By JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting

(March 1, 2013) “Sure, your sweater might be genuine wool. But can you trace its fibers back to the very sheep from which it was shorn? This is the granular level of ‘realness’ consumers now increasingly seek. What is your company doing about it?”

This is the face of the new consumerism according to Mike Doherty, advertising president at Cole & Weber (Fast Company, 10/18/12). Doherty explained that people are looking for and need realness and this is not just another passing trend.

The sheep and lamb industry can help fulfill this desire for real and getting the story out can boost lamb demand. Feeder and slaughter lambs saw stronger prices in January yet the meat market was marginally softer. The lamb industry will be challenged to rebuild demand this year and lower prices are only one part of the equation. It would help if people loved lamb. 

Loving lamb is not only tied to a satisfying dining experience, but also satisfying people’s consciousness. It is a matter of expressing values: A value that they care about the environment, its animals and/or the smaller, disenfranchised sheep producer.

The American Lamb Board (ALB) is a step ahead. Its 2013 sustainability report is in direct response to many calls by chefs, food editors and bloggers wanting to know more about how, where and by whom American lamb is raised. A food magazine editor might include a synopsis of how American lamb is raised at the bottom of a recipe. ALB has had interest from chefs increasingly wanting to know where their lamb is coming from. They want to meet the sheep producers. Chefs increasingly will purchase a carcass straight from a farm for custom in-kitchen preparation.

Consumer purchases in the future will be more deliberate and purposeful. “Conspicuous consumption will give way to more conscious or practical consumerism,” (Kantar Retail, PricewaterhouseCoopers, 2010). People want to connect to their food in more meaningful ways. Cooking schools now offer trips to hunt and forage for the truffles and wild boar you’ll spend the week learning to cook (Fast Company, 10/18/12). “Consumer safaris” enable people to travel to where a product is made to meet the craftspeople who make it.

In general, the ALB survey documented the on-going practices of many environmental and animal-care practices by sheep producers. Seventy-one percent of those surveyed test the nutrient content of their soil to improve feeding management and ensure long-term productivity. The survey of more than 1,000 producers found that 86 percent use multiple methods to ward off predators. The primary action by those surveyed was to move the flock or use guard dogs and/or shepherds.

An additional finding is that sheep producers care about their community. Survey respondents spend an estimated 86 percent of their operational budget locally and 76 percent engage in community service with an average of 116 hours annually of volunteer time. 

‘Local’ Can Mean Price Premiums
Research has found many instances and for many products in which consumers will pay more for ‘local.’ Local means a lot of different things for different people, however. Lamb might be from 1,000 miles away, but a story on the label of the family farm can relay a ‘realness’ message.   

Cornell University explained: Demand for locally produced food has increased sharply in recent years, as certain consumer segments seek out local foods to support local farmers and the local economy, or because local foods represent features or production practices that consumers look for in their foods (February 2011). Cornell’s study of how much extra people actually pay for ‘local’ ranged from 9 percent to 21 percent. Cornell reported that the price premiums might be low because the survey was conducted during the 2009 recession.

Research has also shown that restaurant patrons were willing and did pay premiums for menus featuring local products when given the opportunity (Ortiz, A., 2010).

In fact, consumer preferences for local and knowing more about their food has shown through the recession. Sales of natural and organic food and beverages increased 20 percent from 2009 (Fast Company from Mintel, 10/18/12). This is particularly striking because it was during a period when inflation-adjusted incomes were stagnant. There has also been a shift in marketing. More than half (56 percent) of the food and beverage product categories in the United States showed decreases in the average number of ingredients per product since 2009. More real, less processing.

Forecasts Look Good for Lamb
Lamb demand in 2013 could get a boost from possible higher beef prices and possible continued, but slow, income growth. At the American Sheep Industry Association (ASI) convention agricultural economist, Erica Rosa-Sanko, presented, “Demand takes a long time to develop, only a moment to lose.” Rosa-Sanko added that rebuilding lost demand will be a challenge for 2013 and 2014.

It is challenging to move product when the demand is not there. Dropping prices isn’t necessarily the solution. Retailers cannot lower lamb prices and maintain revenue. The catch is that lamb demand is inelastic. This means that if retailers lower prices then consumers don’t actually buy that much more lamb and retail revenues fall. This is why it is tough for retailers to offer deep discounts; their bottom line is at stake.

At the ASI convention David Anderson, Ph.D., presented that demand can support prices with time. The growing economy will help lamb demand, but any consumer turn-off will have to be rebuilt and price competition with imports could be stiff.  With respect to prices, Anderson forecasted that lamb prices could trend higher over the next couple years. Lamb slaughter is expected to contract in the next couple years and “more normal” weights will mean lower production.

Three factors could improve lamb demand in 2013: improved, consistent quality; higher beef prices; and income growth.

JBS – the world’s top beef producer – chief executive officer, Wesley Batista, expects U.S. cattle prices will jump 20 percent to a record this year as rain on grazing fields and corn crops prompts ranchers from Texas to Nebraska to feed animals instead of send them to slaughter (Bloomberg, 12/5/12).

With some lag, higher live cattle prices will be observed at retail. The U.S. Department of Agriculture (USDA) forecasted meat prices could be up 3 percent to 4 percent in 2013. 
Higher incomes can also promote lamb demand. Inflation-adjusted income growth contracted for much of 2012, but grew late in the year.

With Easter around the corner, all eyes are on available supplies. There are some reports out of Colorado that lambs are gaining weight, perhaps up to at least 160 lbs. compared to about a 155-lb. average. There are reports that lamb demand at current price levels is not high enough to get these lambs to market. This is a concern because in early February, lambs that have wintered on alfalfa fields in California, Utah or Nevada have started to come into Colorado feedlots. These lambs will be ready for market in a couple weeks. With Easter a week earlier this year in late March, the timing might be perfect, but it likely has many feeders and packers nervous. 

In early February, the Livestock Market Information Center (LMIC) forecasted that second-quarter lamb prices could see some lift from the first quarter. With forecasted commercial slaughter down 5 percent in the second quarter and lamb slaughter weights current (not overly heavy) at 67 lbs., the price gains might come from particularly tight supplies.

LMIC forecasted that direct slaughter lambs on a carcass-basis are expected to range from $255 to $265 per cwt. in the second quarter, down 13 percent year-to-year. The live-equivalent is from about $128 to $133 per cwt. The 60-lb. to 90-lb. three-market average for feeder lambs could range between $140 and $150 per cwt., down 20 percent year-to-year.

Feeders Gain
Feeder lamb prices at auction saw a 36-percent jump in January to $143.03 per cwt. With a 2012 low of $94.48 per cwt. last August, the seven-month high is welcome. With feed costs still high, the strength of feeders likely stems from the stronger slaughter lamb market.

Feeders at the San Angelo auction averaged $146.50 per cwt. in January; Sioux Falls averaged $139.55 per cwt. No trades were reported in Ft. Collins.

After no trades in December, there was little direct rade of feeder lambs in January. One trade, 600 shorn head out of Texas at 105 lbs. for $110 per cwt., set the market. This trade was up from $99 per cwt. last November (no December trades) and down from $182 per cwt. a year ago January.

Feeder lamb prices are a function of feed costs and slaughter lamb prices. Sometimes feed costs trump all other influences. It was estimated that in January the break-even for feeders was $116 to $120 per cwt. compared to a price range of $110.50 (auction) to $112 per cwt. (live-converted formula) for slaughter lambs. If feeders are not making money and haven’t been for some time, they might be reluctant to make deals.  

Feed Costs Still High
Ending stocks for the corn season are expected to be very tight which puts upward pressure on prices. In mid-January, USDA’s Economic Research Service (USDA/ERS) projected that lower-than-expected exports do not compensate for higher-than-expected feed use. The demand is still there to support higher corn. The 2012/2013 corn price forecast is $6.80 per bu. to $8 per bu. (1/15/13).

Corn averaged $6.98 per bu. in January, up 11 cents per bu. from December and up from $6.07 per bu. year-to-year. In early February, corn futures were $7.36 per bu. in May and $7.27 per bu. in July.

Alfalfa held at $217 per ton in January, even with December, but up from $193 per ton year-to-year. Other hay jumped $2 per ton monthly to $144 per ton.

Hay, alfalfa and other roughages such as cottonseed have also been high historically. LMIC reported in mid-January, “The result of a very low hay stock number is a continued escalation in hay prices as we move through winter.” LMIC added that alfalfa acres planted this year are not expected to increase much. Only yield improvements will translate into alfalfa production increases from a year ago and possible lower prices.

Slaughter Lamb Market Enjoys Early Year Lift
At auction, slaughter lamb prices jumped 14 percent in January to $109.60 per cwt. This time last year prices were up at $150 per cwt. (and fell steadily to $96 per cwt. by December). At the high end, prices at Equity electronic auction jumped 18 percent to $113.25 per cwt. At the low end, one monthly trade at Kalona, Iowa, saw a 6-percent gain monthly to $103.50 per cwt.

Slaughter lambs in live, negotiated trade averaged $111.22 per cwt. in January, up 6 percent monthly and up from $158.33 per cwt. a year ago.

Not all slaughter lambs are created equal. There might even be two markets defined by larger- and smaller-framed breeds. The slaughter lambs that are sold on a carcass-based formula typically come out of Colorado feedlots and are typically a larger-framed breed than many of the lambs sold at action. The largest packers do shop for slaughter lambs at auctions, but most of these are lighter-weight.

Many of the slaughter lambs out of Midwest feedlots and elsewhere will finish on corn to about 130 lbs. to 140 lbs. maximum. This compares to more than 150 lbs. for the Colorado feedlot lambs.

Slaughter lambs on a carcass-based formula averaged $223.20 per cwt. in January, up 0.8 percent month-to-month. The live-equivalent was $112.16 per cwt., down from $175.48 per cwt. in January 2012.

Pelt Market Stronger
The USDA Agricultural Marketing Service (AMS) reported in January that the pelt market was stronger with a “firm undertone” and moderate to good interest on all pelt classes.
Fall clips averaged $12.47 per piece in January, up 8 percent monthly and down 29 percent year-to-year. No. 1 pelts averaged $10.63 per piece, up 1 percent monthly and down 27 percent year-to-year. No. 2 pelts (shorter wool length) averaged $6.56 per piece, up 19 percent monthly and down 48 percent year-to-year.

The slaughter lamb price a packer offers a producer/feeder is based upon the expected value of the meat, the value of the variety meats and the value of the pelt. Use of “pelt credits” has increased (LMIC, Rosa-Sanko, E., 2013). However, in many cases, there appears to be a disconnect between the pelt prices reported by AMS and what some producers receive.

Some of the concerns regarding current pelt price reporting include outdated pelt category descriptors and variability of pelt classifications among industry (LMIC, 1/2013). Pelt prices can be based on quality (for which there are many different measures), average lot price, lot size or contract prices, which may span from six months to a year.
AMS pelts are reported on one variable, length. However, pelts are actually priced based on a lot of different variables. The AMS pelt market narration often include words like shorn or unshorn, top-quality or inferior quality and ‘open’ (meaning not dense) to give pelt prices more definition.

Australian pelt reports include the type of pelt (lamb, Merino, crossbreed), weight of pelt, length of wool and the degree of vegetable matter. In early February, lamb pelts that were 24 kg. and over (about 53 lbs.) and about 1-inch to 2-inches long ranged from A$900 cents per skin to A$1,300 cents per skin (average US$11.42 per piece) for pelts free of vegetable matter (VM) and A$700 to A$1,100 for pelts heavy with VM (Meat & Livestock Australian, 2/1/2013).

Meat Market Down
The weighted average price of carcasses fell 1 percent in January to $249.60 per cwt., 28-percent lower year-to-year. The weighted average is based on how many head within each weight group sold. The lightest weight lambs, 55 lbs. and lighter, saw a gain of about 4 percent. The heaviest lambs also gained marginally while the mid-weights (where most of the volume is) weakened marginally.

Wholesale lamb primals weakened in January. The wholesale composite (gross carcass value) averaged $295.97 per cwt., down 1 percent monthly and down 25 percent for the year. The loins, trimmed 4x4, were $463.99 per cwt. in January, down 3 percent monthly and down 13 percent year-to-year. At $327.65 per cwt., the leg, trotter-off, lost 2 percent monthly and was 26-percent weaker year-to-year. At $517.03 per cwt., the rack, medium eight-rib, was down 0.4 percent monthly and down 37 percent year-to-year. The shoulder only lost 0.3 percent monthly at $241 per cwt., yet was down 17 percent year-to-year.

At $536.69 per cwt., ground lamb gained 2 percent monthly yet was down 8 percent year-to-year.

Production and Trade
In 2013 lower slaughter numbers and weights will likely put a squeeze on production.

In January, estimated lamb slaughter was up 5 percent to 136,801 head compared to a year ago, and lamb production was up 0.5 percent to 9.5 million lbs. Lower slaughter weights contributed to relatively lower production with average national weights at 139 lbs. compared to 146 lbs. as recent as last October. In January, the dressed weight average in formula sales (primarily out of Colorado) was 79.55 lbs., down from a 2012 average of 87 lbs.

Mutton slaughter was estimated down 4 percent in January year-to-year to 7,482 head.

Through November, total lamb imports were 116.7 million lbs., down 2 percent year-to-year. Australian lamb imports were up 0.45 percent and New Zealand lamb was down 9 percent. Total mutton imports were down 27 percent year-to-year to 23 million lbs.

Lamb and mutton in cold storage were still high historically at the beginning of January, perhaps reflecting subdued December holiday sales. Cold storage volume totaled 21.7 million lbs. of lamb and mutton in January, 14-percent higher monthly and 29-percent higher year-to-year. Some portion of the cold storage volume contains imported product.
Through November 2012, total lamb availability (imports plus domestic production, subtracting exported lamb) was 249.14 million lbs., up 1 percent year-to-year. Increased supply could have supported some price softening last year. In this period, U.S. domestic lamb supplies were up 4 percent year-to-year (after subtracting exports) and lamb imports were down 2 percent.   

Lamb Grading Defined
The burgeoning supply of market-ready lambs last year raised some good questions about how our meat grading system works. Regulations state that carcasses from animals over a year old cannot be marketed as lamb;  yearlings up to 24 months can be graded Choice and Prime.

AMS meat graders will grade lambs and yearlings and assign a yield grade value. Lambs or yearlings that are not graded (called no roll) typically receive ‘house’ or ‘brand’ grades and thus there is no USDA definition of quality on those carcasses or their meat.

The AMS meat grading manual reports that a lamb is an immature ovine, usually less than 14 months of age, which has a break joint and has not cut its first pair of permanent incisor teeth. A yearling is an ovine usually between one and two years of age, that has spool joints and has cut its first pair of permanent incisor teeth.

Retail Lamb Featuring Up
In the first three weeks of the year, lamb featuring at retail increased steadily (before Super Bowl week diverted attention to other proteins). Loins chops, shoulder blade chops and butterflied boneless legs were all popular feature items. Mutton stew meat was also featured in the Northeast and was the third-most commonly featured sheep meat item by the third week of January (AMS, 1/18/13).

Increased featuring activity was accompanied by lower feature prices compared to early 2012. This might be a move by retail to move more product or to position themselves early to promote Easter lamb. AMS reported in early January that most lamb advertised was used as ad filler space, with most sale items located below the fold. However, lamb featuring became more prominent in grocery ads as the month progressed.

The average feature price of loin chops during the first five weeks of the year was $9.12 per lb. compared to $9.23 per lb. in 2012. Shoulder blade chops averaged $4.94 per lb. in January, down from $5.71 per lb. year-to-year.

Boneless butterflied legs were featured 1,680 times in the first five weeks of the year compared to 150 times a year ago. Prices averaged $7.82 per lb. compared to $8.99 per lb. a year ago.

Nontraditional Lamb Marketing
The nontraditional market accounts for an estimated 33 percent of all lambs and sheep marketed in the United States (commercial and nontraditional). We know the nontraditional market exists because there is big difference in the USDA-reported lamb crop (less some loses for death) and the volume that USDA reports as commercial slaughter.

On average, 18 percent of all U.S. sheep operations sell lambs directly to consumers or ethnic markets (USDA’s Animal and Plants Health Inspection Service, 2013). In the West (Calif., Oregon, Wash.), this percent jumps to 25 percent, jumps to 19 percent in the East and 11 percent in the Central Region. Only 5 percent of the largest sheep operations (500+ head) sell directly to consumers compared to about 12 percent to 20 percent for smaller operations.

The nontraditional lamb market at the New Holland livestock auction in Pennsylvania averaged $131.42 per cwt. for 90-lb. to 110-lb. lambs, 6-percent higher monthly yet down 32 percent from a year ago.

Hair sheep which are often sold into the nontraditional market might fare better if marketed for the Orthodox Easter on May 5 rather than the western Easter on March 31. According to Susan Schoenian, sheep and goat specialist at the University of Maryland, hair sheep are not always the best lambs for Easter.