Market Report

Congressional Vote Breathes New Life Into The Packers & Stockyards Act

JULIE STEPANEK SHIFLETT, Ph.D.
Juniper Economic Consulting

The 1921 Packers and Stockyards Act is slowly adapting to the 21st century. In late September, Congress confirmed that producers selling online and through video auctions are provided similar protections under the P&S Act as those selling at “fixed facility markets.” The legislation also authorizes modern electronic payment methods, such as credit and debit cards. This is an important update, but let’s keep the momentum moving.

Modernizing the P&S Act is crucial in this period of increased consolidation of lamb packers. When Mountain States Rosen purchased the JBS plant, the U.S. Department of Agriculture’s internal guidelines on confidentiality immediately forced suspension of a significant share of industry trades (more than one-third of slaughter lamb prices, including packer-owned).

It is hypothesized that lamb prices could be higher with increased transparency in the markets. How much higher? Hard to say.

“Competitive conditions tend to break down when the number of firms involved declines. When competition wanes, prices are less likely to be set by the forces of supply and demand,” (Penson, J.B., Capps, O. et al. 2015).

The mission of the P & S Act is “to protect fair trade practices, financial integrity and competitive markets for livestock, meats and poultry.” Specifically, the Act states it shall be unlawful for any packer to engage in or use any unfair, unjustly discriminatory or deceptive practice. Further, the Act prohibits packers from engaging in any course of business or doing any act for the purpose or with the effect of manipulating or controlling prices.

Reduced price transparency likely introduces unnecessary risk into the markets. It is possible that the USDA-defined release of this or that price information is artificially creating thin markets – and the price volatility that follows.

Feeder Lamb Prices Weakened

By early October, trade of spring-born lambs was winding down. Some feeders traded for current delivery – straight to feedlots – some for further grazing and delivery through November. Some feeders were sent to finishing on retained ownership, some owned by packers, some owned by brokers or feeders.

Feeder lambs, trading direct, averaged $165.94 per cwt. in September, down 4 percent monthly, up 1 percent year-to-year, and 5 percent higher than September’s five-year average.

Feeder lamb prices at auction hit a three-year low in September, dipping below $170 per cwt. Sixty- to 90-lb. feeders at auction averaged $167.44 per cwt., 5 percent lower monthly and 9 percent lower year-on-year. Auctions included San Angelo (Texas), Fort Collins (Colo.), and Sioux Falls (S.D.).

In the Sept. 19 Northern Livestock Sheep Video Auction, 4,515 head traded. Mid-September delivery of 90-93 lb. feeders brought $165.50 per cwt.; October delivery lambs averaged $188 per cwt. for 70 lbs.; $170 to $177.50 per cwt. for 80-85 lbs.; and $165.75 to $170.25 for 100-105 lbs. for October-November delivery.       

Slaughter Lamb Market Lower

In September, slaughter lamb prices at auction averaged $156.04 per cwt., about 0.4 percent lower monthly, steady with last year, and 12 percent higher than September’s five-year average. Prices captured trades at San Angelo, Fort Collins, Kalona (Iowa), South Dakota and at the Equity Cooperative Livestock Sales Association online auction.

Number of head and weights differed at each market with San Angelo averaging $135 per cwt. and Fort Collins, the high at $168 per cwt.

Live, negotiated slaughter lamb prices averaged $160.58 per cwt. in September, 2 percent lower monthly and up 3 percent from a year ago.

Apart from only two weekly reports, slaughter lamb prices on formula/grid have not been reported since Jan. 22. Unfortunately, this cripples – suspends – the only risk management tool, the Livestock Risk Protection program, LRP-Lamb.

Average harvest weights have been increasingly current at 130 lbs., down from 137 lbs. a year ago. 

Forecasts

If the remainder of 2016 is anything like last year – and thus far we’ve seen parallel trends – slaughter lamb prices will weaken through the fourth quarter. In the few weeks through early October, slaughter lamb prices at auction lost about 18 percent – from the high $160s to high $130s per cwt. Harvest weights are current, quality is good, but there are ample lambs on feed in feedlots – or committed – and competitive proteins are abundant and relatively cheap.

The Livestock Market Information Center is more optimistic. According to LMIC in early October, slaughter lamb prices are forecasted to average $279 to $284 per cwt. carcass weight (about 141 per cwt. live weight) in the fourth quarter, about 1 percent higher quarterly and 7 percent lower year-on-year. Feeder lamb prices (60-90 lb.) are forecasted to average $174 to $179 per cwt., 2 percent lower quarterly and 2 percent lower year-on-year.

Meat Market Stagnant

The wholesale composite (net carcass value) averaged $323.03 per cwt. in September, about steady with August and 1 percent lower year-on-year. The rack, leg and shoulder weakened from a year ago, but the loin has gained, giving the net carcass value some support.

The 8-rib rack, medium, averaged $708.76 per cwt., up 1 percent monthly and down 3 percent year-on-year. The loin, trimmed 4 x 4 averaged $551.95 per cwt., 2 percent higher monthly and up 8 percent year-on-year. The leg, trotter-off, saw $521.07 per cwt., down marginally monthly and 8 percent lower year-on-year. The shoulder, square-cut, saw $298.35 per cwt., about even with August and 1 percent lower year-on-year.

The rack, roast-ready, frenched averaged $1,358.85 per cwt., up 3 percent monthly and 6 percent lower year-on-year. The rack, roast-ready, frenched special (cap off) averaged $1,803.17 per cwt., up one-half percent monthly and down 4 percent year-on-year.

The carcass market has also seen disrupted reporting due to USDA’s confidentiality guidelines. Seventy- to 85-lb. carcasses averaged $326.25 per cwt. in September, steady monthly and 4 percent higher year-on-year. Eight-five to 95-lb. carcasses averaged $315.59 per cwt., up 1 percent monthly and 4 percent higher.

Lower carcass weight categories were not reported due to confidentiality, which brings average carcass values down. Therefore, slaughter lamb prices tied to the carcass market will also see lower values.

Lambskins saw lower prices in September with Unshorn Supreme pelts ranging from $5.25 to $6.25 per piece, down 33 percent monthly. Premium pelts ranged from -$2.00 to $4.00 per piece, down 63 percent.

Replacement Lambs Move Higher

Relatively strong slaughter lamb prices this year supported the replacement ewe market. On average, replacement lambs saw prices move 3 percent higher in September than a year ago. Twelve to 24-month-old lambs averaged $251.44 per head; 2 to 4-year-old ewes averaged $176.59 per head; 5 to 6-year-old middle-aged ewes brought $148.79 per head; and 6-year-and-older ewes averaged $96 per head.

Domestic Supplies Tighter

Estimated domestic lamb harvest totaled 1,449,101 head through September, up 1 percent year-on-year while estimated production dropped 1 percent to 101 million lbs. Lower harvest weights explain the production drop with carcass weights averaging 70 lbs. in 2016, down 2 percent from a year ago. 

Lamb quality has been very good, with the backed-up and overweight concerns earlier this year largely abated. In August, 75 percent of lambs were either yield grade 2 or 3 – favored yield grades. We haven’t seen this high level of yield grades since a year ago. 

Estimated total lamb supplies (domestic plus imports) was 202.9 million lbs. through July, up 7 percent year-on-year. The imported lamb share was 57 percent, up 8 percent from a year ago.

The Australian Department of Agriculture reported lamb exports to the U.S. increasing 8 percent year-on-year through September. About 53 percent was fresh product, the remainder frozen.

National statistics can be misleading, however. Lamb supply data doesn’t account for the possible disproportionate share of imported lamb in freezers. Lamb and mutton in cold storage totaled 37.4 million lbs. in early September, down 9 percent monthly and down 11 percent year-on-year.

It is likely that the U.S. has a majority market share at food service – in restaurants and hotels. This is likely the case with the U.S. rack, for example.

Wool Market

The Australian wool market saw some recent volatility, but with an underlying strong trend. AWI Market Intelligence reported there is a “solid to quietly optimistic tone for the market in the short to medium term despite difficult retail conditions globally,” (9/2016). In general, demand for finer wools looks good, but the outlook is less promising for broader wools.

The U.S. wool wholesale market has been mostly quite since June, however, fall-shorn wools and some wool stocks are expected to sell later in the year.

In September, Australian wools landed in South Carolina were an average 2 percent lower monthly yet 7 percent higher year-on-year. Twenty micron averaged $5.11 per lb. clean, down 3 percent monthly and 18 percent higher year-on-year. Twenty-three micron averaged $4.97 per lb., down 3 percent monthly and up 17 percent year-on-year. Twenty-six micron averaged $4.14 per lb., up 1 percent monthly and 10 percent higher year-on-year.

In general, as the Australian dollar has depreciated in the past couple of years, wool prices in Australian dollars gained noticeably, but the gains in U.S. dollars is far less pronounced.

When the Australian dollar depreciates (falling closer to 70 Australian cents compared to $1.00), buyers in Australian dollars have to pay less, so this often means a boost in wool prices in Australian dollars. However, international wool buyers buying in U.S. dollars have to pay more. This occurred in mid-September (but often with a more prolonged lag).

The Australian dollar fell about 2 cents against the U.S. dollar – the lowest level in a couple of months. The cheaper Australian dollar boosted Australian wool prices in Australian dollars (by about 2 cents per kg). Steady exchange rates can help boost wool prices in Australian and U.S. dollars by reducing the exchange rate risk to wool buyers.