American Lamb Primed for Continued Strong Demand in 2018JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
Happy New Year. From local food to adventurous flavor profiles to the growing significance of millennials in our meat markets, American lamb is positioned to enjoy continued strong demand in 2018.
Being local will continue to drive meat sales in 2018. The 2016 Power of Meat study revealed that 75 percent of lamb consumers prefer buying American lamb, and half are willing to pay more for it, (American Lamb Board, 2017).
Second, Americans continue to enjoy exotic flavor profiles, in which lamb is a perfect fit. Whole Foods (or, should we say Amazon?) recently released its 2018 food trends among which Feasts from the Middle East topped the list.
“Spices like harissa, cardamom and za’atar are hitting more menus, as well as dishes like shakshuka, grilled halloumi and lamb,” (Whole Foods, 11/6/17). Lamb is
the meat of choice in many Middle Eastern cultures.
Third, millennials will be increasingly important in marketing strategies. Millennials spend significantly more on meat than baby boomers ($162 vs. $93), (American Lamb Board, 2017). In particular, millennials are willing to spend 73 percent more on barbecue ingredients than the average shopper (American Lamb Board, 2017). Lamb burgers and kebabs are easy grill items, which are also seeing growth in fast casual restaurants.
The lamb industry does a good job catering to consumer demand; but it faces a more profound problem, getting enough American lamb out in front of its consumers. American commercial lamb production fell 42 percent in the last 20 years, but lamb imports grew by 271 percent and total lamb availability grew by 10 percent. Between 2010 and 2014, lamb availability per capita dipped below 1 lb. per person, but has grown to 1.1 lbs since then. However, the Livestock Market Information Center forecasts that lamb per capita dips back to 1.0 lb. in 2019 (11/25/17).
Contraction in lamb availability can potentially challenge efforts to strengthen lamb demand. If less commercial lamb is available, and consumers that want to enjoy lamb can’t find it, then they might avoid lamb in the future.
Packer Spread Remained HighPacker spreads remained high in November with the live market gaining only 3 percent in the year through November, while the wholesale lamb market jumped 12 percent. The live-to-cutout packer price spread averaged $96.70 per head in November, down 7 percent monthly and up 34 percent year-on-year. In 2012, the spread was high at an average of $92 per head, but in the following four years it averaged $54 per head.
Growing packer spreads have made sense historically, but the current expansion in the spread is unprecedented and worrisome. Increased costs borne by packers has made sense historically as higher labor costs went hand-in-hand with increased lamb fabrication, responding to the consumer demand for convenience. However, the current packer spread is not in response to any known value added movement in the meat case.
The 2018 commercial lamb industry faces an awkward paradox. Commercial lamb supplies are tight – harvest weights and production trended lower – and yet relatively average price offers to commercial producers do not necessarily reflect this scarcity. This scenario could be the result of import accounts replacing domestic accounts as domestic prices rise. Perhaps domestic supplies are not tight at all if we consider we operate in a global marketplace where supplies available to American packers come from the United States, Australia and New Zealand. When American lamb prices rise, consumers can compromise on their credence values, such as buying local, and switch to imports.
Preliminary 2017 estimates reveal that the non-traditional market is contracting, as well. It is not growing at the expense of the commercial market. Five years ago it was estimated that the non-traditional market comprised about 30 percent of all lambs available, but slipped to an estimated 27 percent in 2017. This trend is anticipated: As ethnic populations assimilate, lamb demand through commercial channels will rise.
Many packers today trade domestic and imported product, calculating composite prices in purchasing and selling decisions therefore the packer spread may not be as straight-forward in analyses than formally.
2018 ForecastsThe LMIC forecasted in early December that 2018 could see total lamb and mutton consumption (called disappearance) down 1 percent annually. The estimated contraction stems from a 5 percent lower projected import level and a marginal 0.3 percent uptick in domestic production. LMIC forecasted that lamb and mutton exports could expand by 4 percent in 2018.
In 2018, it is forecasted that the relatively strong U.S. dollar will continue to make imported lamb relatively less expensive and the export of lamb and wool relatively less competitive, or more difficult.
Feeder Lambs Steady; Slaughter Lambs MixedSixty- to 90-lb. feeders at auction averaged $160.60 per cwt. in November, steady with October and 7 percent lower monthly. San Angelo (Texas) prices hit $166.50 per cwt., Fort Collins (Colo.) averaged $157.50 per cwt., and Sioux Falls (S.D.) averaged $157.79 per cwt.
Slaughter lambs sold on formula, or grid, averaged $284.63 per cwt. on a carcass base averaging 77.33 lbs. Prices were up 3 percent monthly. On a live weight basis these lambs equaled about $143.41 per cwt. at 153.50 lbs.
Lambs sold on a live, negotiated basis averaged $140.95 per cwt., down 2 percent monthly and down 2 percent year-on-year. Weights averaged 135.53 lbs. Slaughter lamb prices at auction in Sioux Falls (90-115 lbs.) averaged $130.29 per cwt., down 1 percent monthly and down 1 percent year-on-year.
Wholesale Market Remains HighBolstered by high quality and strong demand, the wholesale cutout hit a new record this summer, easily surpassing its November 2011 record and punching through the $430 per cwt. mark for the first time ever. In the last few months the market has cooled, but only by 10 percent.
The wholesale cutout in the year through November was 10 percent higher year-on-year and 6 percent higher than the same period in 2015.
The wholesale composite averaged $385.84 per cwt. in November, down 2 percent and up 9 percent year-on-year. The net carcass value – after processing and packaging costs are deducted – averaged $340.99 per cwt. All primals except for the rack saw values move lower in November.
The loin, trimmed 4x4, averaged $579.46 per cwt., down 4 percent monthly and up 9 percent year-on-year. The shoulder, square-cut, averaged $298.68 per cwt., down 5 percent monthly and up 2 percent year-on-year. The leg, trotter-off, saw $354.76 per cwt., down 4 percent monthly and up 2 percent year-on-year. The rack, 8-rib, medium averaged $875.08 per cwt., up 1 percent in November and up 24 percent year-on-year.
The value of further fabricated racks reveals lamb as a high-value specialty item. The rack, roast-ready, frenched averaged $16.31 per lb., down one-half percent for the month and up 17 percent year-on-year. The rack, roast-ready, frenched special (cap-off) averaged $21.34 per lb., down 4 percent monthly and up 23 percent year-on-year. By comparison, the Australian rack averaged $9.44 per lb., down one-half percent monthly and up 10 percent year-on-year.
The U.S. Department of Agriculture Agricultural Marketing Service collects retail lamb data of featured prices (i.e., price specials) printed in grocery circulars. In early December, the rack averaged $13 per lb., up from $11.26 per lb. a year ago. Prices don’t specify country of origin.
The highest quality lamb pelts – unshorn supreme – ranged from $5.67 to $9.42 per pelt in November, averaging 5 percent higher monthly and 3 percent higher year-on-year.
Production and TradeEstimated commercial lamb harvest through November was 1.6 million head, down 4 percent from the same period in 2016. Commercial lamb production was down 5 percent at an estimated 112.4 million lbs. Harvest weights were down about one-half lb., which can account for some of the drop.
In the nine months through September, lamb and mutton imports were up 19 percent year-on-year to 195.2 million lbs. Mutton imports saw a 72-percent increase to 40 million lbs. and lamb imports were up 10 percent. Lamb imports from Australia were up 6 percent to 110.5 million lbs. and New Zealand imports were up 21 percent to 42.4 million lbs.
Fall Sales StrongDuring the week ending Dec. 7, the Australian wool market Eastern Market Indicator hit Australian $1,699 cents per kg, up 26 percent year-on-year. In U.S. dollars the EMI averaged U.S. $582 cents per lb., up 27 percent year-on-year.
In November, the Australian wool auction market reacted to its impending three-week recess. As the Australian Wool Exchange Ltd. explained, wool buyers’ interest intensified as the window for December purchases narrowed. All wool types and descriptions increased as “buyers fought hard to secure market share,” (12/7/17). AWEX reported that wool preparation matters: “The better prepared lines attracted the greatest buyer interest and as a result enjoyed the largest increases,” (12/7/17).
In November of this year, 207,543 lbs. of clean U.S. wool trades were reported and 363,926 lbs. of greasy sales. Trades consisted of Idaho fall shorn wools, but also a lot of wool from last spring that missed warehouse sales due to inclement weather. In the Territory States (the West and some California wools), 22 micron averaged $4.66 per lb. clean, up 34 percent year-on-year. Twenty-three micron averaged $4.41 per lb., up 47 percent year-on-year. Twenty-four micron averaged $3.56 per lb., 34 percent higher annually.
In the Fleece States (Midwest and Eastern wools) 22 micron averaged $4.34 per lb. clean and 23 micron averaged $3.89 per lb. Where there were Fleece State trades last November, prices averaged 17 percent higher year-on-year. Greasy wool prices ranged from $0.75 per lb. for 45-55 mm 27 micron Territory States wool to $1.46 per lb. for 55-65 mm 23 micron Fleece States wools.