Stability Key For Growth in 2017
JULIE STEPANEK SHIFLETT, Ph.D.
Juniper Economic Consulting
Stability is the buzzword for 2017 – which is a good thing in an industry that has seen its share of ups and downs. In the past five years, lamb prices were volatile with generally lower lamb prices in 2016. Increased stability can help boost industry investment.
As of mid-December 2016, the Livestock Market Information Center reported that 2016 lamb prices performed “better than expected across the board, given the large supplies of lamb in cold storage and larger output of competing meats, including beef and pork,” (12/16/16).
That said, there is some sentiment that meat market demand has fallen short of live supplies in recent months. The industry is challenged to carefully manage harvest weights before ramping up production for Easter on April 16. How well the industry manages weights effects lamb demand and producer price offerings back down the marketing chain.
On Jan. 6, LMIC released 2017 forecasts: Expectations for 2017 are for generally stable prices and production relative to 2016. Harvested lamb could average $279-$286 per cwt. on a carcass basis (about $140-$143 per cwt. live) for the year, up 0.3 percent. Sixty- to 90-lb. feeders could average $178-$184 per cwt., down 3 percent for the year. Harvest was forecasted to rise marginally in 2017, but weights could be down, which leaves production unchanged.
It is anticipated that Australian lamb exports will fall slightly in 2017 due to its reduced supply and relatively stronger domestic market. “Australian lamb shipments were anticipated to decrease 4 percent year-on-year in 2017,” (AMC Rural, 12/11/16).
However, Australian lamb exports are expected to rebound in 2018. What this means for exports to the U.S. depends heavily upon whether Australia can grab a significant market share in the newly separated United Kingdom.
The trend looks good for meat demand in 2017. After mixed growth for most of 2016, robust growth was seen at grocery stores and restaurants last November (Daily Livestock News, 1/3/17). Incomes are up, unemployment is down and the “incoming Trump administration promises a significant fiscal stimulus, which in the short term should further bolster demand,” (DLR, 1/3/17).
Part of the growth at foodservice is that there “seems to be more money in the restaurant business and a wide variety of new concepts are cropping up,” (DLR, 1/3/17). In 2017, it is expected that foodservice growth will outpace retail sales growth, (Technomic, 8/2016). The five fastest-growing food industry channels will be online, fresh format, supermarket fresh prepared foods, limited assortment stores and independent restaurants/small chains, (Technomic, 8/2016).
Feeders Lower in 2016
Sixty- to 90-lbs. feeder lambs at auction averaged $185.55 per cwt. in 2016, down 4 percent year-on-year. San Angelo (Texas) feeders averaged $180.53 per cwt., Fort Collins (Colo.) averaged $183.77 per cwt., and Sioux Falls (S.D.) averaged $191.64 per cwt.
In direct trade, feeders averaged $158.19 per cwt. in 2016, down 2 percent annually and 5 percent higher than its five-year average. Annual averages have been volatile with $124 per cwt. in 2013 and $177 per cwt. in 2014.
Slaughter Lamb Prices Lower in 2016
Live, negotiated slaughter lamb prices averaged $145.49 per cwt. in 2016, down 5 percent annually. Weights at harvest were down a marginal 0.3 percent to 145.24 lbs.
Formula/grid prices for slaughter lambs were last reported in full in January 2016, and then reported only three times throughout the year. Formula and packer-owned harvest lambs (neither with price reporting) accounted for 40 percent of total federally-inspected harvest in 2016.
The number of head by weight categories were reported for formula lamb, however. Last year the percent of lambs 95 lbs. and heavier by carcass weight was 12.1 percent, slightly higher than the 11.5 percent calculated in 2015 and sharply higher than the 2 percent average in the previous five years. This suggests that the industry still struggled with keeping weights down in 2016.
In the first half of 2016, yield grades 4 and 5 accounted for 30 percent of harvest, but dropped off to 17 percent in the second half of the year through November. In general, yield grades 5 are less desirable with higher fat and light muscling (South Dakota State University).
In the U.S. and Australia, December reports emerged of improved returns to lamb pelts. In the U.S., the highest quality Supreme unshorn pelts brought $10.20 per piece in December, up 25 percent monthly. Lower quality pelts still fell into negative territory at the low end, but gained a footing on average.
2016 Available Lamb Supplies Expanded
Total domestic and imported lamb January through October 2016 was an estimated 274.6 million lbs., up 3 percent year-to-year. The imported share inched up 3 percent in the 10 months through October to 56 percent of total supplies. Recall that the import share can differ by market – grocery or foodservice – and we don’t know what portion of freezer stock is imported product.
Lamb in federally-inspected lamb harvest was up an estimated 1.3 percent in 2016 to 1.86 million head while production was down 0.3 percent to 127.8 million lbs. Harvest weights were an averaged 69 lbs. carcass weight, down 1.5 percent year-on-year.
Lamb imports January through last October totaled 153.6 million lbs., up 5 percent year-on-year. Australian imports were up 11 percent and New Zealand imports were down 5 percent.
Lamb and mutton in cold storage in December was down to about half its volume compared to December 2015. At 21.9 million lbs., stocks were down 26 percent monthly and down 51 percent annually.
Wholesale Lamb Lower Annually
The net carcass value – wholesale composite less packaging and processing – averaged $316.53 per cwt. in 2016, down 4 percent year-on-year. The net carcass value was pulled down by the lower rib and shoulder, but supported by the higher loin and leg. The 8-rib rack, medium, averaged $695.55 per cwt., down 8 percent for the year while the shoulder, square-cut averaged $287.14 per cwt., down 3 percent. The loin, trimmed 4×4, was up 2 percent to $533.21 per cwt. and the leg, trotter-off, saw $348.39 per cwt., up 1 percent.
Two sub-primal racks lost value in 2016. The sub-primal rack, roast-ready, frenched, averaged $1,322.40 per cwt., down 8 percent for the year. The rack, roast-ready, frenched, special (cap-off) averaged $1,770 per cwt., down 6 percent.
The U.S. lamb industry at retail held fairly strong in 2016 given possibly increased lamb supplies and lower-priced proteins. Two heavily featured retail items, the shoulder blade chop and the loin chop, saw an 8 percent drop between the early highs of 2015 and 2016, but both strengthened marginally through 2016. This suggests lamb demand is holding strong.
2016 U.S. Wool Prices Higher
In 2016, clean U.S. wool prices gained 13 percent, from $3.12 per lb. clean in 2015 to $3.54 per lb. last year. In the Fleece States (mid-West and some Californian wools), clean wool prices ranged from $1.85 per lb. clean for 28 micron to $4.10 per lb. for 19 micron. In the Territory States (the West and some Californian wools), prices ranged from $2.36 per lb. for 28 micron to $4.48 per lb. for 18 micron. In Texas and New Mexico, prices averaged $4.04 for 22 micron and $4.14 per lb. for 19 micron.
The first-half of the Australian 2016-17 wool season ended on a high note, which was unexpected given the appreciating Australian dollar down to 74 cents per USD. In mid-December, on the eve of its three-week recess, the Australian Eastern Market Indicator topped 1355 Australian cents (ac) clean/kg, representing a 7 percent year-on-year gain.
In 2016, the EMI averaged 1,290 ac clean per kg, up 8 percent year-on-year.
In the 2015-16 wool marketing year, total U.S. wool exports were down 7 percent to 3,158.9 metric tonnes by volume and down 13 percent by value to U.S. $17,437,000. Seventy-four percent of all exports were in greasy wool (unprocessed) form. Chinese exports were down 24 percent to 1,316.3 mt (42 percent of all exports by volume) and down 29 percent by value to $7.7 million (44 percent of all exports by value). Indian exports were down 18 percent to 627.15 mt (20 percent of all exports) and down 29 percent to $1.5 million (21 percent of all exports).
U.S. exports were lower in 2015-16 for multiple reasons. According to ASI Wool Consultant Barry Savage, the largest factor was reduced purchases by China due to a slowdown in its domestic consumer market and increased wool processing costs due to stricter pollution control measures, tighter monetary market and higher labor costs. Another factor Savage cited was that U.S. wool prices held up pretty well for the better wool types, so those types were not so competitive internationally. Third, the export share was likely lower because more wool was kept by domestic producers.
As shearing begins across the U.S. in March, growers and buyers will be closely watching Australian-U.S. exchange rates.
International prices of wool are mostly determined in U.S. dollars, which is the major currency of sale for wool product manufacturers’ products. However, a majority of the world’s wool exports are from Australia. According to Savage, if there is a noticeable wool price increase in U.S. dollars, then probably there has been a “real” increase in demand for wool. Savage added that usually the exchange rate will offset any price changes of wool in Australian dollars unless there is a “real” change in the demand/supply equation. This can get out of synch in the short term sometimes, but usually adjusts during a longer period.
In general, as the Australian dollar depreciated in the past couple of years, prices of Australian wool in Australian dollars gained, but weakened or held steady in U.S. dollars. In early 2016, the U.S. dollar was about 0.70 Australian dollars, but then rebounded to 0.73 by the year’s end. By different accounts, it is forecasted that the USD will trade at 0.76 to 0.79 per AUD by the summer of 2017. If realized, this move could help support U.S. wool prices this season.