August Feeder Lamb Prices at Four-Year LowJULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
Feeder lamb prices are lower this year, reflecting market uncertainty, higher feed costs and lower slaughter lamb prices. Feeder lamb prices in commercial, direct trade averaged $140.50 per cwt. in August. Prices were about even with July, down 12 percent year-on-year, and down 12 percent from August’s five-year average.
The commercial feeder lamb market is thinning. Many auctions today cater to the ethnic trade while commercial feeders are primarily channeled through private treaty. In general, the ethnic market prefers a lighter-weight hair lamb that is sent to harvest immediately after sale. Billings, Mont., and St. Onge-Newell, S.D., are examples of sale barns that remain that do still channel feeders into the commercial market, in addition to the Northern Livestock Video auction and the Livestock Auction in Manti, Utah.
At the Billings auction, feeders averaged $146.42 per cwt. in August, down 2 percent monthly and down 18 percent year-on-year. Feeders appear relatively low this year because the Billings’ average in August was 25 percent lower than August 2015 and August 2016.
Many in the industry remember when feeder lamb prices were 50 cents per lb. in the early 2000s. When current feeder lamb prices are adjusted for inflation the price trend is increasing: the industry is realizing real productivity gains. In terms of sale prices, the industry is better off, but many would argue real costs have also increased, squeezing margins.
In the 2000s, the inflation-adjusted (real) feeder lamb price in direct trade was 50 cents per lb.; however, in the next eight years, the real average was 67 cents per lb. In recent years, price volatility has increased sharply compared to the 2000s: the highs are very high, and the lows, very low by comparison. Price volatility adds a cost to marketing feeders. It is a cost that is hard to quantify, but is likely reflected in current low prices.
Feeder lamb prices are lower this year for a variety of reasons. One reason is lower slaughter lamb prices, another is higher imports and another is the rising cost of roughage in the coming months. While corn is lower, hay for necessary roughage is higher for many western feeders. For those putting sheep out to pasture during the fall, pastures are dry and water scarce. The cost of feeding will be higher if producers have to travel further to find fertile grazing areas.
Overall, support for feeders this year is still possible. It is not uncommon for feeder lamb trade to be at a standstill in August as feeders confirm fall feed costs, assess availability and see whether the market will trend lower. Producers, on the other hand, hold out for higher prices. In two out of the past five years, September feeder lamb prices saw a 12-percent jump from August’s low.
Slaughter Lamb Prices LowerSlaughter lamb prices weakened in August. In short, demand is insufficiently strong to prop up prices given the available supply. The longer explanation is that pelt values are down, perhaps lamb demand is sluggish and imports are up. Imports were lower in the first trimester year-on-year, but then accelerated during the summer, surpassing last summer’s highs.
Slaughter lamb prices on a formula/grid averaged $282.07 per cwt. in August, down marginally for the month and down 13 percent year-on-year. The live-equivalent price was $142.02 per cwt.
The live, negotiated price averaged $144.58 per cwt., down 7 percent monthly and down 15 percent year-on-year.
Slaughter lamb prices at auction in South Dakota averaged $127.43 per cwt., down 12 percent monthly and down 19 percent year-on-year. Prices at auction in Kalona, Iowa, averaged $129.88 per cwt., down 11 percent monthly and down 15 percent year-on-year. The Fort Collins, Colo., auction averaged $142.30 per cwt., up 5 percent monthly and down 18 percent year-on-year.
Live Lamb ForecastsIn early September, the Livestock Market Information Center forecasted that both slaughter and feeder lamb prices could rise in the fourth quarter from August averages. National, direct slaughter lambs could be $283 to $287 per cwt. on a carcass basis, up 0.2 percent year-on-year. Feeder lambs could range from $170 to $176, up 4 percent year-on-year.
American Lamb Commands Premium at RetailWhen feeder and slaughter lamb prices soften, recall that American lamb still commands a premium at retail when compared to imported product.
An American Lamb Board 2018 study “revealed positive trends for lamb in the United States,” said Jim Percival, ALB board chairman. “Among the general population, 24 percent reported eating lamb in the last year, up from 20 percent in 2011 and 21 percent in 2006. What’s more, we are seeing a positive trendline of consumers’ attitudes with 35 percent of people who eat lamb saying they like everything about it, compared to just 19 percent in 2011. For those who eat lamb, the most important attributes are flavor, unique taste and tenderness.”
Retail Prices HigherAlthough wholesale lamb prices were lower in August, retail data from July (last available data) found that lamb prices trended higher at retail during the past year while supplies were down. Higher prices are expected when supply contracts. To ensure expanded demand, the American lamb industry is challenged to keep prices high at retail while also expanding domestic lamb production.
Retail data obtained by the ALB from IRi – the FreshLook Marketing Group – revealed that in the year through July 15, lamb value grew 1 percent to $414.5 million and the volume of sales fell 7 percent to 55.1 million lbs. The average price of lamb across the United States increased 3 percent in the year through July 2018 to $7.06 per lb., and each region saw a price increase.
Production, Trade & Freezer InventoryRelative to past years, lamb availability has expanded. Estimated lamb slaughter from January to August was 1.3 million head, up 6 percent year-on-year and estimated lamb production was 89 million lbs., up 9 percent year-on-year.
Lamb imports January to June were up 3 percent year-on-year to 107.93 million lbs. Australia’s imports were up 4 percent to 78.88 million lbs. and New Zealand lamb was down 0.04 percent to 28.4 million lbs.
In early September, lamb and mutton in the freezers totaled 41.5 million lbs., up 7 percent monthly and up 55 percent year-on-year. The U.S. Department of Agriculture reports the total volume in freezers, but not the proportion that is domestic versus imported product. It is possible – given the ramp-up in domestic production – that the portion of domestic product in cold storage has grown.
The Livestock Market Information Center reported in early September that “of all the animal-based proteins, large frozen stocks of lamb and mutton tend to be the most influential on wholesale and live animal prices,” (8/31/18). LMIC added that based on past experience, price gains are “capped, and less seasonal” when freezer inventory reaches this high (8/31/18). As frozen inventory shrinks, feeder and slaughter lamb prices will see more support.
Lamb Pelts Down SharplyLower pelt prices this summer are a direct result of political uncertainty surrounding U.S.-China tariffs. In August, unshorn, supreme lamb pelts averaged $0.90 per piece at the low end, down 55 percent monthly and down 82 percent year-on-year. At the high end, supreme pelts averaged $5 per piece, down 29 percent monthly and down 38 percent year-on-year.
The U.S. lambskin market has been stagnant as major exporters and processors adopt a wait and see position – waiting to see if tariffs take effect on lambskin trade between the United States and China. Five years ago, roughly 66 percent of U.S. lambskins were exported to China. Today that percent has climbed to more than 80 percent. In the seven months through July, lambskin exports were down 11 percent in volume to China. Current market stagnation means higher value pelts are put into storage while lower value pelts are discarded.
Trade uncertainty is a risk to doing business and thus a real cost to the lambskin market. Not only are domestic pelt processors affected, but also sheep producers, in lower pelt credits. The United States-China trade dispute has international consequences, as well. Reportedly China is also slowing trade with Australian, New Zealand and South African skin exporters. Due to uncertainty in tariffs, China doesn’t know whether it will be able to sell its lambskin hats, footwear and pet products, for example, to the United States. While the United States has historically also exported to Turkey and Russia, these markets are also facing political challenges and thus face reduced trade.
Lower Australian Dollar Supported Wool PricesOn Sept. 7, the Australian Eastern Market Indicator was Australian 2,088 cents per kg clean, up 34 percent year-on-year; and U.S. 679 cents per lb. clean, up 20 percent. In recent months, the wool market has seen some weaker undertones, but remains largely supported by strong Italian and Chinese interests.
Any concern about faltering demand at current high price levels might be mitigated by the August weakening in the Australian dollar against the United States dollar.
“The exchange rate gave overseas processors some assistance with their purchase cost when the local currency continued to trend lower against the U.S. dollar,” (AWI, Weekly Wool Market Report, 9/6/18).
In August the United States-Australian exchange rate averaged 0.73, which was 8 percent lower year-on-year, and the lowest level since December 2016.
By early September, the United States-Australian exchange rate hit 0.71. The lower rate makes Australian wool exports more competitive on international markets.
Strong demand can explain strong wool prices, but tight supplies also play a roll. For example, during the week of Sept. 3, 13 percent less wool was on offer compared to a year ago in Australia (AWI, Weekly Wool Market Report, 9/6/18).
Looking forward, Australia’s wool production forecast for its 2018-19 season could be 6 percent lower, year-on-year, according to the Australian Wool Production Forecasting Committee – further supporting current price levels.
Persistent dry conditions across Australia have resulted in higher sheep sales, lower numbers of sheep shorn and lower amounts of wool shorn per clip.