|The Aftermath of Katrina
(October 1, 2005) Farmers and ranchers across the United States may have been affected by Hurricane Katrina, either by higher fuel and transport costs, or by the loss of crops and livestock. It is estimated that the hurricane will cost American farmers $2 billion (The New York Times, 9/8/05). It is likely the direct and indirect costs will exceed this level in months to come. However, it is also likely that the hurricane will have farther-reaching, possibly positive, affects on the agricultural sector – namely on federal agricultural support and also through our welfare programs.
The momentum of two separate political agendas could be railroaded by the hurricane. The first issue is the Bush Administration's efforts to reduce farm subsidies. By mid-September, Congress was planning to cut $3 billion from agricultural programs over the next five years. The administration is trying to appease the World Trade Organization's demand and in doing so, hopefully open more markets to U.S. exports. However, it may be difficult for the administration to push for reduced federal support to agriculture in the face of severe farm losses.
A compounding concern may be that if interest rates continue to rise, crop prices fall and the cost of fuel does not substantially decrease, then real farm incomes may also fall. The estimated economic output of our country, or gross domestic product, was revised downward in the aftermath of Katrina. The political will to cut agricultural support may falter.
Another political item that may be derailed is the proposed cuts in Medicaid in next year's budget. In fact, given the current need by so many, it is not so far reaching to think that the government may increase federal support to lower-income people.
It is uncertain, but doubtful, that the hurricane will necessarily affect the long-term value of the U.S. dollar. The U.S. exchange rate weakened (rose 2.25 percent) in Katrina's wake from $0.75 USD/AUD to nearly $0.77 USD/AUD over the week ending Sept. 7, 2005. Australia's consequent dollar appreciation likely hampered wool sales. However, the United States remains a popular place to invest relative to other countries, which helps to strengthen the U.S. dollar. The United States remains relatively more attractive than Europe, Japan remains in an economic recovery and investing in China is too risky for many.
Lamb Prices Weaken Seasonally
Lamb prices typically soften during the summer months before a probable strengthening in the fall and winter. The U.S. Department of Agriculture's (USDA) Economic Service reported that third-quarter production will likely equal that of 2004, but fourth-quarter production will likely be about 4-percent higher than last year (8/18/05). Second-half production will likely exceed that of the first half of the year. This is opposite of typical slaughter patterns, but may occur because of the timing of industry expansion. The strength of seasonal-lamb demand will likely offset the depressing effects of increased supply and prices will likely remain strong. The USDA's Economic Service expects slaughter-lamb prices to remain in the $97 to $98/cwt. range (8/18/05).
San Angelo feeder-lamb prices softened about one-half percent from $130.31/cwt. to $129.56/cwt. between July and August. San Angelo live slaughter-lamb prices fell nearly 5 percent in August to $91.50/cwt., but remained slightly higher than the average of $91.13/cwt. last August.
In August, the average gross-carcass value fell 1.55 percent to $247.67/cwt., but remained 14-percent higher than last August. The gross-carcass value was pulled down by the weaker leg, but supported in part by the stronger rack. The medium eight-rib rack rose 1.37 percent to $654.59/cwt. in August, up 32 percent from $494.74/cwt. last August. The leg, trotter-off, fell 7 percent to $219.39/cwt. in August, but was 13-percent higher than last August's price of $193.40/cwt. The loin, trimmed 4x4, fell a modest 0.18 percent in August to land at an average $455.95/cwt., 7-percent higher than last August.
Between May and June, the price of retail lamb weakened 0.36 percent, and the volume sold fell by 26 percent. During this period, the feature-weighted average retail price of domestic lamb rose 3.66 percent to $5.66/lb. and the volume sold dropped by 31 percent. Imported lamb fell by 8 percent to land at $5.50/lb. in August, and experienced a nearly 13-percent drop in volume from May.
In August, lamb and mutton production fell from 15.4 million lbs. in July to 12.6 million lbs., down from 13.1 million lbs. a year ago. Live weights in July and August held steady at 136 lbs., but still higher than the 131-lb. lambs often seen during late summer.
Imports Gain Modestly
Second quarter lamb imports gained 2 percent year-to-year. From January to April, lamb imports were lower than corresponding 2004 levels, but in May and June imported volumes exceeded 2004 levels. In June, lamb imports rose 18 percent year-to-year to 15.1 million lbs., up 18 percent from May. Australia's imports gained 41 percent in June from last June, but imports from New Zealand fell 12 percent year-to-year.
Australia experienced increased slaughter rates and production levels during the first seven months of 2005, compared to the same period in 2004. The number of head slaughtered increased nearly 10 percent year-to-year during the 2004/2005 season (Woolmark, 9/9/05). During our summer months, Australia is experiencing its winter, and lamb supply is seasonally tight. Meat & Livestock Australia (MLA) expected its lamb exports to increase 17 percent annually in 2005 (9/2/05).
Australian imports may slow during the remainder of the year due to the persistent drought and producer's desire to rebuild flocks. "New-season lambs are expected to fall 4 percent to 17.2 million for 2006, with many prime-lamb regions entering their fifth year of drought," (MLA, 9/2/05). However, in the long run, production is expected to increase, as are exports.
Markets within the European Union (EU) continue to be strong, with New Zealand benefiting from within quota-price levels (Stuff, New Zealand, 9/2/05). However, reports out of New Zealand percent since 2000 and lamb-slaughter numbers have fallen by 8.5 percent during this time, yet production is steady due to increased carcass weights and improved lambing percentages (Stuff, New Zealand, 9/2/05).
Mutton imports gained 34 percent from May to June and 66 percent year-to-year to 3.8 million lbs. Australian mutton imports rose 67 percent year-to-year and New Zealand imports fell 31 percent between May and June.
Lamb and mutton exports by carcass weight fell 3 percent in June year-to-year to 449,000 lbs. Exports to Mexico fell by nearly a half, while shipments to Canada and the Caribbean rose.