(April 1, 2010)  As Easter came in early April, packers and processors likely began to bid up prices in February. Tight supplies, sharply lower freezer inventories and uncertain winter weather and imports likely led to higher prices across the industry. 

The lamb industry continues to be squeezed by relative high corn, tight supplies and weaker consumer demand. Production incentives are weak and supplies are down which puts further upward pressure on prices. In the next few years, these higher prices and higher producer returns could entice expanded production. Tight supplies continue to put pressure on marketing, as lamb availability at retail and in restaurants contracts.

Per capita lamb consumption was 1 lb. per capita in 2009 and is forecasted to drop to 0.8 lb. per capita in the next eight years (U.S. Department of Agriculture’s (USDA) Economic Research Service (ERS), 2/10). However, national figures don’t reflect a lower popularity of lamb among many consumers. A 2009 survey found that minority lamb consumers consumed 3.25 lbs. of lamb per person annually at home and 2.37 lbs. of lamb per person annually away from home (Shiflett, Williams, Rodgers, 2010).

Reduced per capita production for lamb will only increase the need for fine-tuned marketing to seek out the pockets of the country and populations that eat lamb regularly. USDA/ERS recently launched a Food Environment Atlas (www.usda.ers.gov/FoodAtlas) which offers a wide variety of consumer-related data to a broad audience.

The atlas might enable producers to make more informed marketing decisions. Producers can look up the number of farmers’ markets in neighboring counties, county-level expenditures in direct farms sales, the pounds of meat and poultry consumed at home as well as availability of farm to school programs. The atlas also offers socioeconomic variables such as ethnicity and income.

Direct farm to consumer sales are likely to grow. Sixty-nine percent of respondents to a survey by Context Marketing said they will pay more for “ethically produced” foods (meatingplace.com, 3/4/10). More than 90 percent of respondents identified three main qualities: protects the environment, meets high quality and safety standards and treats farm animals humanely.

The American Sheep Industry Association-funded non-traditional market study revealed that many producers believe that their direct marketing sales are motivated because the lamb was natural, hormone- and antibiotic-free, healthy and well cared for (2010).

February Slaughter Down
In February, slaughter numbers were down 1 percent to 167,482 head compared to last February and yet production held at 12 million lbs. The commercial lamb market is challenged to attract lambs into its system to maintain slaughter numbers and not lose crucial infrastructure which could raise costs. 

The Livestock Market Information Center (LMIC) forecasted in early March that commercial lamb and mutton production could total 40.8 million lbs. in the first quarter, down 3 percent year-on-year. Second-quarter production is forecasted to also be down 3 percent from a year ago at 41.2 million lbs.

Recall that the number of replacement lambs was up 1.3 percent in 2009, the first increase since 2006, and an indication that producers could be looking to expand inventory (USDA/ERS, 2/10).

Feeder-Lamb Prices Lifted
In lighter volumes, February prices gained 9 percent in direct trade to $117/cwt. while weights dropped more than 10 lbs. to 105 lbs. Compared to last February, volume traded was more than double, but prices were down 14 percent.

On average, feeder-lamb prices at auction gained $1.32/cwt. in February. Feeder-lamb prices at auction in Ft. Collins dropped monthly from $122.08/cwt. in January to $114/cwt. Prices in Sioux Falls gained from $117.33/cwt. to $121.75/cwt.
In February, several direct feeder-lamb trades were made for future delivery, perhaps to lock in prices and secure supplies. Two thousand head out of Idaho traded at $100/cwt. for September delivery and 1,000 head out of Oregon settled on $97.50/cwt. for June delivery.

Corn Price Forecast High, Steady
According to the “USDA Long-term Projections,” report although corn prices are lower than their high 2007/2008 and 2008/2009 levels, they are projected to remain historically high due to continued demand for corn to produce ethanol as well as growth in feed use and exports (2/2010).

Corn prices are forecasted to average $3.75/bu. in the next five years, but then weaken marginally to $3.68/bu. in the ensuing five years (USDA/Office of Chief Economist, 2/2010).

Corn prices received by farmers averaged $3.45/bu. in January, down from $4.36/bu. in January 2009.

USDA’s projected marketing-year average farm price for corn ranged from $3.45/bu. to $3.95/bu. in February (meatingplace.com, 2/10/10).

Hay, other than alfalfa, has continued its months-long decline. At the beginning of the hay season last May, prices averaged $113/ton, but were down to $97.10/ton in February (LMIC, 2/10).

Non-traditional Market Gains at Auction
An estimated 300,000 head annually are channeled through the non-traditional (ethnic) market via livestock auctions (Shiflett, Williams, Rodgers, 2010). Within this, Producers Livestock Auction in San Angelo is by far the largest ethnic auction market. Approximately 30 dealers — predominately ethnic and acting as agents for others – routinely buy at the San Angelo market. An estimated 94 percent of the auction’s sales go into the non-traditional market.

USDA’s Agricultural Marketing Service (AMS) reports on light and heavy slaughter lambs as well as feeder lambs. The lamb type is determined by the perceived use of buyer — further feeding or direct to consumer. USDA reports on Good 1, 2 and 3 lambs as well as low, average or high yielding.

Between January and February, slaughter lambs weighing in the mid 60-lb. range jumped 15 percent in price to average $156/cwt. for Good 1 high yielding lambs. In many weeks this year, feeder-lamb trade was insufficient to establish trend.

February Slaughter-Lamb Prices Up
February slaughter-lamb prices at auction reached levels not seen since February 2005. Slaughter-lamb prices at auction jumped from $96.21/cwt. in January to $109.52/cwt. in February, up from $96.75/cwt. last February. San Angelo averaged $104.38/cwt. in February, but the Intermountain region was higher at $110.50/cwt., Equity Electronic Auction was $110.42/cwt. and Kalona, Iowa, was $111.50/cwt.
Slaughter-lamb prices on a carcass formula basis averaged $202.19/cwt. in February, up nearly 6-percent monthly from $191.27/cwt. and up from $200.06/cwt. last February. When converted to a live basis, prices jumped from $96.07/cwt. to $101.15/cwt. Weights remained about steady between months.

Wholesale Market Stronger
Between January and February, the wholesale lamb (gross carcass) value jumped nearly 4 percent to land at $251.12/cwt. The medium eight-rib rack gained 3 percent to $488.78/cwt. in February, the shoulder, square-cut, was up 4 percent to $213.26/cwt., the leg, trotter-off, was up 6 percent to $284.65/cwt.  The loin, trimmed 4x4, was down 0.16 percent to $321.76/cwt.

The February wholesale market was up an average 1 percent from a year ago with mixed price trends for cuts. The leg was up 8-percent annually, the shoulder was up 3 percent, but the loin was down 5 percent and the rack was down 6 percent from a year ago.

The leg historically makes seasonal gains towards Easter, but this year, the price strengthening came earlier. Perhaps processors were bidding prices up early to secure limited supplies. This is suggested by the fact that freezer inventories declined in recent months. At 13.8 million lbs., lamb and mutton in cold storage in February was at a five-year low. Between December and January, cold storage fell 5 percent and another 3 percent in February.

East Coast carcass prices gained from $222.80/cwt. in January to $225.28/cwt. in February, down from $230.63/cwt. last February.

Imports Up...or Down?
The ERS forecasted that lamb and mutton imports for 2010 could be 10-percent higher than 2009 (2/10). The reasoning is that tight domestic supplies and recovering demand will attract higher import levels. However, LMIC forecasted in early March that imports could be down 5 percent in 2010.

LMIC and ERS might be capturing possibly sharply lower mutton imports in their forecasts. While Australian lamb imports could very well rise this year, it might not be able to compensate for possible lower New Zealand lamb imports.

In review, total lamb and mutton imports were down 7 percent in 2009. However, lamb imports were down only 1 percent annually. Australian lamb imports were up 5 percent and New Zealand’s lamb imports were down 12 percent. Mutton imports were down 43 percent with supplies from both Australia and New Zealand down.

According to Meat and Livestock Australia’s (MLA) 2010 Sheep Projections, “Lamb production and prices are on track to post a record high in 2010, up 2 percent on 2009 levels, despite extremely low flock numbers,” (ausfoodnews.com, AUS, 2/23/10). Further, Australian lamb exports are expected to rise 2 percent in 2010 due to lower global lamb supplies and strong export demand in the Middle East.

One key determinate of Australian lamb imports to the United States is competition from the Middle East. The United States was the leading destination for Australia’s lamb exports with 23 percent of the total. However, Australia’s lamb exports to the Middle East during 2009 were 41-percent higher than 2008 (themeatsite.com, 2/10/10).

In 2009, U.S. lamb exports were up 9 percent to 3.3 million lbs. and mutton exports were up 39 percent to 13 million lbs.

Live-sheep exports totaled 157,337 head last year, down 8 percent. Exports to Mexico were down 14 percent for the year and exports to Canada were down 2 percent in 2009.

Pelts See Some Lift
In February, stronger market conditions existed for fall clips, No. 1 pelts and wools (USDA/AMS, 2/10). The agency reported, “Tight supplies were governing the market, pushing prices higher.” Fall clips jumped from $6.25 in January to $6.63 in February, up from an average $6.39 in 2009. No. 1 pelts gained 6 cents in February to $5.06/piece, No. 2 pelts gained 13 cents to $2.13/piece, No. 3 and 4 pelts gained 8 cents each to $1.88/piece.

Rising pelt prices might explain some of the lift observed in the February slaughter-lamb market.

In Australia, the availability of one to two inch shorn lambskins is good (U.S. fall shorn) but pelts under half-an-inch (U.S. No. 2 and 3) face tighter supplies. In February, some resistance from international customers has been reported due to the high prices for some lengths (MLA, 2/8/10).