|New Year Resolutions
(January 1, 2006) Every January, I vow to lose weight, keep a tidier house and be a better researcher. Usually, the first two resolutions are promptly forgotten, but I do try to do my homework, ask tough questions and not be afraid to dig a little deeper. The sheep industry is in uncharted waters. Analysis will require innovative thinking and keeping abreast of industry dynamics.
The new year will be ushered in with a lot of uncertainties, but also new opportunities for the sheep and lamb industry. The industry is growing in a time in which lamb demand is taking on new forms: imports are slowing, federal support is minimal and energy prices are volatile. The "Price Insurance for Sheep: Livestock Risk Protection for Lamb (LRP-Lamb)" project is timely for sheep producers who are facing new challenges.
Many sheep and lamb organizations aim to reduce the seasonality of lamb consumption, but progress may be difficult to monitor amid a dynamic and rapidly changing industry. For example, Entrepreneur lists DIY-(do-it-yourself) meal preparation as one of the hottest trends for 2006. Customers attend sessions which they prepare enough meals to last a month (Entrepreneur, 12/2005: 91). It is possible that this growing food sector may become important for lamb.
DIY-meal preparation is another way to cater to customer's busy lives and may be an avenue to reduce seasonality of lamb consumption. ConAgra Foods released a study in which it found that 70 percent of parents experience stress associated with dinnertime (Entrepreneur, 12/2005: 91).
However, monitoring the effect of this potential new face of demand will be a challenge. Isolating the seasonality of lamb prices from a general trend (often inflation), or cyclical pattern, can be helpful in determining whether seasonality in prices (and consumption) is diminishing. When a carcass-price series is broken into its separate components, strong seasonality is evident, but the amplitude of the swings in seasonality may be getting smaller in the 2000s (see graph, "Seasonal Index of East-Coast Carcass Price"). Achieving more value from the shoulder, preparing ready-to-eat meals and overall improved marketing may help explain the possible reduction in seasonality.
November Market Softened
Although still historically high, sheep and lamb markets softened in November. Feeder, live and formula slaughter-lamb prices weakened. Carcass values also weakened, as did the gross-carcass value.
Direct feeder-lamb prices fell about 7 percent from $121/cwt. to $113/cwt. between October and November. Corn prices continued to fall and some analysts were projecting $1.60/bu (ASI), which may lead to lower feeder-lamb price offerings.
San Angelo live slaughter-lamb prices weakened by 1.5 percent to average $92.67/cwt. in November.
Formula-lamb purchases by carcass weight for 65-lb. to 75-lb. carcasses fell 3 percent, falling from $194.50/cwt. to $188.23/cwt. within November. The average price for 75-lb. to 85-lb. carcasses fell from $200.34/cwt. to $191.40/cwt, 2.5-percent lower than October's average. Prices for 85-lb. to 100-lb. carcasses fell 3 percent and ranged from $181.26/cwt. to $192.01/cwt.
Total lamb availability (imports and production) in September was up nearly 9 percent year-to-year at 20.43 million lbs. (last-available data). In November, 13.3 million lbs. of domestic lamb and mutton were produced, down from 17.7 million lbs. in October and 14.4 million lbs. produced last November.
Production Increases in Australia and New Zealand
Lamb imports slowed in November, yet Australia's reported increase in production may weaken predictions of a continued slowdown. For the first nine months of 2005, U.S. lamb imports fell 4 percent to 107.3 million lbs. Australian imports posted an 18-percent gain year-to-year, but New Zealand imports fell 30 percent.
In the last 10 years, 1995 to 2004, lamb imports grew an average of 14-percent per annum. Even if fourth-quarter lamb imports average that of the past two years, year-to-year imports will still be down almost 2 percent. This is the first year-to-year drop in 10 years.
Strong demand and increased production boosted Australian lamb exports in September. Australia's lamb exports increased 29 percent in September on the same period last year (Meat and Livestock Australia (MLA), 11/21/05).
"The value of exports to the United States, Australia's most lucrative market for lamb, increased 25 percent on the same period last year," (MLA, 11/21/05).
Between August and September 2005, U.S. lamb imports dropped 22 percent to 8.9 million lbs., but whether this slowdown is a trend is yet unknown. Australia's total sheep slaughter in September increased 16 percent year-to-year, to 960,000 head. For the nine-month period from January to September, Australian sheep slaughter was 4-percent above last year, at 8.5 million head (MLA, 11/21/05).
Meat and Wool New Zealand's Economic Service also reported that this season's lamb crop is larger than last years. Reportedly, almost 35 million lambs were tailed in the last half of 2005, an increase of almost 1-percent above last year's total (Radio, New Zealand, 11/23/05).
Total U.S. mutton imports between January and September fell 21 percent to 24.4 million lbs. Both Australian and New Zealand mutton imports declined 67 percent and 10 percent, respectively.
Pelt Outlook Pessimistic
Slowing retail business in Europe is likely dampening pelt prices. Only top-grade pelts are currently being bought, reported Mike Wheeler, a pelt exporter, and the problem could get worse because pelts are headed into a typically low-quality time of year (San Angelo Standard Times, "Value of Wool Pelt Drops," 11/21/05). After highs of around $16 about 18 months ago, current levels are shockingly low. Pelt prices held mostly steady in November, but weakened by 7 percent from October. In November, fall clips held at $6, No. 1 pelts were steady at $5, No. 2 pelts held at $4, No. 3 pelts ranged between $2.75 and $3 and No. 4 pelts remained steady at $2.
Wholesale Market Weakened Marginally
The wholesale market weakened marginally in November. The gross-carcass value weakened by 0.37 percent to average $245.37/cwt., and ranged from $242.22/cwt. to $246.78/cwt.
Carcass prices softened by up to 17 percent in November, bottoming at $168/cwt., regardless of weight. Sixty-lb. to 65-lb. carcasses ranged between $168/cwt. to $219/cwt., carcasses between 65 lbs. and 75 lbs. averaged $168/cwt. to $219/cwt.; 75-lb. to 85-lb. carcasses averaged from $168/cwt. to $217/cwt.; and carcasses 85 lbs. and higher averaged $168/cwt. to $195/cwt.
It is thought that perhaps carcass- and live-lamb prices were down in November because breakers were widening their margins. The carcass to cut-out margins widened from $31 in September to $51 by late November. A possible contributing factor may be that packer-owned lambs and formula lambs are now averaging well over 50 percent of the supply.
In November, the weaker loin and leg pulled the gross-carcass value down, offsetting marginal gains in the rack and shoulder. The loins, trimmed 4x4, weakened by 1.73 percent, ranging from $419.98/cwt. to $443.80/cwt. The leg, trotter off, lost 0.26 percent in November. The leg ranged from $220.46/cwt. to $239.85/cwt. The average price of the medium eight-rib rack rose 0.6 percent during November, ranging from $626.28/cwt. to $633.42/cwt. The shoulder gained 0.35 percent in November, ranging from $173.64/cwt. to $175.55/cwt.