| 2006 Imports Surpassed Domestic Production (April 1, 2007) In 2006, lamb and mutton imports exceeded domestic production by 3 percent. The gap is expected to widen according to the Livestock Market Information Center (LMIC) in early March, with lamb and mutton imports rising to 13-percent and then 14-percent above domestic production in 2007 and 2008, respectively (LMIC, 3/5/07). However, at 168.7 million lbs., domestic lamb production continued to surpass lamb imports with 53 percent of the total lamb market. Mutton imports accounted for 84 percent of total lamb available in 2006 at 51.4 million lbs. Lamb imports increased 2 percent in 2006 to 147.1 million lbs. Lamb and mutton imports combined increased 6 percent between 2005 and 2006 to 190.4 million lbs. Australia remains the dominant importer with 67 percent of total lamb imports and 95 percent of total mutton imports. Australian imports increased nearly 5 percent in 2006, but lamb imports from New Zealand were down 1.5 percent. Australian mutton imports were up 22 percent and New Zealand imports were up 5 percent. Rising imports reinforces the necessity of getting country of origin labeling (COOL) in place. Not being able to determine the difference between U.S. and imported product is a disservice to U.S. producers. Due to stable demand and the expected drop in domestic production, imports are expected to increase 1 percent in 2007 to about 194 million lbs. (U.S. Department of Agriculture’s (USDA) Economic Research Service (ERS), 2/20/07). However, in early March, LMIC forecasted that lamb imports would increase 6 percent in 2007 to 202 million lbs. Reports out of Australia also expect increased exports: “Australian lamb exports are forecasted to surpass the 2006 record by 5 percent in 2007,” (Meat and Livestock Australia (MLA), 2/2/07). Although production in 2007 will remain steady with 2006 levels, lamb production in Australia in the second half of 2007 is expected to slow. This may affect its ability to maintain export volumes later in the year (MLA, 2/2/07). Slaughter-Lamb Prices Strong Early 2007 direct feeder-lamb trade was thin. In February, 6,600 lambs were marketed as compared to more than 10,000 head marketed or contracted in past years. A trickle of new crop lambs were sold in direct trade, selling as high as $113/cwt. The majority of feeder and pasture lambs that were moved in February did so under retained ownership to the feedlots (American Sheep Industry Association (ASI), 3/2007). The few pasture lambs that did sell out of Arizona and the Imperial Valley averaged 135 lbs. and $95/cwt. to $100/cwt., mostly $100/cwt. In February, feeder lambs in direct trade averaged $99.50/cwt. Dressed weights in February stabilized at 71 lbs. with heavy discounts on 85 lbs. and heavier carcasses. Slaughter numbers also improved in February with feeders marketing their lambs on a more regular basis and after working through the effects of earlier winter storms. Lamb and mutton production was 14 million lbs. in February, same as last February. Slaughter numbers were higher this year; however, weight was lower, 71 lbs. compared to 73.3 lbs. Live weights were 141.3 lbs. compared to 146.3 lbs. last February. Live auction slaughter-lamb prices gained 1 percent in February to average $89.36/cwt. The greatest gain, 8 percent, was observed in the Wyoming, Colorado and Montana Intermountain region resulting in $89.83/cwt. Prices softened in the Midwest computer auction and Kalona, Iowa, by 0.26 percent and 0.75 percent, respectively. In the Equity Electronic Auction, 700 head of slaughter lambs sold in February with an average weight of 131 lbs. and average price of $89.56/cwt. (60 percent shorn). Formula lamb purchases by carcass weight weakened 1.7 percent in February with the 85-lb. and heavier weight category losing the most, 4.5 percent to average $172/cwt. Fifty-five lb. and lighter category gained 0.6 percent at $188.64/cwt.; 55-lb. to 65-lb.carcasses lost 2.6 percent to land at $183.61/cwt.; 65-lb. to 75-lb. carcasses fell 1.2 percent to average $185.04/cwt.; and the 75-lb. to 85-lb. weight category fell 1 percent to average $183.07/cwt. Weighted averages can be thought of as a more accurate average by taking into account the number of head traded each week. If weighted averages are taken of formula slaughter-lamb prices, the biggest difference is for two weight categories. The 55-lb. to 65-lb. carcass price rose from $183.61/cwt. to $185.99/cwt. and the 65-lb. to 75-lb. carcass price rose from $185.04/cwt. to $185.93/cwt. This means that more lambs were traded at higher prices. As lambs get heavier and the price per pound drops, then feeders may be losing money per pound. In February, 10 percent of lamb sales on formula were 85 lbs. and heavier. Pelt prices held steady in February with two-thirds of the pelts being full wools, and the other one-third being mostly No. 1’s and a few No. 2’s. In February, fall clips were $6.25, No. 1 pelts remained at $5.75, No. 2 pelts were $5, No. 3 pelts were $2.75 and No. 4 pelts were $2. USDA Study Dispelled Beliefs When I worked for USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) it was often believed that those livestock producers that had access to formula contracts with packers received preferential treatment in higher prices. However, a recent GIPSA “Livestock and Meat Marketing Study, Vol. 5: Lamb and Lamb Meat Industries” study found that formula prices and cash prices were not statically different from one another between January 2002 and June 2005 (p. 2-10). Over this period, the average inflation-adjusted cash price was $48.41/cwt. and $48.44/cwt. for formula purchases (p. 2-11). When the live weight of fed lambs was accounted for, the average inflation-adjusted value was $0.348/lb. for formula-priced lambs and $0.351/lb. for cash purchases (p. 2-13). Between August 2001 and June 2004, formula-purchased lambs comprised 42 percent of the marketing methods for slaughter lambs as reported under Mandatory Price Reporting, 39 percent by auction, 12 percent negotiated, 5 percent packer owned, 1 percent contract and 1 percent imports (p. 2-8). The study concluded that in the future, the portion of fed lambs slaughtered under packer ownership will likely remain steady, formula purchases will likely increase, use of auctions will likely decline, but direct negotiations (i.e., cash) between producer and packer may rise (p. 7-4). The authors of the report explained that formula purchases are likely to rise because formulas can give producers incentives to improve quality (p. 7-4). For example, the Mountain States Lamb Cooperative offers its members a quality grid with Yield Grade 4 and Yield Grade 5 receiving a $0.08 per lb. and $0.30 per lb. discount, respectively. Yield Grade 2 and Yield Grade 3 receive a $0.08 per lb. premium (p. 4-1 from Boland, Bosse and Brester, forthcoming). The report does not explore the ramifications of possible increased use of formulas. Formulas are a matrix of premiums and discounts that help calculate the price of a lamb often after it is slaughtered. The formula may be based upon the packer’s own plant-average price or may be based upon a particular action market. If the share of slaughter lambs purchased through auction declines, then the average auction prices may become more volatile with fewer trades. Thus, using auction prices as a basis for formulas might create more volatility in formula pricing. It is also possible that a packer may be able to influence the prices of its formula purchases if it goes into an auction and bids the price down. Late-Month Meat Gains Gear Up for Easter The cutout weakened by nearly 2 percent in February to $240.45/cwt., but made late-month gains to $245.11/cwt. Perhaps, prices began to strengthen in efforts to secure supplies for an early Easter on April 8. The shoulder gained 0.25 percent in February but rose from $160.49/cwt. in early February to $165.61/cwt. by the end of the month. The leg, trotter-off, fell 4 percent to $231.03/cwt. but rose from $218.96/cwt. in early February to $239.88/cwt. by the end of the month. The eight-rib rack, medium, fell 1 percent to average $595.01/cwt. and the loin, trimmed 4x4, fell 1.3 percent to $422.91/cwt. However, both cuts gained during February. Carcass prices were mostly steady to slightly lower. Discounts averaging $3 were being applied to 75-lb. to 85-lb.carcasses versus 65-lb. to 75-lb. carcasses (ASI, 3/07). An additional $11 to $15 discount was being applied to 85-lb. and heavier carcasses. Still, there were 1,200 to 2,000 85-lb. and heavier carcasses sold per week. Lamb spreads improved modestly in February with packers and breakers both in the black. Better money is being made on the break than on the kill this year. Last year the reverse was true. Meat Exports Record High Lamb and mutton exports in 2006 were double the exports reported in 2005. In 2006, exports shattered all records. Lamb exports to Canada totaled 6,887 head, a monthly total that exceeded the total of the previous five years combined (2001-2005). Live sheep exports to Mexico moved higher with 12,500 ewes shipped as compared to 7,500 in January 2006. Old ewe prices in San Angelo were slightly higher in February for individual quality categories, but the overall weighted average price was lower, indicating poorer quality of the ewes. There have been no live sheep imports to date in 2007. In 2006, live imports totaled 3,111 animals. Forecasts In general, higher grain prices and lower inventory are expected to lead to lower production levels for all meats in the coming decade (USDA, 2/07). Lower inventory numbers coupled with a lower 2006 lamb crop is likely to mean lower annual 2007 production. USDA/ERS forecasted that lamb and mutton production would total 182 million lbs. in 2007 (2/20/07). In early March, LMIC forecasted that lamb and mutton production in 2007 would fall 3.3 percent to 179.25 million lbs. (3/5/07). Tight supplies and hence lower annual production is likely to translate into strong slaughter-lamb prices, ranging between $83 to $87 per cwt. (USDA/ERS, 2/20/07). Market sheep and lambs were down 2 percent annually in January 2007 (USDA’s National Agricultural Statistics Service, 2/07). LMIC forecasts in early March for slaughter lambs by carcass weight was $187 to $192 per cwt. (Western Direct, 3/5/07). Texas feeder lamb prices (60 lbs. to 90 lbs.) are forecasted to range between $102 to $106 per cwt. (LMIC, 3/5/07). USDA forecasts that lamb and mutton consumption will remain at 1.1 lb. per capita in 2007 through 2009, but then fall to 1 lb. per capita through to 2016 (USDA, 2/07). Editor’s Note: Julie is open to comments and questions and can be reached by e-mail at juniper@netecin.net or by phone: 303-619-9975. |
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