|Commercial Market Slows, Ethnic Trading Bustling
(October 1, 2009) For many producers and packers, late August into September was a busy time. The Moslem month of fasting, Ramadan, began Aug. 22, which dated the breaking of the fast, Id al Fitr, on Sept. 22. Id al Fitr is a three-day celebration in which Moslems often purchase weaned market lambs averaging 60 lbs. to 80 lbs.
With more than 2,000 slaughter lambs selling each week – most into the ethnic trade – the New Holland, Pa., livestock auction is central to the non-traditional lamb market. The bulk of supply is lambs weighing less than 100 lbs. When compared to more than 40,000 head slaughtered weekly in the commercial market, this total looks insignificant, but to many, the market is important.
The ethnic trade might be the primary market for many producers in the Midwest and eastern United States. It might be considered a separate market from the commercial market, with different price trends. For example, on Aug. 31 in New Holland, 198 head sold between 60 lbs. and 70 lbs. at a weighted average of $134.46/cwt. One hundred eighty seven lambs sold weighing 70 lbs. to 80 lbs. at an average $131.29/cwt. Factors affecting these prices are quite different from factors affecting feeder-lamb prices in the western United States.
There is a significant discrepancy between the estimated U.S. lamb crop and federally inspected slaughter numbers. Even if a percentage lamb crop loss is assumed, there was an estimated 1.13 million head that were not processed commercially in 2008. Lambs are likely channeled through smaller, non-federally inspected plants or slaughtered on farms.
Feeder-Lamb Market Slowed
The commercial feeder-lamb market slowed in August, which was likely a reflection of uncertainty in the market.
Feeder-lamb prices at auction (San Angelo, Ft. Collins and Sioux Falls) averaged $98.92/cwt., down from $103.02/cwt. in July, but up marginally from $98.56/cwt. last August.
Most feeders in direct trade came out of Idaho in August, although there were healthy volumes out of Oregon, Montana, Colorado and Utah. Weights averaged 99 lbs. while prices averaged $94.23/cwt. July’s average price was higher, $99.49/cwt., and last August’s average was $102.18/cwt.
U.S. corn prices are expected to average $3.47 per bu. in the 2009/2010 marketing year beginning Sept. 1, then gradually increase annually to reach $3.98 per bu. by 2014/2015, according to the University of Missouri (from meatingplace.com, 8/2/09).
At the end of August, the Livestock Market Information Center (LMIC) forecasted that 60-lb. to 80-lb. feeder-lamb prices could rise to nearly 3-percent above last year’s values in the third quarter and then gain further to 4.4-percent above last year’s values in the fourth quarter (LMIC, 8/30/09).
Slaughter-Lamb Prices Weakened
Lower demand for red meats might be catching up to the lamb industry. One large packer is no longer slaughtering live lambs. The reason is likely lower retail demand, but it, in turn, can weaken slaughter-lamb prices through reduced competition for slaughter lambs.
After a very strong June, live, slaughter-lamb prices at auction began slipping in July and by August had slipped below its five-year average. Prices averaged $92.94/cwt. in August, down from $98.59/cwt. in July. Values were down from the 2004-2008 August average of $94.80/cwt., and down from $95.56/cwt. in August 2008.
Slaughter-lamb prices on a formula carcass basis dipped earlier and more sharply downward compared to the past couple years. Its average was $205.31/cwt. in August, down from $213.82/cwt. in July and $227.05/cwt. last August.
Lower slaughter-lamb prices can be partly attributed to the lower meat market in August. The correlation coefficient between gross carcass values (wholesale values) and carcass-based formula slaughter-lamb prices was 0.95 – with 1.0 being perfect correlation. Similarly, the correlation coefficient between the gross carcass values and live, auction slaughter-lamb prices was 0.84.
At the end of August, LMIC forecasted that Western Direct slaughter-lamb prices (by carcass weight) could fall to 5-percent below last year’s values in the third quarter, but then gain in the fourth quarter to 1-percent below a year ago (LMIC, 8/30/09).
August Meat Prices Weakened
Wholesale lamb values, gross carcass value, fell 2 percent from July to August to $248.95/cwt., 10-percent lower than its value last August of $277.53/cwt. Meat prices have appeared low this year, but only compared to the highs enjoyed in 2008. Prices are still considerably higher than its five-year average.
The major lamb cuts fell from 1 percent to 5 percent in value between July and August.
The eight-rib rack, medium, weakened by 1 percent to land at $475.14/cwt., which is down 17 percent from $571.20/cwt. last August. The lamb loin, trimmed 4x4, slipped 1 percent in August to $403.10/cwt., down 25 percent from last August’s $537.55/cwt. Shoulders, square-cut, averaged $220.51/cwt. in August, down 5 percent from July and down 2 percent from last August. The leg, trotter-off, slipped 2 percent in August to average $250.51/cwt., down 3 percent from a year ago when it was $259.44/cwt.
Carcass prices averaged $234.16/cwt. in August, down from $237.40/cwt. in July, and down from $238.95/cwt. last August.
The sheep and lamb industry is not alone. Beef cattle prices were up to $15/cwt. lower this year, milk prices were down about $8/cwt. and pork was down
roughly $12/cwt. Lower prices in the sheep industry suggest that weaker demand exceeds the price-boosting affect of tighter supplies. However, as supplies tighten further, we might see price strengthening, particularly as the economy begins its rebound.
The U.S. Department of Agriculture (USDA) recently released its Cold Storage Report in which it revealed that lamb and mutton in cold storage on July 31 was 19.9 million lbs. This is 8-percent lower than June’s volume and nearly 1-percent lower than July 2008, which suggests possible price strengthening. However, a broader perspective exposed that cold storage stocks in July were 40-percent higher than the five-year average for July. Higher inventory levels can put downward pressure on prices, but prices are very much a function of demand and import volumes as well.
Domestic Production Contracting
Lamb and mutton production fell 6.5 percent to 105 million lbs. in the eight months through August compared to the same period a year ago. Live weights were up about a half a pound, but slaughter numbers were down 5 percent.
In the first-half of the year, lamb imports were up 4 percent year-on-year to 76.2 million lbs. Australia’s imports were up 6 percent in this period and New Zealand’s imports were up 2 percent.
That said, while Australia’s lamb imports were up to 45-percent higher year-on-year in March and April, imports in May and June were both below last year’s levels.
In late August, LMIC forecasted further contractions in slaughter numbers and production. In the fourth quarter, slaughter numbers could fall to 4-percent less than the fourth quarter in 2008 and production could fall by 5 percent (LMIC, 8/30/09). LMIC forecasted quarterly production could, for the first time, fall below 40 million lbs. per quarter in 2010.
LMIC forecasted a year-on-year rise in lamb and mutton imports in both the third and fourth quarters. However, total lamb supply, domestic production plus imports, is forecasted to be lower in the fourth quarter of 2009 compared to the fourth quarter of 2008.
Lower Farm Income Forecasted
Lower livestock and commodity prices are having an impact on farm incomes. In 2009, average family farm household income was forecasted to be $75,895, down 5 percent from 2008, and 8-percent below the five-year average for 2004-2008 (USDA’s Economic Research Service (ERS), 8/27/09).
Production costs were the lowest since 2002; however, output prices have been sharply lower. “In 2009, crop prices have continued to decline and prices for livestock animals and products have experienced sharp declines,” (USDA/ERS, 8/27/09). Net cash income is expected to fall 30 percent in 2009, to below its previous 10-year average,” (USDA/ERS, 8/27/09).
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