JULIE STEPANEK SHIFLETT, Ph.D.
Juniper Economic Consulting
Tight supplies and perhaps ethnic demand drove the live lamb market higher in June, although, the commercial wholesale market weakened. Historically, movements in the live market are typically mirrored in wholesale trends, but less so in recent years and recent months.
This lack of correlation is a testament to the complexities of the lamb market. The continued lack of price reporting exacerbates this risk – and costs – for producers and feeders.
The feeder market got a boost from tight supplies and perhaps a shortage of lighter-weight lambs in current commercial harvest. Feeders coming out of California were on pasture longer, and weighed in a little heavier when entering feedlots, at about 119 lbs. in June.
Feeder lambs in direct trade averaged $172.53 per cwt., 9 percent higher monthly and 9 percent higher year-on-year.
Sixty- to 90-lb. feeder lambs at auction averaged $190.67 per cwt., down 1 percent monthly and down 5 percent in a year. Fort Collins (Colo.) saw $194.75 per cwt., Sioux Falls (S.D.) averaged $193.58 per cwt. and San Angelo (Texas) was lower at $183.67 per cwt.
Slaughter lamb prices on a carcass-based formula were still not published through June, which adds considerable risk (cost) to feeders. Reportedly, feeders in June were sending signals of fewer purchases this fall until more price information is available to guide feeding decisions.
Slaughter lamb prices at auction averaged $154.83 per cwt., up 5 percent monthly and down 1 percent year-on-year. Prices averaged $136.80 per cwt. in San Angelo, $165.40 per cwt. in South Dakota, $154.15 per cwt. in Fort Collins and $167.88 per cwt. in Kalona, Iowa.
Live, negotiated slaughter lamb prices averaged $148.92 per cwt. in June, up 9 percent monthly and 2 percent higher year-on-year.
Slaughter lamb prices for formula purchases on a carcass basis have not be available since the end of January. In the second quarter, prices for 47 percent of market trades were unknown: either packer-owned or on formula.
In June, some of the better prepared pelts strengthened while lower quality pelts lost value or remained unchanged. Supreme unshorn pelts averaged $8.88 per piece, premium pelts brought $2.97 per pelt, standard pelts averaged -$2.50 per piece and fair pelts averaged 41 cents per piece.
The USDA’s Agricultural Marketing Service recently introduced a new standard for grading pelts. The different classes are unique, but have overlapping specifications.
Without slaughter lamb prices available for a large segment of the industry, more weight is placed upon the wholesale market to decipher trends and establish price expectations.
The net carcass value (after processing/packaging) averaged $307.31 per cwt., down one-half percent in June and 4 percent lower year-on-year. The net carcass value has been downward trending since late 2014 and was at the lowest level in two and half years. The shoulder and loin were the only primals to see monthly gains.
The loin, trimmed 4×4, averaged $524.05 per cwt., up 1 percent in June and 0.3 percent lower year-on-year. The shoulder, square-cut, brought $275.27 per cwt., up 0.05 percent monthly and 7 percent lower year-on-year.
The 8-rib rack, medium, averaged $666.99 per cwt., down 2 percent in June and 10 percent lower year-on-year. The U.S. rack, roast-ready, frenched averaged $1,238.61 per cwt. in June, 8 percent lower monthly and 12 percent weaker year-on-year. The rack, roast-ready, frenched, special (cap-off) brought $1,776.83 per cwt., up 1 percent monthly and 5 percent lower year-on-year.
The leg, trotter-off, saw $340.57 per cwt. in June, 1 percent lower monthly and up 1 percent in a year. Ground lamb averaged $525.40 per cwt., 3 percent higher monthly and 7 percent lower year-on-year.
Sixty-five to 75-lb. carcasses averaged $297.05 per cwt., up 4 percent monthly and 8 percent lower year-on-year. Seventy-five to 85-lb. carcasses brought $284.66 per cwt., 3 percent higher for the month and 6 percent lower year-on-year.
In the first trimester, lamb imports were up 23 percent year-on-year at 71.2 million lbs. Australian imports were up 33 percent to 53.8 million lbs. and New Zealand imports were up 3 percent to 17 million lbs. By comparison, the U.S. produced an estimated 49.6 million lbs. in the same period, 30 percent less. It is possible that the non-traditional market accounted for some of the lower reported U.S. production. For the past three years, lamb imports have gained 12 percent annually.
While increased imports are often cause for concern, recall that domestic and imported product might not compete in the same markets. U.S. lamb is often sold at a premium to imported cuts, perhaps due to its freshness and larger cut size.
In June, the Australian rack – frenched, cap-off, 28 oz. and heavier – dipped into the low $800s per cwt. Not since 2008 have we seen the imported rack fall below $850. While the imported rack trended lower, the U.S. rack premium remained stable, maintaining a 100 percent premium at $1,777 per cwt.
In spite of heavier carcasses in harvest and record-high freezer inventories, the prospects for the live lamb markets are good moving into the third quarter. There appears to be a break in the lamb meat market dynamics and what’s happening on the ground for growers. It is only speculated that packers are operating on long-term averages to keep the slaughter chain moving.
Forty-four percent of formula trades weighed 85 lbs. carcass weight (about 170 lbs. live weight) and heavier in the third quarter. Thirty-eight percent were 95 lbs. and heavier. Heavier weights and increased back fat were evident in USDA-inspected yield grade data. In May, 33 percent of federally-inspected harvest graded 4s and 5s – the highest monthly percentage since September 2012.
Freezer inventories might be dragging on the lamb meat market, which could explain lower prices at wholesale. After May’s cold storage stocks were down marginally, June’s freezer stock was back up. In June, 44.8 million lbs. of cold storage stocks were reported, 13 percent higher monthly and 26 percent higher year-on-year. The average monthly stocks for 2016 were 42.3 million lbs., 10 percent higher than the 2015 monthly average.
The Livestock Market Information Center forecasted that in the third quarter, slaughter lamb prices could strengthen by 6 percent and feeder lambs could weaken by 12 percent (LMIC, 6/17/16). Slaughter lamb prices at auction historically weaken into the third quarter, but for the past couple of years we’ve seen prices move higher. LMIC expects the third-quarter lamb supply to be the tightest in three years with lower production and lower imports. LMIC’s feeder forecast is in keeping with historical trends: Feeder lambs typically hit their annual low in the third quarter before rising sharply through the fall.
The national, direct slaughter lamb price is forecasted at $262 to $267 per cwt. on a carcass basis, 11 percent lower year-on-year (LMIC, 6/17/16). Sixty- to 90-lb. feeders are forecasted to range from $169 to $174 per cwt., 8 percent lower year-on-year.
Without price information for about one-third of the market and without carcass quality reports sent back to all producers, lamb industry growth is challenged. Price signals can drive efficient production decisions and – coupled with feedback on quality – allow the market to react to consumer demands.
The recent ASI U.S. Sheep Industry Research, Education, and Development Priorities report addresses both of these issues. ASI recommended that the industry work with USDA/AMS to improve market data.
“Current price information is integral to the LRP-Lamb insurance program, needed to establish baseline formula and grid pricing and serves as a benchmark for countless feeder and slaughter lamb trades. The injury to the industry resulting from a lack of transparency in market prices is unknown. However, given that prices are often only available for heavier, lower-valued lambs, this limited price information could potentially result in a serious undervaluing of the national flock,” (6/2016).
A recommended education priority for the industry is to expand the use of value-based pricing. “Improvements in lamb quality and consistency can be supported by ensuring that lamb producers receive prices based upon measured quality attributes. Feedback on feedlot performance and carcass merit are integral to value-based pricing and quality improvement,” (ASI, 6/2016).
More than one-half million lbs. of U.S. wool traded clean in June as shearing drew to a close for the season. Clean wool prices this year brought about 80 to 85 percent of Australian wool (USDA/AMS, 6/3/16), historically high. Overall, wool was very clean this year, which meant higher yielding wools and improved returns to wool growers.
The Australian wool market saw a strong finish to its 2015-16 season – the second highest finish on record. In Australian dollars, the Eastern Market Indicator was up 5 percent year-on-year at 1,297 Australian cents per kg clean. In U.S. dollars, the EMI was up 3 percent at 963 U.S. cents per kg.
For the 2015-16 season, the Australian market saw its highest seasonal average on record at 1,254 Australian cents a kilogram (The Land, 7/6/16).
Californian wools (Fleece States) were about 2 percent lower monthly and 6 percent lower year-on-year. Wool averaged $3.61 per lb. for 21 micron and $3.51 per lb. for 23 micron.
In the Territory States (the West including some Californian wools), wools were down about 1 percent monthly and mixed compared to a year ago. Twenty-one micron averaged $3.98 per lb., up 2 percent year-on-year, 22 micron was down 5 percent year-on-year at $3.80 per lb. and 23 micron averaged $3.76 per lb., up 4 percent.
As the U.S. gears up for its wool export season, it is expected perhaps to see higher export values due to higher wool quality, strong international wool demand and perhaps due to increased competition among international buyers.
South Korea and India played a larger role in the Australian wool market this year as China struggled with higher labor costs and slower economic growth.