Market Report

Market Report

Food Service Promotes Locally-Produced Meats

Julie Stepanek Shiflett, PH.D.
Juniper Economic Consulting

The top three restaurant menus trends for 2014 focus on locally sourced meats, seafood and produce and environmentally sustainability. Also in the top ten trends is the growing popularity of farm/estate-branded items. According to the National Restaurant Association’s 2014 Culinary Forecast released last December, these trends have been gaining momentum for several years and are now definitely not a fad, but a real sea change, influencing the national culinary industry.

“Today’s consumers are more interested than ever in what they eat and where their food comes from, and that is reflected in our menu trends research,” said Hudson Riehle, senior vice president of the National Restaurant Association’s research and knowledge group. Local farms and food producers have become an important source of ingredients for chefs and restaurateurs wishing to support the members of their business community and highlight seasonal ingredients on menus, reported the National Restaurant Association.

While direct lamb marketing is nothing new, perhaps now more formal foodservice opportunities are opening up to producers. We are seeing an increased demand for local meats, but can producers find local, slaughter/processing facilities? The U.S. Department of Agricultural recently researched local slaughter facilities to identify limits and opportunities for growth. If the demand is there, will increased slaughter and mobile slaughter facilities follow?

Lamb producers large and small can take advantage of these food service trends by tapping into local food hubs as well as marketing themselves directly. Particularly valuable to chefs and other buyers is the information displayed on a farm or ranch website about the owners, its practices and values (Michigan State University Extension, 1/2014).

We know that many lamb producers are seasoned direct marketers.

In 2007, 32 percent of lamb producers reported that they were engaged in direct marketing (RTI International 2007). It would be interesting to know the extent to which producers are graduating from solely seasonal farmers’ markets to year-round grocery and restaurant deliveries.

In an effort to better understand the current trends and assess the needs of direct marketing, the American Lamb Board surveyed lamb producers in December and early January. By combining the survey results, interviews and other research; the American Lamb Board hopes to formulate materials to assist you in your direct marketing pursuits.

With excellent lamb quality and improved margins for producers in all markets, feeders and processors, the stage is set for expanded lamb demand and then, that which follows, expanded U.S. sheep inventory.

2013 U.S. Lamb Production Up
In 2013, an estimated 1.97 million head of lambs were slaughtered, up 6 percent year-on-year. Lamb production was an estimated 135.9 million pounds, down 1 percent year-on-year. Between 2012 and 2013 average slaughter weights fell 7 percent to 137 pounds so increased slaughter translated into lower, not increased production.

At the end of December, the Livestock Market Information Center (LMIC) forecasted that lamb and mutton slaughter in the first quarter of the New Year could be down 2 percent year-on-year at 525,000 head. Given a forecasted dressed slaughter weight of 70 pounds, lamb and mutton production in the first quarter was forecasted to fall 3 percent year-on-year at 36.6 million pounds.

For the year, LMIC forecasted that slaughter could expand by up to 1 percent above 2013 and production could grow by nearly 2 percent. LMIC forecasted that lamb and mutton imports could contract by 1 percent this year leaving total supply – domestic production plus imports — down by 4 percent.

Feeder and Slaughter Lamb Price Forecasts
After years of price volatility, lamb prices should stay steadier this year, and strong. LMIC expected slaughter lambs on a carcass-weight basis to range from $290 to $295 per cwt. in the first quarter (about $146 per cwt. live), 29-percent higher than a year ago and 60-90 pound feeder lambs to range from $193 to $200 per cwt., up 32 percent.

LMIC forecasted that lamb imports could expand by 4 percent this year, but domestic production could fall by as much as 7 percent leading to an 8 percent contraction in total supplies. Less lamb available domestically will like support prices at first-quarter levels for most of the year.

In recent years, lamb imports accounted for about half of total lamb in domestic markets. However, Americans prefer fresh lamb. Only about half of the total volume of lamb imports in the past few years has been fresh with the remainder frozen. This factor – particularly given lamb quality stays consistently high — might give American lamb a competitive advantage in 2014, supporting prices.

December Feeders up to 86-Percent Higher
Last year was memorable for feeder lambs with a 62 percent jump in prices through the year. Supplies got tighter, feed costs fell and quality was excellent. Feeder lamb prices in direct trade gained 1 percent in December to $177 per cwt., 79 percent higher year-on-year.

With over 83,000 feeder lambs traded last September, the last quarter saw the feeder trade slow substantially although 1,600 trades were reported in December. A total of 1,000 head traded out of Idaho with 115-pound lambs receiving $180 per cwt. and 145-pound lambs receiving $165 per cwt. Another 600 head traded out of Texas averaged $186 per cwt. for 100-pound lambs.

Sixty- to 90-pound feeder lambs at auction in December averaged $196.46 per cwt., up 8 percent monthly and up 86 percent higher year-on-year.

At San Angelo, feeders averaged $196.75 per cwt., up 7 percent monthly and at Sioux Falls, lambs averaged $196.18 per cwt., up 9 percent monthly.

Feed Costs Down
“Corn futures were almost certain to end 2013 as the worst-performing major commodity market, having lost nearly 40 percent of their value as a mammoth U.S. crop came to harvest at a time of diminished demand for ethanol and livestock feed,” (Reuters, 12/31/13). Possible lower export demand (particularly from China) and expectations of a bumper crop in Argentina might lead to further price weakening. This all bodes well for the lamb industry, lower corn has meant a return to positive margins for many lamb feeders.

Art Liming, a futures specialist for Citigroup, commented: “We’ll be down again next year, but not 40 percent. I think corn will fall to the $3.50 per bushel area,” (Reuters, 12/31/13).

On January 6, the Chicago Board of Trade corn futures for March delivery settled at $4.23 per bu. while September corn was $4.45 per bu.

Alfalfa slipped one-half percent in December to $187 per cwt. and was 14 percent lower than a year ago.

Commercial Slaughter Lamb Prices End on a High
December slaughter lamb prices were 65 percent higher in December year-on-year and 34 percent higher than its 5-year average for the month. The combination of tight supplies, higher feeder lamb prices, lower corn prices and renewed confidence in retail lamb markets likely supported this gain.

In late 2013, the slaughter lamb market was playing catch up after prices slumped in 2012 and stayed depressed for the first-half of 2013. On average, slaughter lamb prices at auction were 1 percent lower in 2013 compared to 2012 and formula prices were 13-percent lower in 2013. The formula slaughter lamb market hit a low in October 2012 of $111 per cwt., but managed to rebound by 33 percent by the end of 2013.

Live, slaughter lamb prices at auction climbed 5 percent in December to $159.09 per cwt. San Angelo saw an 11 percent jump to average $162.67 per cwt., South Dakota fell 2 percent to $157.50 per cwt., Kalona, Iowa gained 4 percent to $157.42 per cwt., and Equity Electronic Auction saw a 5-percent climb to $157.75 per cwt., 32 percent higher year-on-year.

At $291.62 per cwt., slaughter lamb prices on a carcassbased formula were 4 percent higher monthly and 32 percent higher year-on-year.

Nontraditional Lamb Market Saw Lift
In December, the nontraditional sheep market at the New Holland Sales Stables auction in Lancaster, Pennsylvania averaged $154 per cwt. For 90 to 110 pound lambs, up 9 percent monthly and up 26 percent year-on-year. In 2013, prices at New Holland averaged $132 per cwt. for 90-110 pound lambs, down 12 percent from $151 per cwt. in 2012.

New Holland has been a popular marketing option in the nontraditional market. Recall, however, that prices received at New Holland are subject to the volume of head received in a given week. If a producer is planning to sell at New Holland, remember that he or she is competing against lambs shipped from neighboring states as well as from Texas.

Ethnic holidays are an important marketing outlet for many lamb producers. Passover runs from March 15 to 22 while the Western (Roman) Easter is later, April 20. There are also important Muslim holidays that producers might want to consider when marketing. Ramadan begins at the end of June and ends toward the end of July. Perhaps an even more significant holiday for the lamb industry is the Islamic New Year on October 25. Eid ul-Adha, the Muslim Festival of Sacrifice, celebrated in early October this year.

The “Maryland Small Ruminate Page” under “Marketing” hosts a wealth of information about direct marketing into ethnic markets. Cornell University’s “Sheep & Goat Marketing” website and producer directory is another good resource.

Weather Conditions Affect Pelt Quality
In December, pelts held steady to lower with Fall Clips (the longest wooled) receiving $11.08 per piece and $9.46 per pelt for No. 1s. Imperial pelts out of California held at $12.

Pelt prices are highly dependent upon length of wool, but also quality which can be at the mercy of Mother Nature. As seen last December, mud and seeds in the wool can lead to lower offers.

In late December, the U.S. Department of Agriculture (USDA) Agricultural Marketing Service (AMS) reported that global markets, the traditional seasonal slowness of pelt sales and seedy pelts were items of note in the market.

In 2013, prices paid by lamb packers for pelts fell 13 percent annually to $9.02 per piece. This year, pelt prices – like wool – will continue to be a function of the global economic recovery.

Holiday Lamb Featuring Up
Last December, retailers decided to increase lamb featuring, figuring perhaps the combination of excellent quality and competitive prices could serve to move product. Retail prices for the three most featured leg items in December was down 10 percent year-on-year, making it more competitive against high-priced beef alternatives. USDA/AMS explained on December 20: Lamb feature activity increased 75 percent from last week, with leg items continuing to see the most ad space at steady prices compared to previous weeks.

Featuring of lamb leg items increased by 152 percent over previous week’s ads and was 118 percent higher than the same period in 2012.

Lamb racks remained a favorite item again this week, with frenched racks being a Holiday favorite. AMS commented in early December that cold weather items like stew meat and shanks were also regularly featured — at lower values.

In the third week of December the lamb leg saw the greatest volume of featuring. The bone-in leg averaged $6.19 per pound, down from $6.62 per pound year-on-year. The boneless leg averaged $6.45 per pound, down from $6.94 per pound a year earlier. The semiboneless leg received $5.10 per pound, down from $6.05 per pound

Lower prices at retail doesn’t mean lamb demand is down. We know that total lamb supplies (domestic plus imports) through October were up 7 percent year-on-year so a lower, higher or stable demand could have produced lower prices at retail. Excellent lamb quality, higher incomes and high-priced beef all hint at expanded demand, however.

“Explosively Delicious and Juicy”
Kudus to The New York Times on its lamb shoulder feature (12/1/13). Yes, the shoulder. The rack will always hold the spotlight, but it has conceded some of the limelight to the leg and loins, and now, the shoulder. The NYT appreciated that the shoulder is “rippled with intramuscular fat” which makes it ideal for winter stewing and braising.

The shoulder is also a welcome alternative for lovers of lamb that want to keep lamb in their diets, but at a lower price point. Last December, the shoulder was priced 23 to 41 percent lower than the leg and loins, respectively.

In 2014, lamb consumption will continued to be driven by lamb offerings that save consumers time and money. There will also be little willingness to sacrifice taste. Why pay more when you can get the same taste experience in a shoulder or ground lamb?

There is a reason over 40 percent of the beef Americans eat is ground beef – it is versatile and easy to prepare.

Both ground lamb and the shoulder lost less than $1 per pound between the 2011 highs and 2012/13 lows, compared to over $1 for the rack, loins and leg. Individual lamb cuts likely have a unique consumer profile and hence, demand.

Wholesale Market Posted Late-Year Gains
By December 2013, wholesale lamb prices (gross carcass value) had seen its fourth consecutive month of price gains which was a welcome relief to the industry after a 21-month long price slide. In spite of the recent gain, however, the 2013 lamb wholesale market was still down 13 percent compared to 2012 at an average $297.19 per cwt.

In December, the gross carcass value averaged much higher, $360.30 per cwt., up 8 percent monthly and up 20 percent yearon- year.

The 8-rib rack, medium, price averaged $789.76 per cwt. in December, up 15 percent for the month and up 52 percent yearon- year. The shoulder, square-cut, averaged $290.11 per cwt., up 9 percent monthly and saw a 20 percent gain year-on-year. The loins, trimmed 4×4, jumped 3 percent monthly to $490.19 per cwt., 2 percent higher than a year ago. The leg, trotter-off, averaged $376.62 per cwt. in December, 6-percent higher year-onyear and up 12 percent year-on-year.

Ground lamb averaged $533.73 per cwt. in December, up 2 percent year-on-year and up 1 percent year-on-year. Carcass prices averaged $302.33 per cwt. in December, up 5 percent monthly and up 20 percent year-on-year. At an average $261.23 per cwt. in 2013, carcasses were down 13 percent yearon- year.

The U.S. rack, roast-ready, special averaged $1,657 per cwt. in December, 67 percent higher than the comparable Australian rack, frenched, cap-off, at $993 per cwt.

It is a challenge to compare U.S. and imported Australian lamb cuts because it is difficult to compare exactly the same cut across countries. For example, while the U.S. rack reported above weighs between 1.5 and 3 pounds, the most comparable Australian cut only weighs 20 to 28 oz., or up to 1.75 pounds

Lower unemployment and slowing rising incomes will help boost food service sales in 2014 which in turn, will support the wholesale market. Last October, the National Restaurant Association’s monthly Restaurant Performance Index stayed above 100 — the dividing line between expansion and contraction — for the eighth straight month, reaching its highest level in the past four months.

Imports Led to High 2011 Prices
In December 2013, the USDA Grain Inspection, Packers and Stockyards Program (P&SP) initiated an investigation of the lamb market in late 2012 after eight U.S. Senators, one U.S. Representative and a group of nine agriculture advocacy organizations requested an investigation.

While the letters addressed a broad range of issues in the lamb market, at the forefront was concern regarding the recent large swing in lamb prices.

Beginning in January 2010 and continuing through 2012, prices for fed lambs doubled then fell back to levels similar to where they started in 2010.

The P&SP report found that the cost of imported lamb was likely the most contributing factor to the run-up in 2011 prices. Prices for imported lamb increased throughout 2010 and reached a peak in July 2011 then fell throughout the rest of 2011 and 2012 while prices for U.S. fed lambs also decreased.

P&SP explained that as imported lamb prices rose, consumers started to switch out of imports and buy American lamb. This increased demand led to higher American lamb prices.

However, “prices for lamb eventually reached such high levels that consumers curtailed the amount of lamb they purchased. Restaurants and retailers that attempted to keep their prices stable suffered losses when prices increased, and some chose to stop offering lamb.”

Wool Market Challenges to Sell Itself as New Year Has New Opportunities

In 2013, average clean wool prices in the U.S. were $3.54 per pound, down 10 percent from $4.04 per pound clean in 2012. As Mike Corn, Roswell Wool, has explained, “We are always in an international market – even when we sell our wool domestically. And selling over-seas continues to be a major outlet for US wool,” (2013). U.S. wool prices tend to mirror Australian wool prices. In 2013, the Australian wool averaged 1,090 Australian cents per kg clean, down 2 percent annually.

The year-to-year price comparison of U.S. wool only a simple average and thus doesn’t account for the fact that we not comparing constant quality across years.

In 2013 perhaps more of the coarser wools (lower-priced) were sold compared to 2012.

Clean wool sales in the Territory States received an average 5 percent higher in 2013 compared to 2012. However, wools out of the Fleece States in the Midwest were 18 percent lower, on average. In late December the U.S. saw some wool trades with 53,000 pounds trading clean and 457,000 pounds trading greasy. In the Fleece States (Midwest), 22 micron averaged $3.85 per pound clean, down 8 percent from the spring 2013 high. Thirty to 34 micron wool averaged $1.49 per pound clean. Fall sales typically offer lower-quality wools compared to spring offerings.

In the Territory States (western U.S.), 21 micron averaged $3.97 per pound, 22 micron was $3.93 per pound, 23 micron was $3.66 per pound and 30-34 micron was $1.54 per pound These prices were about 9 percent lower than highs enjoyed during the spring of 2013.

Australian production of 21-24 micron wools has dropped sharply which, in turn, has raised prices of these wools relative to the finer wools.

USDA reported that classed and skirted wools usually traded at a 10- to 20-cent clean premium to original bag prices. If a grower receives 7.3 pounds of wool per head and has 100 head to shear then the additional effort to class and skirt wool can yield an additional $146.

On a greasy basis, ewe wool in the West averaged $1.88 per pound greasy for 22 micron and 23 micron was $1.69 per pound

U.S. raw wool exports in the ten months from January through October were up 28 percent year-on-year to 8.4 million pounds Increase raw wool demand in spite of slower retail sales likely supported this expansion (ASI Wool Journal, 1/2014).

Wool top exports more than tripled in this period to nearly 2 million pounds Total wool textile exports were up 8 percent yearon- year to 78.4 million pounds led by increases in wool apparel and wool floor coverings exports.

The global wool industry is continually challenged to market itself to build demand. Research on consumers’ perception of the environmental sustainability of wool is mixed.

Australian Wool Innovation Ltd. (AWI) consumer market research shows that consumers strongly associate ‘wool’ with ‘natural’, and that a preference for ‘natural’ is a key discriminator of those consumers most likely to invest in wool textiles (12/2013).

However, some organizations that rank wool’s environmental track record found that wool ranks lower than polyester. For example, the environmental rating tools of MADE-BY and the Sustainable Apparel Coalition’s (the ‘Higg Index’) rate wool’s sustainability low.

Part of the reason for the low ranking is the reported chemicalladen waste water disposable by the Chinese textile industry.

On a positive note, AWI research found that across all markets, 66 percent of consumers believe that pure wool products are environmentally sustainable, with 25 percent undecided, and less than 10 percent considering wool unsustainably produced. The consumer markets where wool rating is most positive are China (80 percent believe wool is sustainably produced) and Italy (73 percent) (AWI 12/2013).

The survey results out of China are promising for China is rapidly becoming a luxury market with reportedly 25 percent of the world’s luxury consumers and Chinese tourist reportedly buying 30 percent of luxury goods in Europe (AWI, 12/2013). William Lempriere, of the Lempriere Group – wool grower, broker and early-stage processor – commented that one of the biggest concerns for the wool industry is the falling demand for tailored and bespoke suiting (hand tailored) (Wool Trade International, 2013).

China Looks Promising – Still
The potential growth in the apparel wool market in China is huge. Mr. Lempriere added that while China is the biggest market for luxury goods, it has not yet embraced a culture for high-quality business attire,” (Wool Trade International, 2013). In the future, China’s growth – albeit lower – will fuel increased wool demand as its economy transitions to a consumer-driven market and less export-driven (ASI Wool Journal, 1/2014).

Paul Swan, the AWI’s group manager of marketing and intelligence, said the future of Australian wool was in luxury apparel so it was critical the industry communicate the fiber’s “wellness and sustainability credentials” to fashion brands, retailers and consumers, (3/2013).