(March 1, 2010)  Although total inventory is down, there are growth segments within the industry – the non-traditional market. With another year of data under our belt, it can be calculated that the commercial market continued its contraction while the non-traditional market grew. After two years of inventory gains in 2005 and 2006, 2009 was the third year of consecutive inventory contractions to 5.7 million head.

In 2009, it is estimated that the non-traditional lamb and mutton (outside of traditional, commercial channels) market jumped 5 percent in volume while the federally inspected slaughter market (traditional market) contracted 3 percent. In the last five years, the traditional/commercial market contracted by an average 3-percent per annum while the non-traditional market gained 0.5 percent per year.

In 2009, there existed a discrepancy of 1.2 million head between the traditional commercial volume slaughtered and the lamb crop (given a 5-percent loss rate of lambs). Most of this volume is likely sold direct from the farm to consumer and not channeled through the commercial or traditional sector. However, not all of these lambs are sold for individual or family consumption.

Producers reported that 2 percent of their direct marketing sales by White buyers go direct to restaurants, bypassing the traditional channels. Restaurants might be catering to consumers’ demands for local and natural product.

Outlook
Although there are signs of economic recovery, persistently high unemployment could keep consumers spending in check for coming months.

Curtailed consumer spending hit the food service sector hard in 2009. “When comparing store sales at different food-service chains in the fourth quarter of 2008 and the third quarter of 2009, steakhouses like Morton’s saw a 17-percent decline in sales and Ruth’s Chris saw a decline of 24 percent in sales, according to Rabobank’s analysis,” (AgWeb.com, 1/5/10).

Cattle supplies in 2010 will likely decline another 1 percent to 1.5 percent in 2010, while a weak economy and high unemployment will continue to drag on beef demand, reported Randy Blach, Cattle-Fax chief executive officer (meatingplace.com, 2/1/10). “Demand remains the biggest challenge for the beef industry in 2010,” Blach said. “Though the supply situation is very bullish, demand must stabilize in order for prices to turn significantly higher.” 

Lower beef prices and a weak economy will likely continue to put downward pressure on lamb prices, yet the tighter supply will lend some price support. It is not known how the non-traditional lamb market affects prices in the commercial, traditional market. It is possible that it makes supplies tighter still and puts upward pressure on feeder-lamb prices.

In early February, the Livestock Market Information Center (LMIC) forecasted that Western direct slaughter-lamb prices on a carcass basis could rise at much as $2/cwt. in the second quarter – up 3 percent compared to a year ago. Feeder-lamb prices (Texas 60 lb. to 90 lb.) were forecasted to gain $1/cwt. in the second quarter – up 2 percent from a year earlier.

Supply Forecast
LMIC forecasted in early February that annual production could fall 4 percent to 68.58 million lbs. LMIC also forecasted in early February that lamb and mutton imports are expected to fall 2 percent annually in 2010 to 166.8 million lbs. LMIC figured that total supply could fall an estimated 8 percent in 2010.

This is significant. If projections are realized, lamb and mutton availability will be down 34 million lbs. and an estimated 6 million regular lamb consumers will not be able to find lamb in 2010. This stems from an assumption that 24 percent of our population eats lamb regularly.

I’m not certain lamb imports will be lower this year. Indeed, markets worldwide compete for Australian lamb, particularly in the Middle East, and the weak U.S. dollar doesn’t help. However, the value of the U.S. market has held up well.

Feeder-Lamb Prices
In much heavier trading, feeder-lamb prices in direct trade jumped 10 percent in January to $107.25/cwt. Weights were also up 12 percent to 119 lbs.

The 2009 corn crop was a record 13.2 billion bushels. The 2009-2010 marketing year average corn farm price is projected at $3.40/bu. to $4/bu. based on strong future and cash prices (meatingplace.com, 1/13/10).

There has been good moisture across much of the United State this winter which will be positive for grazing conditions this year. The national average for hay, other than alfalfa, was $99.60/ton in January, down from an average $118.33/ton over the May to April 2008-2009 season.

January Slaughter-Lamb Prices Mixed
Slaughter-lamb prices at auction strengthened 3 percent between December and January. At $96.21/cwt., live slaughter-lamb prices for January at auction were the highest since January 2005. The January average for Kalona, Iowa, was $100.38/cwt.  Prices in the Intermountain region averaged $95/cwt. and San Angelo, South Dakota and Equity electronic auction averaged $94/cwt.

Negotiated slaughter-lamb prices also gained 4 percent in January to $97.51/cwt.
Slaughter-lamb prices on a carcass-based formula weakened marginally between December and January, from $191.70/cwt. to $190.96/cwt. (or $95.82/cwt. live-basis).

How Important is the Chinese New Year to Lamb?
Celebration of the Chinese New Year was in mid-February. Chinese Americans are an important consumer segment of the U.S. sheep and lamb industry. Twenty-one percent of U.S. ethnic lamb consumers are Asian Americans and within this number, 14 percent are of Chinese descent. Chinese eat lamb regularly and likely, many Chinese customs persist with Chinese Americans today. The Chinese (including Hong Kong) are known to eat the most pork per capita than any other country, but lamb consumption is also important.

New Zealand Alliance marketing manager, Allan Henry, says the Chinese market has proven an invaluable outlet for low-value flaps, caps and neck slices. He explained, “Once fully boned out these are converted into a type of sliceable sausage that is a key ingredient in Chinese hot-pot dishes, highly popular in eastern Chinese provinces,” (Country-Wide, 1/10/2008). Additionally, imported high-value lamb cuts are mostly distributed to five-star hotels that cater to wealthier Chinese. Chinese per capita lamb consumption is about 4.4 lbs., compared to less than one lb. per capita across all Americans.

One way to think about adding value to the sheep and lamb industry is too cater to ethic groups by developing culturally distinct lamb products. In the same vein, this move would cater to American’s increasing appetite for different cultural experiences by experimenting with new tastes.  

Lamb Imports Keep Pace
Australia’s lamb imports to the United States were up 4 percent in 2009 annually (Meat and Livestock Australia (MLA), 1/7/10). “Australia’s strong presence in the U.S. retail sector contributed to the recovery in exports to the region as the U.S. recession resulted in higher consumer purchases of value cuts at retail for preparation in the home,” (MLA, 1/7/10).

The estimated decline of 13 percent in New Zealand lamb imports to the United States also contributed to the rise in Australian lamb imports. Overall, New Zealand exported 8-percent less lamb in 2009 than the previous year – “with shipments constrained by the lower amount of lambs available for slaughter,” (New Zealand Meat Board from MLA, 1/14/10). The strong New Zealand dollar will only compound the supply situation.

The New Zealand dollar appreciated remarkably over 2009 – up 46 percent against the U.S. dollar. Meat and Wool New Zealand economic service director, Rob Davison, said it was estimated there would be a nearly 9-percent fall in total gross farm revenue for the average New Zealand sheep and beef farm in 2009-2010 (NZPA, 2/2/10). Davison explained, “This translates to $700 million being wiped from meat and wool sector receipts, just because of the exchange rate,” (NZPA, 2/2/10).

Lamb imports comprised 48 percent of the total U.S. lamb market in the 11 months through November compared to 43 percent of the market in the same period in 2008. Lamb imports are likely to rise very strong lamb prices and lower corn will likely help Australia’s sheep and lamb inventory expand in the next few years.

With an annual jump of 41 percent, the Middle East was the fastest growing export market for Australian lamb. The strength of its economy was able to overcome the effect of the strong Australian dollar. The Middle East accounted for 35.9 tons of Australia’s lamb exports, not far behind the 38.3 tons sent to the United States (MLA, 1/7/10).

Due to a sharp drop in U.S. mutton imports, total U.S. lamb and mutton imports were down 8 percent year-to-year through November 2009. Australian mutton imports were down 20 percent to 22.6 million lbs. and New Zealand’s imports were down more than half to 6.2 million lbs.

Australian mutton exports to the United States fell 19 percent year-on-year (MLA, 1/7/10). Overall, Australian mutton exports were down 15 percent for the year, but exports increased 3 percent to the Middle East. “The strong consumer preference for mutton in the Middle East and the resilience of the Middle East economy in the wake of the global financial crisis prevented the high mutton prices and the Australian dollar from impacting export volumes to the region,” (MLA, 1/7/10).

Although Australian mutton imports to the United States were down sharply, Australian goat meat imports hit a “new high” in 2009 with a total of 24,752 tons (54.6 million lbs.), up 36 percent year-on-year (MLA, 1/7/10). By comparison, a rough estimate of U.S. goat production is 50 million lbs.

January Wholesale Market Weaker
The East Coast carcass market was up 2 percent in January to $222.80/cwt. but wholesale cut values were down. The January carcass market was lower than a year ago, but higher than January of 2006, 2007 and 2008.

The gross carcass value was down 1 percent between December and January to $242.49/cwt. and down 5 percent from a year ago.

Aside from the rack, the primal cuts lost value between December and January. The eight-rib rack, medium, gained 1 percent to $475.95/cwt. in January; the leg, trotter-off, lost 1 percent to $268.43/cwt.; the shoulder, square-cut, lost nearly 4 percent to land at $204.27/cwt.; and the loins, trimmed 4x4, lost 5 percent to average $322.27/cwt.

Typically, wholesale primal cuts are seasonally low in January. The leg will likely gain sharply toward Easter in early April. However, the rack, loins and shoulder might fall further or gain marginally, this is uncertain.