ready, frenched, averaged $15.95 per lb. at wholesale, up 23 percent year-on-year. The rack, roast-ready, frenched, special averaged $20.82 per lb., up 24 percent.
Higher prices coupled with increased lamb availability points to higher year-on-year demand last December. Federally-inspected lamb and mutton harvest in December totaled 169,592 head, up 1 percent year-on-year. Estimated lamb production was up 4 percent in December year-on-year. Two-percent heavier carcass weights at 68 lbs. helped boost production.
American Production Lower, Demand HigherFederally-inspected lamb and mutton harvest was 1.9 million head in 2017, down 6 percent annually. Lamb and mutton production totaled 130.2 million, down 6 percent. Estimated lamb harvest was 1.824 million head, down 6 percent and estimated lamb production was 125.2 million lbs., also down 6 percent.
The Livestock Market News Information Center reported in late December that 2017 imports will likely be larger than expected. During the year through October, imported volume was 12 percent higher year-on-year. In October, imports were up 29 percent year-on-year – a record high for the month. LMIC reported that “imported tonnage was the main factor causing U.S. slaughter lamb prices to be below a year earlier in the fourth quarter of 2017.”
ForecastsAt the end of December, LMIC updated its 2018 forecasts. Overall, slaughter and feeder lamb prices could inch higher in the year; however, there will be sharp highs and lows. Slaughter lamb prices could be higher year-on-year in the first quarter, then up to 6 percent lower mid-year. Feeder lamb prices could be lower in the first and second quarters, but then surpass third-quarter averages in the third and fourth quarters.
On average, and through time, slaughter prices at auction peak in May/June, are lowest in September, and then trend upward through the rest of the year toward the following April. However, increased imported volumes have structurally changed market fundamentals. Slaughter lamb prices are now also a function of imported supplies.
It is expected that the higher spread between annual low and high prices will continue.
Historically, summer prices for slaughter lambs at auction are an average 5 percent higher than the annual average. Summer months are historically lean, pushing prices to annual highs. In 2017, summer prices pushed higher, 11 percent higher than the annual average.
Feeder Lambs HigherIn 2017, feeder lamb prices at auction gained 5 percent to average $193.96 per cwt. for 60-90 lb. lambs. San Angelo (Texas) saw an average $191.27 per cwt., Fort Collins (Colo.) averaged $184.63 per cwt. and Sioux Falls was $205.33 per cwt.
No significant feeder lambs in direct trade were reported since August 2017.
Slaughter Lamb MarketSlaughter lamb prices at auction averaged $152.50 per cwt in 2017, up 7 percent year-on-year. Prices ranged from $143 per cwt. in January to $186 per cwt. in June to $134 per cwt. in December. Auctions in San Angelo, South Dakota, Fort Collins, Kalona (Iowa), and Equity Electronic Auction continue to be valuable lamb markets reported by the U.S. Department of Agriculture. These markets continue to serve the commercial lamb market, but are also increasingly popular in the non-traditional market.
Slaughter lamb prices on formula/grid were reinstated by the USDA in March 2017 after more than a year. For nine months in 2017, formula prices averaged $305.26 per cwt. on a carcass basis. The live weight equivalent was $153.59 per cwt. The 2017 formula average was 2 percent higher than 2015’s average.
By contrast, slaughter lamb prices on a live, negotiated basis have seen continuous reporting. In 2017, its value averaged $155.43 per cwt., up 7 percent annually. Prices trended similarly to auction prices: $140 per cwt. in January to $186 per cwt. in June and back down to $130 per cwt. in December. By comparison, the formula live equivalent was $172 per cwt. in June and $136 per cwt. in December.
Meat Market 10% HigherThe wholesale composite averaged $383.99 per cwt. in 2017, 10 percent higher year-on-year. The net carcass value – after processing and packaging – jumped 7 percent annually to $339.37 per cwt. This gain included a 32-percent increase in the reported cost of processing and packaging from $33.75 per cwt. to $44.85 per cwt.
All primals saw 2017 gains. The 8-rib rack, medium, averaged $823.62 per cwt., up 18 percent for the year. The loin, trimmed 4x4, saw a 7 percent gain to $572.53 per cwt. The leg, trotter-off, averaged $370.40 per cwt., up 6 percent. The shoulder, square-cut, averaged $312.13 per cwt., up 9 percent.
Industry Loses Two USDA Market ReportsIn December, two USDA sheep reports were discontinued, further reducing available market information. The USDA concern is that if it publishes some market data, the confidentiality of its sources could be revealed given there are fewer processors in the market. The concern by producers is that reduced market information further impedes their bargaining position in making trades.
The number of head traded by carcass weight under formula/grid sales (approximately 25 percent of the total market) for slaughter lambs is no longer available. Another piece of information no longer reported is the number of lambs traded by weight in live, negotiated trades. Volumes of trade are key to understanding price trends. In 2011-12, sharply lower imports coupled with tight domestic supplies prompted record-high lamb prices.
Due to the fact that about half of the lamb sold in the United States is imported, market data on imports is also crucial. USDA reports current wholesale imported prices for select cuts and import volumes, with a two-month delay.
The American sheep industry is comprised of a diverse group, but regardless of flock size, all producers are united in their benefit from market information. Small (1-99 ewes) and medium-sized (100-1,499 head) operators primarily sell at livestock auctions and from the farm while the largest operators (1,500+ ewes) predominately sell to a lamb pool or cooperative and to feedlots.
These largest operators run about 60 percent of all ewes. Prices – from auction reports to an industry-average of private trades – as well as volumes can help producers maximize returns.
By expanding – rather than shrinking – market transparency, the sheep industry can help avoid extreme price lows and highs, thereby fostering increased investment in sheep. The industry benefits from more sheep, not less.
Australian Wool Hits New RecordBy mid-December the Australian Eastern Market Indicator hit 1,760 Australian cents per kg, 30 percent higher year-on-year. This is the first time the EMI broke through the 1,700 cent barrier. In U.S. dollars, the EMI hit 1,350 U.S. cents per kg., or 612 cents per lb., up 34 percent year-on-year.
The Australian Wool Exchange EMI mid-December level was the 12th time it broke its record in the 2017-18 Australian season. Competition was high and pushed prices higher as buyers scrambled to secure bales before the Christmas break (Wool Market Weekly Report 12/15/17). Additional competitive fervor stemmed from some uncertainty about early 2018 supplies as Australia enters its shearing season.
“The fundamentals ruling the wool trade at present of growing demand, lack of global stocks in front of machines and affirmative consumer sentiment for wool items continues to remain firmly in play. This may well point Australian wool prices to further positive territory into the new year and see growers receiving just rewards for their efforts,” (Wool Market Weekly Report 12/15/17).