Easter -- A Lamb Industry DriverJULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
Accounting for about 26 percent of annual leg sales, Easter is a significant demand driver. Producers, processors and retailers take note.
Production ramps up by about 14 percent during Easter and retailers create a buzz of feature activity. In any given non-holiday week, about 94 grocery stores will feature bone-in leg of lamb, for example. During Easter, this feature activity can jump to more than 5,000 stores per week.
Easter leg items as a category averaged $6.49 per lb. this year. Prices ranged from $5.48 per lb. for the semi-boneless leg to the higher-end leg steak at $7.94 per lb. The bone-in leg received the most feature activity among leg cuts at nearly 5,000 grocers, averaging $6.00 per lb. The semi-boneless leg received the second-highest feature activity, at $5.48 per lb. Legs were roughly 8 percent higher this year.
Feature activity for the rack of lamb rivaled that of the semi-boneless leg this Easter. There is likely some substitution between the traditional leg in menu choice and the rack. The cap-on rack of lamb feature average was $11.26 per lb.
Pricing Strategy Promotes LambUnited States retailers offer Easter leg specials to help move product. According to a 2015 American Lamb Board study, the price of legs is on average 15 percent lower during Easter and sales volume is 359 percent higher than non-holiday weeks. Total lamb expenditures rise sharply during Easter from an average of $6.5 million weekly to $23.9 million.
The American lamb leg is featured during Easter, but still receives a price premium relative to imported product. In 2017, ALB found that at retail, the domestic leg receives 24 percent and 25 percent premium for the American leg category in comparison to Australian and New Zealand legs.
Import Share RisesIn January 2018, the share of imported lamb in total available supplies hit 62 percent for the second time within a year – 10 percent above 2017’s average of 56 percent.
According to its March 2018 agricultural commodities outlook report, the Australian Department of Agriculture and Water Resources forecasted that the demand for Australian sheep meat exports is expected to remain relatively strong in 2018-19, driven mainly by income growth in China and an assumed lower Australian dollar.
However, according to ABARES, United States demand growth for Australian sheep meat is expected to slow during the next five years due to increased competition from American supplies and exports from New Zealand – the largest sheepmeat exporter worldwide. Overall, in the five years to 2017, Australian lamb exports to the United States averaged 8 percent per annum and are expected to slow to 3 percent per annum in the next five years.
Australian sheepmeat exports to China are expected to outpace exports to the United States in the course of the next five years (ABARES, 3/2018). Higher income growth in China is fostering increased meat consumption.
Feeder Lamb PricesFeeder lamb prices averaged $194 per cwt. in March, 11 percent higher monthly and 14 percent higher year-on-year. In March, 2,700 feeders traded in direct trade.
Feeder lamb prices at auction were reported for only two auctions. In San Angelo, Texas, prices averaged $198.50 per cwt., down 9 percent monthly and down
9 percent year-on-year. In Sioux Falls, S.D., prices averaged $210.65 per cwt., down 14 percent monthly and down 21 percent year-on-year.
In 2014-2016, feeder lamb prices at auction peaked early in the year then declined through the remainder of the year. In 2017, however, feeders peaked later, during the summer. This year, depending upon domestic availability and imported supplies, it is forecasted that feeder lambs could average above $200 this summer. By April, most lambs coming off California winter pastures had been shipped to feedlots. It is thus a challenge moving forward to stretch out April/May feedlot supplies to satisfy demand through the lean summer months.
The Livestock Market Information Center forecasted that feeder lamb prices could fall below $200 per cwt., to $185-$195 per cwt., by the third quarter.
Slaughter Lamb Prices StrongerSlaughter lambs on formula averaged $265.60 per cwt. on a carcass basis, up 3 percent monthly ($133.31 per cwt. on a live basis). Carcass weights averaged 86.9 lbs. (about 173 lbs. on a live basis). Prices were not reported last March to provide an annual comparison. As post-Easter demand slows, packers are challenged to get the heavier lambs to market before adding too much weight.
On a live, negotiated basis, lambs weighed 157.45 lbs. for an average $142.66 per cwt. Prices were up 5 percent monthly and up 5 percent year-on-year. Weights were down 4 percent monthly to 157.45 lbs. and up 9 percent year-on-year.
According to LMIC, slaughter lamb prices on a carcass basis could average $316-$323 per cwt. in the third quarter, lower than a year ago, but higher than early 2018.
The United States pelt market saw some lift in March. The unshorn pelt, supreme, averaged $2.50 to $11.75 per piece – up about 70 cents monthly and $2.10 per piece higher than a year ago.
March Meat Market StabilizedThe wholesale composite averaged $369.88 per cwt. in March, down a marginal 0.2 percent monthly and up 11 percent year-on-year. After processing and packaging costs are deducted (a U.S. Department of Agriculture-estimated value of $44.85 per cwt.), the net carcass value averaged $325.03 per cwt.
The 8-rib rack, medium, averaged $842.97 per cwt., up 2 percent monthly and up 20 percent year-on-year. The shoulder, square-cut, averaged $271.96 per cwt., down 2 percent monthly and steady year-on-year. The loin, trimmed, 4x4 saw $523.06 per cwt., down 3 percent monthly and about steady with a year ago. The leg, trotter-off, saw $368.12 per cwt., up 3 percent monthly and up 14 percent year-on-year.
Further fabricated cuts maintained their premiums through Easter. In the weeks leading up to Easter, the rack, roast-ready, frenched averaged $16.27 per lb. The rack, roast-ready, frenched, special averaged $21.46 per lb.
Ground lamb averaged $564.83 per cwt. in March, up 0.5 percent and up 16 percent year-on-year.
U.S. Production Up; Imports DownIn the first quarter, and perhaps due to the early Easter, American lamb production was up year-on-year. First quarter estimated lamb harvest was mostly steady year-on-year and estimated lamb production was up 2.4 percent to 33.57 million lbs. Harvest weights were up 1 lb. year-on-year to 72 lbs.
According to Meat & Livestock Australia, Australian lamb exports to the United States were down 3 percent in the first quarter of the year to 13,922 tonnes. If imports slow through 2018, then this could support feeder and slaughter lambs and the meat market as commercial packers bid lambs away from the ethnic and other niche markets.
Australian lamb exports to China in the first quarter were 7 percent less than exports to the United States, signifying that China is becoming a viable lamb export market and perhaps diverting some product away from the United States. It is also possible that exchange rates played a role. In the first three months of this year, the Australian dollar lost value, which means exporting to the United States was relatively less competitive.
American Wool Prices HigherThe American wool season launched with a bang. More than 600,000 lbs. of wool traded in March on a clean basis and prices were roughly 38 percent higher than last spring.
USDA reported that American wools traded at 85 to 90 percent of Australian wools (3/30/18). This is good, considering that USDA suggests that 75 to 85 percent of Australian wool prices is a good way to value American clean wool prices, on average. March wools were largely high-yielding (very clean) and contaminate-free.
Sometimes this ‘percentage guide’ to Australian wool can be much higher with quality wools receiving 95 to 100 percent. Additionally, American wools can be closer to Australia prices in an active market, as the industry is currently witnessing.
In Texas and New Mexico, 18 and 19 micron wools ranged from $5.96 per lb. clean to $5.63 per lb. In the Territory States, 19 micron averaged $6.43 per lb. clean down to an average $4.97 per lb. for 23 micron. In the Fleece States (primarily California wools), 20 micron averaged $6.00 per lb. clean to $4.47 per lb. for 25 micron.
The Australian Wool Exchange Eastern Market Indicator lost some value by the end of March to average 1,772 Australian cents clean per kg, but was still about 18 percent higher year-on-year. In American dollars, the conversion was 1,363 U.S. cents per kg. Australian demand was strong from overseas buyers such as China. The highest prices received for finer wool were those with reduced variation in top lengths, minimal break points in the wool, and negligible vegetable matter contamination (AWEX, 3/30/18).
As wool prices drive higher, substitution to lower-cost materials can occur for blended products. In 2017, the wool to polyester price ratio was nearly 10:1, compared to 2018. The wool to cotton price ratio was about 6:1 (ABARES, 3/2018). However, “strong wool prices over the medium term are not expected to affect the production of higher-value and pure woollen apparel,” (ABARES, 3/2018). In the United States, in particular, changing fashion trends and an increased demand for natural materials has revitalized the textile industry.