(January 1, 2008)  2007 was a funny year. Prices were high, yet continued regional drought and high feed costs most likely squeezed feeder- and slaughter-lamb margins.

If supplies remain tight this year, production is lower year-on-year and demand remains strong, slaughter-lamb prices will likely strengthen into 2008. High feed costs will likely continue into this year, but increasingly, feeders will find cheaper substitutes that may support higher feeder-lamb prices and help boost incomes.

Despite a 21-percent rise in feed prices in 2007, U.S. net farm income (after input costs are subtracted) in 2007 was forecasted at more than $30 billion above its 10-year average of $57.4 billion (U.S. Department of Agriculture’s Economic Research Service (USDA/ERS)). For many agricultural sectors, the biofuel industry, lower production in competitor countries and the weaker dollar have helped raised farm prices. For the livestock industry, the increased feed cost was primarily due to the higher price of corn but also due to increased livestock output.

“If achieved, the $6.9-billion rise in feed costs will be the largest increase ever, eclipsing a $4.8-billion rise in 1973,” USDA/ERS.

December Holiday Suspense
As always, there was much speculation surrounding how much lamb was imported for the holidays. Some believed imports might have actually slowed while others heard rumors of a lot of lamb bought in last November. On the domestic side, I got a sense that there was plenty of meat ready for the holidays. In fact, there was likely some carryover into the new year.

There was some sentiment that consumer concerns regarding the economy and cheaper competing meats may detract from holiday lamb sales. Record pork production meant wholesale pork prices were down 15 percent in November from a year ago. In addition, beef prices were also down marginally from a year ago.

Despite the pessimism, the Livestock Market Information Center (LMIC) forecasted that for the first time in 10 years, total lamb and mutton supply was expected to increase in 2007 from 435.67 million lbs. in 2006 to 443.86 million lbs. (LMIC, 12/5/07). This is good news for the sheep and lamb industry. Increased availability means more people can eat lamb, or try it for the first time.

The Million-Dollar Question
By the time this article is published, the USDA’s sheep and lamb inventory numbers will probably be out. Many might believe that numbers will be down but perhaps not as off as feared. High transport costs coupled with tight hay supplies may mean that the sheep industry may not see the typical marketing patterns it is used to for feeders. For example, a couple industry leaders commented that numbers were likely lower in the Imperial Valley last December, but there was a feeling that perhaps the numbers were up elsewhere.

In early December, LMIC forecasted that reduced slaughter numbers would mean production could be down 1.4 percent this year and down another 0.55 percent in 2009 (12/6/07).

In the first 11 months of 2007, production totaled 156.7 million lbs., down 3.2 million lbs. year-on-year. Live weights were down only 0.6 percent to 137.9 million lbs., but slaughter numbers were down 4.5 percent.

High Feed Costs: A New Reality? 
High feed costs could continue to put a stranglehold on feeder-lamb prices this year. However, higher slaughter-lamb prices and cheaper feed substitutes might help to support the feeder-lamb market. 

Gains in feeder-lamb prices in 2007 were likely constricted by high corn and hay costs. Livestock producers paid 21-percent more to feed their animals in November than they did a year ago (meatingplace.com, 12/3/07).

Feeder-lamb prices at auction fell 1 percent in 2007 through November last year compared to a year earlier. At $108.64/cwt., Sioux Falls was the highest-priced auction recorded, followed by $104.93/cwt. in Ft. Collins and $103.28/cwt. in San Angelo.

Last fall, feeder lamb prices were mixed. Limited available data for feeder lamb prices in direct sales showed a 2-percent gain in November to $102.92/cwt., down from the five-year average of $104.74/cwt. Feeder lambs at auction lost 2 percent in November to land at an average $99.56/cwt.

The average price of corn jumped from $3.29/bu. in October to $3.45/bu. in November. USDA/ERS forecasted that corn could range from $3.20/bu. to $3.80/bu. in the 2007/2008 marketing year (11/14/07). Relatively tighter corn supplies this season due to lower-than-expected yields bumped price forecasts up from the average $3.04/bu. received in 2006/2007.

The price of hay, other than alfalfa, rose $1/ton to $123/ton in November. High hay prices are due to tight supplies and strong demand (LMIC, 11/4/07).

Slaughter-Lamb Prices Gained
LMIC forecasted that, unless a significant slowdown in the economy
occurs, we might see slaughter-lamb prices gain some in 2008 (12/6/07). Tight supplies and strong demand will likely help to support prices.

Live slaughter-lamb prices jumped 13 percent last year through November to $95.16/cwt. Kalona, Iowa, and the Colorado/Wyoming/Montana Intermountain region had the highest prices at $100.35/cwt. and $96.43/cwt., respectively. San Angelo received  $89.31/cwt., the Midwest averaged $94.31/cwt. and the Midwest computer auctions averaged $96.11/cwt.

Between October and November last year, live slaughter-lamb prices fell 3 percent. At $96.44/cwt., highest prices were observed in the Colorado/Wyoming/Montana Intermountain region, but this still was an 8-percent drop from $104.42/cwt. in October.
In January through November of last year, slaughter-lamb prices on a formula carcass basis gained 11 percent year-on-year. Fifty-five pound to 65-lb. lambs gained 8 percent to $197.93/cwt., 65-lb. to 75-lb. lambs gained 11 percent to $199.26/cwt. and 85-lb. to 100-lb. lambs gained 22 percent to $181.25/cwt.

Slaughter-lamb prices on a formula carcass basis weakened by an average of 3 percent last November to $201.99/cwt. The 65-lb. to 75-lb. lambs earned the most per hundredweight, $209.69/cwt., while the 75-lb. to 85-lb. lambs jumped 10 percent to average $200.02/cwt. At $197.11/cwt., the 85-lb. to 100-lb. lambs earned the least.
Slaughter-lamb prices on a live formula basis were up 12 percent through November of 2007 to $98.63/cwt. However, between October and November prices slipped 2 percent to $101.13/cwt.

Slaughter lambs sold on a carcass basis and live basis track each other very closely. In the last three years, carcass basis prices were an average $0.98/cwt. higher than live basis prices 89 percent of the time. The comparison between carcass basis and live basis is a function of dressed weight. Formula prices on a carcass basis were $1.26/cwt. higher than live auction prices since August 2001, but $4.92/cwt. higher over the past three years.

The pelt market was relatively lackluster last year although we did see some price strengthening. Demand from India and China was moderate while demand from our historically most popular buyer, Turkey, was low.  Pelt prices lost an average 3 percent last year through November compared to the same period in 2006. No. 3’s lost 14 percent to $2.36 while No. 4’s lost 17 percent to $1.65. Fall clips gained 4 percent to $6.24, No. 1’s gained 10 percent to $5.85 and No. 2’s gained 2 percent to $4.54.

Fall clips jumped 5 percent between October and November to $6.75 while No. 1’s and No. 2’s both lost 6 percent to $6 and $4, respectively.

2008 Imports Forecasted to Rise
USDA/ERS forecasted that lamb and mutton imports would jump 2 million lbs. in 2008 to 196 million lbs. (11/20/07). LMIC forecasted that imports would rise 7.5 million lbs. to 204 million lbs. in 2008 (12/5/07).

USDA/ERS forecasted that lamb and mutton imports would be lower in the fourth quarter of 2007 compared to a year ago. Annual imports for 2007 are still expected to be higher: 194 million lbs. in 2007 compared to 190 million lbs. in 2006 (USDA/ERS, 11/20/07).

LMIC would agree. Imports in 2007 were expected to rise annually but would disagree that fourth-quarter imports would be down from a year ago. LMIC forecasted that fourth-quarter imports would be 53 million lbs., up from 52.3 million lbs. a year ago (12/5/07).
Total lamb imports through September were up 5 percent from a year ago to 112.9 million lbs. Australia’s imports were up 5 percent to 76 million lbs. and imports from New Zealand were also up 5 percent to 36 million lbs.

Persistent drought conditions means continued turn-off in Australia. October surpassed September’s record monthly high and resulted in 17-percent higher lamb production year-on-year (Meat and Livestock Australia (MLA), 12/6/07).

However, there is some sentiment that the years of drought in Australia and stronger Australian dollar may be catching up with production.

MLA reported, “All signs are now pointing to a definite shortage of sheep for next year,” (North Queensland Register, 11/19/07). 

MLA also reported that sheep supplies in all states during November were below last year, and the majority was also below the five-year average (North Queensland Register, 11/19/07).

Australian lamb shipments in October declined 11 percent on the same time last year – the ninth consecutive month that recorded year-on-year falls (Department of Agriculture, Fisheries and Forestry, MLA, 11/16/07).

U.S. mutton imports were up a marginal 0.3 percent from a year ago to 30.6 million lbs. New Zealand’s imports doubled, but imports from Australia were down 4 percent.

Border Reopened
The reopening of the Mexican border likely helped support cull ewe prices in Texas. After no exports in October, exports rebounded in November with 4,136 head exported. Cull ewe prices averaged $36.25/cwt. in September, dipped to $33.50/cwt. in October and rebounded to $39/cwt. in November. November’s prices were still almost $8 lower than the five-year average of $46.82/cwt.

Exports through November last year were down 5 percent from a year ago to 104,085 head. Total live sheep exports were down 18 percent through September 2007 due mostly to lower exports to Mexico, but supported, in part, by 114-percent jump in exports to Canada.

Lamb and mutton exports were down 48 percent in 2007 through September compared to a year ago, to 7.6 million lbs.

Meat Market Stronger in 2007
The wholesale meat market gained 11 percent in 2007 through November year-on-year, to $252.32/cwt. The leg, trotter-off, rallied by 21 percent in 2007 to $251.28/cwt. and the trimmed 4x4 loins made a 14-percent jump to $466.68/cwt. The eight-rib rack, medium, gained 3 percent to $576.31/cwt. and the square cut shoulder gained 4 percent to $269.84/cwt. USDA’s lamb purchase program may have helped support lamb prices last year.

Last November, the weaker loin offset gains to the leg, leaving meat prices virtually unchanged. The gross carcass value was $264.30/cwt. in November, up 0.22 percent from October. The leg, trotter-off, gained 6 percent in November to $27.32/cwt. while the loins, trimmed 4x4, lost 6 percent to land at $480.59/cwt. The shoulder lost nearly 2 percent at $177.23/cwt. and the eight-rib rack, medium, lost 0.44 percent to $586.71/cwt.

Editor’s Note: Julie is open to comments and questions and can be reached by e-mail at juniper@netecin.net or by phone: 303-822-9384.