JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting
The hair sheep market is becoming more developed, more organized and embraced by larger Texas sheep producers.
Hair lambs arriving at the San Angelo auction are arriving in larger lots and by the truckload. The volume is good, but more importantly, the larger lot are uniform lambs – the same weight and conformation. When these same lambs hit the sale ring in New Holland, Penn., buyers’ interest is peaked.
With Easter approaching, Producers Livestock Auction in San Angelo, Texas, sold more than 5,600 hair sheep in one week – about 15 percent of weekly commercial sheep slaughter. New Holland (Penn.) Sales Stable held a weekly sale of more than 3,700 head.
It is that time of year when the non-traditional market becomes more visible. In general, Easter is an important sale for the ethnic lamb trade, but the end of Ramadan – in mid-June – and Eid ul-Adha – the Festival of Sacrifice in August – are even more important sales for the non-traditional market.
According to the American Lamb Board, minority populations eat more than 50 percent of total American lamb consumption (4/2019). It is anticipated that once commercial retail and foodservice markets incorporate more lighter-weight (or hair) lambs, the non-traditional market will contract.
Roughly 50 to 60 percent of lambs sold in San Angelo are shipped to the New Holland auction, with Houston being another important market. Marketing at San Angelo has changed in recent years with more and more hair sheep traded and fewer wooled sheep.
After the 2011 drought in Texas, many producers went out of business or switched from wooled lambs or goats into hair sheep. In 2012, the inventory of Texas ewes dropped 18 percent to 425,000 head; however, ewe count expanded by 7 percent to January 2019.
In 2018, more than 700,000 head of lambs were estimated in the non-traditional market. These lambs are processed outside federal and state inspected facilities, but also in inspected packing plants that fall below the threshold for reporting.
In early April, 91 to 109 lbs. lambs received $136.20 per cwt. in San Angelo. In New Holland, 90 to 110 lbs. highest-quality lambs received $220 to $274 per cwt. At the New Holland auction, the percent of hair versus wool breeds is about 50-50 according to a U.S. Department of Agriculture Agricultural Marketing Service reporter. Prices for slaughter lambs in non-traditional markets are subject to the auction volume for the week, the number of buyers present and quality offered.
Commercial feeder lambs trading were slow seasonally in January and February, but picked up in March. Reportedly, Billings, Mont., and St. Onge-Newell, S.D., are the remaining commercial feeder lamb markets aside from direct producer-feeder trades. No trades were reported in the AMS direct feeder lamb report in the first quarter.
In Billings, only one monthly sale is held. Sixty- to 90 lbs. feeders at the Billings auction averaged $187 to $215 per cwt. on March 11. Feeder lamb prices in St. Onge-Newell, were not available because in a couple of weeks insufficient lambs traded to warrant AMS reporting and also, sales were cancelled due to winter storms.
The commercial feeder lamb market is changing. Increasingly feeders are purchased direct with fewer through auctions. In 2007, it was reported that only 8 percent of feeders were purchased under contract, and that auction markets were the most significant “pricing mechanism” (National Research Council, 2015 from RTI, 2007). Today, the feeder market looks like the cattle market or hog market with more direct versus auction trade.
A reduced amount of publicly available feeder lamb price data can severely constrain price discovery. Price discovery refers to the “efficiency and accuracy with which buyers and sellers are able to gather and interpret market information, which is then incorporated into individual negotiations for trading sheep,” (National Research Council, 2015).
Lamb supplies were tight during the first quarter with fewer lambs on feed year-on-year, as well as fewer lambs shipped into Colorado feedlots that have been on pasture in California during the winter. Easter is the largest lamb consumption period of the year, but is also important in defining lamb marketing trends for the summer. Weights and volume of post-Easter feedlot supplies will determine whether remaining lambs can be marketed in a timely manner or whether they will get overfat and depress prices.
Estimated lamb harvest was down 2 percent year-on-year in the first quarter to 461,456 head and estimated lamb production was down 6 percent to 32.1 million lbs.
In January, lamb imports were up 26 percent year-on-year to 24.9 million lbs. Australian lamb imports were up year-on-year 24 percent to 19.7 million lbs. and New Zealand lamb was up 32 percent to 5.1 million lbs.
Slaughter lamb prices at Equity Electronic auction averaged $152.17 per cwt. in March, up 7 percent monthly and up 2 percent year-on-year.
Lambs at auction in Kalona, Iowa, averaged $153.50 per cwt., up 9 percent monthly and up 6 percent year-on-year. Lambs at auction in Sioux Falls, S.D., averaged $152.15 per cwt., up 5 percent monthly and up 2 percent year-on-year.
In March, formula/grid slaughter lambs averaged $268.72 per cwt. on a carcass basis, up 2 percent monthly and up 1 percent year-on-year. Weights averaged 163 lbs., up marginally for the month, but down 6 percent from a year ago. On a live-weight equivalent, prices averaged $134.68 per cwt.
Live, negotiated slaughter lambs averaged $141.50 per cwt., up 7 percent monthly and down 1 percent from a year ago. Weights were down 3 percent annually to 153 lbs.
The wholesale composite averaged $377.39 per cwt. in March, down marginally from February and up 2 percent year-on-year. All primals were higher, but a weaker rack pulled the composite down.
The leg, trotter-off, averaged $362.68 per cwt., up 1 percent monthly. The shoulder, square-cut, was largely unchanged in March at $276.64 per cwt. The loin, trimmed 4×4, averaged $524.51 per cwt., up 2 percent monthly. The rack, 8-rib medium, averaged $875.10 per cwt. in March, down 3 percent monthly.
The leg, trotter-off, was down 2 percent annually and the loin, trimmed 4×4, was unchanged. The rack, 8-rib medium, was up 4 percent year-on-year, and the shoulder was also up, by 2 percent.
Ground lamb averaged $576.93 per cwt., down one-half percent monthly and up 2 percent year-on-year. For the past eight years, ground lamb has bounced around between $5 and $6 per lb., but held above $5.60 for the past 20 months.
Overall, the pelt market remained depressed into March with unshorn supreme pelts bringing 50 cents to $3.95 per piece. In the first quarter, the portion of wooled pelts in the mix of pelts produced dropped while the availability of shorn pelts rose. By the end of March, the mix was about half and half.
According to the Livestock Marketing Information Center’s early April forecasts, both feeders and slaughter lamb prices should see a modest second-quarter lift, but not by enough to push prices higher year-on-year. In the second quarter, national direct slaughter lambs could average $265 to $270 per cwt. on a carcass basis, down 3 percent year-on-year. Sixty- to 90-lb. feeders could range $182 to $188 per cwt., down 5 percent year-on-year. It is not until the third quarter that LMIC forecasts prices moving higher year-on-year.
LMIC forecasted in early April that lamb and mutton imports could be down 5 percent year-on-year, which could support prices; however, only to the extent that most of the product hits the market. Rising cold storage stocks could be a drag on the live lamb market despite lower imports. Lamb and mutton in cold storage was 35.5 million lbs. at the beginning of April, down 7 percent monthly yet 26 percent higher year-on-year. Since a sharp drawdown in stock in 2016, freezer inventory has been climbing steadily to 75 percent of its record high of 47 million lbs.
At $76 per head in the first quarter, the live to cutout price packer spread was down 17 percent quarterly from $97 per head last fall, and 7 percent higher year-on-year. In March, the value of live lamb was down 13 percent from a year ago, but the wholesale value was down by less – 5 percent – explaining the widening price spread. On average, the live to cutout spread has been growing: Up 5 percent in 2016, up 19 percent in 2017, and up 14 percent in 2018. Spreads could be increasing with increased trimming of heavier lambs.
The spread doesn’t capture packer profitability, but the difference between what packers pay for lambs and packers’ wholesale price. We don’t know what individual packer processing, packaging and transport costs are, for example, or how much value is added at the plant. More than 60 percent of lamb carcasses – more than other red meats – are further processed into retail- or hotel-ready products at the slaughter plant (National Research Council, 2015).
The Australian Dollar/United States Dollar averaged 0.71 in March, down 1 percent monthly and down 9 percent year-on-year from 0.78. Some analysts believe there is support for the Aussie dollar at 0.70, but it could move higher if the United States-China trade dispute is resolved soon. If the Australian dollar weakens further then lamb imports from Australian could have a price advantage over American lamb.
The simple correlation coefficient between lamb imports and the Australian/United States exchange rate is -0.63 in the past eight years. This is a measure of the intensity of the association between two variables. The closer this coefficient gets to 1 or -1, the more closely the two variables move together. The coefficient suggests – but, is by no means conclusive – that as the Australian dollar gets weaker (lowers in value), the more competitive its lamb imports are, and thus, lamb imports increase in the United States.
Shearing began in American wool markets, but by early April prices had yet to be reported by AMS. It is expected that many growers and warehouses are storing wool as core test results are returned and as the Australian market hopefully breaks its tumble and stabilizes.
In mid-April, the Australian wool market had experienced a seven-week slide, “this is the longest downward run since September 2012,” (Weekly Wool Market Report). Although Australian supplies were tighter, less attractive styled wool and lower yielding wools were on offer. The Australian Eastern Market Indicator averaged Australian 1,958 cents per kg clean in the four weeks to April 4, down 2 percent from the prior four weeks and up 11 percent year-on-year. In U.S. dollars, Australian wool averaged $6.31 per lb. clean in the same period, up from $6.23 per lb. a year ago.
“Demand fatigue, due to continued high prices, has had the market looking to establish a new support level. Restricted supply should point to this support not being far away,” (Wool Market Weekly Report, 3/29/19).
In general, the Australian drought has meant lower quality feed and nutrient challenges that produces finer wool relative to mid-micron wools. In the United States, good moisture through the winter alleviated drought in many areas, apart for wide swaths of Washington, Oregon and New Mexico that remain dry. Good snow cover in many western areas will likely mean high yields and prices comparable to Australian prices for some growers.
The largest wool exporter, Australia, will likely face a sharp reduction in wool production this year. It is believed that price strengthening under tighter supplies will be tempered by a global economic slowdown. Consumer demand in China is softening, affecting woolen wools, in particular. Historic demand for worsted wool apparel in the United States, Japan and Europe is uncertain. However, blended wool (to reduce costs) and more woolen orders are being fulfilled to develop sport and easy-care knitted wear while woven formal wear (using 100 percent worsted wool) is becoming less popular (WoolNews.net 4/2019).
The most pressing concern encircling the 2019 American wool season is the uncertainty regarding raw wool export tariffs to China. As of this writing, there was reported progress on trade talks, but no definitive resolution achieved.