| Fall Lamb Supplies Uncertain (September 1, 2006) Although sentiments appear to be mixed about the supply situation in July, many concur that the supply prospects for coming months is good, yet uncertain for the fall lamb crop and supplies early next year. Overall, many in the industry agree that sheep and lamb inventory numbers this year may not increase much. The supply of lambs on feed in July was largely unknown. Some say the number of lambs on feed was lower than last year, but others disagree claiming numbers were the same. During the summer, lamb numbers are generally tight, but weekly slaughter numbers dipped below 40,000 head per week a couple times – unusually low. Supplies may be tight until feeder lambs that are currently entering feedlots are finished. Limited grazing opportunities will likely fill feedlots early this year, perhaps in August rather than September. Lambs may be put on feed 30 days to 60 days early this year. Lambs were reportedly already being placed on feed in late July at about 50 lbs. The drought is continuing to plague New Mexico and Texas, but is also affecting other areas such as Wyoming. Across many important sheep producing states, pasture and range conditions were far worse this summer compared to last. Forty-five percent of the pasture and range area in the West (Arizona, California, Idaho, Nevada, New Mexico, Oregon, Utah and Washington) was classified as very poor to fair during May, June and July compared to 36 percent during the same period last year. In the Great Plains region (Colorado, Kansas, Montana, Nebraska, North Dakota, South Dakota and Wyoming) the portion of range and pasture in the poor to fair categories averaged 68 percent compared to 45 percent last year. In the Southern Plains of Oklahoma and Texas, 85 percent of range and pasture fell into the poor categories compared to 63 percent last summer. It is projected that the 2006 lamb crop in the United States will total 4.1 million head, down 1 percent from the 2005 lamb crop of 4.13 million head and equal to the 2004 lamb crop. A lower sheep and lamb inventory may help explain the lower slaughter numbers this year. However, at this time there is no indication of increased culling. With the increase in adult sheep exports and the decrease in adult domestic-sheep slaughter, the disappearance of adult sheep is even with last year. A report released by the U.S. Department of Agriculture (USDA) in July recorded a small decline in the sheep and lamb inventory, including a drop in breeding ewe numbers and in replacement ewe lambs. Market lamb numbers remained unchanged. As mentioned, weekly slaughter numbers in June and July dipped below 40,000 head per week a couple times. In the first seven months of 2006, heavier dressed weights offset lower slaughter numbers to yield a year-to-year increase in production. Lamb and mutton production increased in the first seven months of 2006, up almost 2.3 percent to 106 million lbs. During this period, sheep and lamb slaughter was down nearly 3 percent, but dressed weights were up nearly 2 percent. However, sheep and lamb slaughter in July was up 1 percent, year-to-year, to 229,000 head. In the first five months of 2006, lamb imports were down 1 percent, year-to-year, at nearly 59 million lbs. Australia’s imports were up 8 percent over this time, but New Zealand’s imports were down 16 percent. From April to May, lamb imports rose 16 percent to 11.6 million lbs., still 9-percent lower than last May’s volume. In this time frame, Australia’s imports were up 11 percent to 7.5 million lbs. and New Zealand’s imports were up 24 percent to 4 million lbs. Lamb and mutton exports are on a record-setting pace this year. The record for lamb and mutton exports was set in 1991 when 9.4 million lbs. was exported. From January through May, the United States had already exported 8.1 million lbs. of lamb and mutton. Lamb and Meat Prices Gain in July In July, short lamb numbers were putting pressure on feeder-lamb prices, particularly in Colorado, as feeders began to fill their lots. In addition, increased late-summer placements may make the supply of fall feeder lambs tight, putting pressure on prices. A late season increase in feeder-lamb placements may have a price softening effect on slaughter lambs in coming months depending on feeding conditions. If lambs go into feedlots at lighter weights, the longer feeding period may mean there will not be as many slaughter lambs ready for slaughter before lambs are market ready. Feeder-lamb prices jumped 10 percent in Colorado between June and July to $112/cwt. However, average prices in the four auctions, including San Angelo, St. Paul, Sioux Falls and Ft. Collins, saw prices inch up by 0.16 percent to $104.34/cwt. Feeder-lamb prices in these four auctions were 18-percent lower in July, year-to-year. Average, live slaughter-lamb prices gained an average 3 percent between June and July to land at $90.51/cwt. Sioux Falls’ prices rose 1.3 percent between June and July, to average $97.66/cwt. in July. Midwest prices rose 9 percent to average $95.75/cwt. Formula slaughter-lamb prices jumped an average 13 percent in July. Formula-lamb purchases by carcass weight for 55-lb. to 65-lb. carcasses gained 6 percent, averaging $195.92/cwt. Carcasses weighing 65 lbs. to 75 lbs. gained 8 percent, with an average $194.23/cwt. The average price for 75-lb. to 85-lb. carcasses was $191.68/cwt. Average prices for 85-lb. to 100-lb. carcasses gained 27 percent, to average $166.27/cwt. The quality of lamb has improved. The average dressed weight of lamb was only 66 lbs. in July compared to 68 lbs. in July 2005, and supplies were current. Formula lambs averaged 69 lbs. in June and July, and packer-owned lambs (which have made up 10 percent to 15 percent of the kill) only averaged 72.7 lbs. in July as compared to 90.5 lbs. in June. The percentage of yield grade 1 and yield grade 2 carcasses increased from one-third of the kill in May to 41 percent of the kill in June. Improved quality may have helped improve price. Meat prices strengthened in July, but it was the stronger loins and shoulders, in particular, that boosted the gross carcass value by 7 percent to land at $229.08/cwt. Although the gross carcass value gained in July, it was still 9-percent lower than last July’s value. The trimmed loins gained 22 percent in July, averaging $471.08/cwt., but 16-percent below last July’s value. The leg gained 0.4 percent in July to average $191.27/cwt., 19-percent lower year-to-year. The medium, eight-rib rack gained 4 percent to average $539.35/cwt., down 16 percent from last July. Shoulders gained 8 percent to land at $170.84/cwt., 5-percent lower year-to-year. The spike in shoulder prices this summer may be attributed to increased sales to the foodservice sector. Typically, the shoulder is marketed to the retail sector, but increasingly the foodservice sector is sampling non-traditional cuts. Price Trends in the Fall Feeder-lamb and slaughter-lamb prices are expected to remain below 2005’s record highs. They will decline seasonally this fall, but may remain relatively strong compared to earlier years (Livestock Marketing Information Center (LMIC), 7/21/06). LMIC estimated that sheep and lamb production in the third quarter would be nearly 1-percent below last year, at 44 million lbs. The lower level is due to fewer head slaughtered as well as lower dressed weights. After the USDA July report was released showing that the number of cattle on feed was higher than expected, live slaughter-cattle prices fell $2 and feeder-cattle futures dropped in August and September, but rose in October. A similar price pattern could occur in the sheep and lamb industry. Texas feeder lambs between 60 lbs. and 90 lbs. are estimated to be between $103/cwt. to $106/cwt., nearly 20-percent lower than last year. At the year’s end, feeder-lamb prices are projected to average 15-percent to 20-percent lower year-to-year (LMIC, 7/21/06). However, the LMIC estimate may be overstated. If it is true that feeder lambs will be going into feedlots early, then this may mean fewer feeder lambs will be available in the fall, which could put an upward pressure on prices. Slaughter lambs may be in ample supply this fall; perhaps softening fourth quarter seasonal price increases. For the third quarter, the USDA’s Economic Research Service (ERS) forecasted San Angelo choice slaughter-lamb prices to range between $68/cwt. and $72/cwt. before rising to $72/cwt. to $78/cwt. in the fourth quarter (7/18/06). ERS’s third quarter forecast may be dated because it appeared that relatively tight slaughter-lamb supplies were already putting upward pressure on prices in July, above ERS’s levels. This year’s sharp downturn in prices, higher fuel costs and continued market volatility may warrant a look at alternative marketing options. Video and Internet auctions are increasingly popular. In 2001, 11 percent of beef operations used video auctions and 5 percent used Internet auctions (Schmitz, T., et al., 2003). In general, the cost of doing business is lower through an electronic auction (i.e., sales can be transacted without the livestock, buyers and sellers in the same location) so, in theory, returns should be higher. In addition, transport costs are often transferred to the buyer. Although research shows that video and Internet auctions are most popular with producers with the largest beef herds, smaller producers are encouraged to investigate these options. Equity Livestock Sales Association holds two lamb auctions weekly with all major packers participating through an anonymous bidding system online. “This auction system provides sellers with a competitively derived price from a worldwide buying group,” (www.equitycoop.com). It is thought that Equity’s market share has increased in recent years as the total number of lambs marketed has declined (Johnson, D., 8/7/06). According to Dave Johnson, vice president of sheep, lamb and goat marketing at Equity, there are several benefits to selling lambs electronically. First, with increasing fuel costs, both producers and buyers can save on transport costs. A producer can save by keeping his lambs on the farm during the sell and a buyer can save because lambs are often sold in load lots and there is flexibility in delivery date. A load lot can be thought of as the total weight of lambs (about 48,000 lbs. to 50,000 lbs.) that can be trucked most efficiently. Compared to the fixed delivery date of public auctions, the seven-day window for delivery in Equity’s electronic auction gives buyers the option to search for cheaper transport costs and deliver when space opens in the slaughter chain – saving feed costs. Thus, there are perceived benefits to the electronic auction that can add value to the electronic sale over other types of marketing outlets. Equity electronic auction prices are available online from past auctions so producers can get a feel for how prices in different marketing channels may compare. Prices are posted in addition to the number of head in the lot, the average weight, portion of shorn and unshorn lambs and location. Editor’s Note: Julie is open to comments and can be reached by e-mail at juniper@tds.net or by phone: 303-619-9975. |
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