(September 1, 2008)  After strengthening throughout the year, feeder-lamb prices took a sharp downturn in July – down to 2007 levels and below the five-year average. This year was different: feeder-lamb prices typically start softening shortly after Easter, not July. Perhaps uncertainties regarding supplies helped support prices. In addition, months of higher corn prices are likely putting pressure on feeders.

Feeder-lamb prices in direct trade fell 6 percent between June and July, from $110.54/cwt. to $104.07/cwt. July’s average fell below the July averages from 2003 to 2007 of $107.07/cwt.

Feeder-lamb prices at auction slumped 7 percent from $109.23/cwt. in June to $101.79/cwt. in July. Ft. Collins held at about $107/cwt., San Angelo fell $12/cwt. to $97.75/cwt. and South Dakota held at about $100.63/cwt.

Lower feeder-lamb prices might be surprising given talk of particularly tight supplies, but corn is higher and weights were up – 102.9 lbs. in July compared to 98 lbs. last year. In some cases, sheep will be brought off of range and onto pastures, if the producer has pasture, before entering a feedlot.

The price of corn has continued to rise, then softened some from July highs putting pressure on costs of course but also on feeding systems as a whole. Many feeders have experimented with wet and dry distillers grain (ethanol byproducts) but with limited success. It is believed that, in general, Colorado feeders still feed the same amount of corn.

Number of days on corn can vary considerably by weight in and breed, but a general rule for economic profitability is that the ideal finished weight should be when the value of the last pound gained (the slaughter-lamb price per lb.) equals the cost of the last pound gained. With today’s feed costs, this suggests that the ideal finish weight should fall. 

However, high corn prices have yet to make a noticeable change in slaughter weights. There is likely concern within the industry that a change in diet could affect the taste of lamb. 

The average price of corn rose from $5.48/bu. in June to $5.61/bu. in July. With one month shy of the season, corn averaged $4.41/bu. – up from $3.13/bu. in the 2006/2007 season. The December 2008 future on the Chicago Board of Trade was $5.45/bu. on Aug. 6. The U.S. Department of Agriculture (USDA) forecasted corn prices for the 2008/2009 season to range from $5.50/bu. to $6.50/bu. – more than $1-higher than last season (7/15/08).

Hay, other than alfalfa, held steady at $130/ton in July, above the $122/ton average for the 2007/2008 season.

The National Academy of Sciences 2008 prepublication, “Changes in the Sheep Industry in the United States: Making the Transition from Tradition,” cited the increasing share of lightweight feeder lambs being slaughtered to meet the demand in the ethnic market as testament of the industry’s growth potential. To corroborate this finding,  feeders will likely tell you that feeder lambs have disappeared where they were once sourced regularly. 

This study found that the Christian Easter, Orthodox Easter and Muslim holidays has led to increased slaughter of lambs and yearlings and that this effect has grown stronger over time. We were all likely aware of this effect over Easter, but not necessarily of the effect of the Muslim holidays, which often occur during the fall. The study found that Christian and Muslim holidays could account for up to 8 percent of a month’s slaughter.

Slaughter Lamb Market Gained Seasonally
In July, live slaughter-lamb prices at auction gained 1 percent to $105.32/cwt. The biggest mover was the 5-percent gain in San Angelo to $89.17/cwt. South Dakota lost 2 percent to $112.75/cwt., prices held at $102.88/cwt. in the Intermountain area and prices gained 1 percent in Iowa to $104/cwt.

Slaughter-lamb prices on a carcass-based formula gained 5.5 percent in July to $228.70/cwt. for 72.4 lbs. When converted to a live basis, this equals to $113.50/cwt. Live, basis-formula prices didn’t gain as much. Prices gained 3 percent in July to $112.40/cwt. for 151.3 lbs.

By weight, the heavier carcasses saw the most gain in July. The 55-lb. to 65-lb. carcasses gained 8 percent to $219.19/cwt., 65-lb. to 75-lb. carcasses gained 8 percent to $231.55/cwt., 75-lb. to 85-lb. gained 7 percent to $227.39/cwt. and 85-lb. carcasses and heavier gained 11 percent to $228.61/cwt.

Pelt prices remained steady in July with fall clips bringing $7.50, No. 1s averaging $6.50, No. 2s were $5.50, No. 3s were $2.75 and No. 4s brought $1.75.

Tight supplies will continue to dictate slaughter- and feeder-lamb prices. In late July, the Livestock Market Information Center (LMIC) forecasted that, “For the year, slaughter-lamb prices are forecasted to average 6 percent to 8 percent above last year’s, while feeder-lamb prices feeling the effects of corn this year should average around 4-percent to 5-percent stronger on an annual basis,” (7/31/08).

Meat Prices Stronger
I admit it, I was wrong….Meat prices have gained, whereas I thought we would see some softening by now due to the economic slowdown. What might explain this is that the people who do eat lamb eat it regularly and are also of a relatively higher income bracket. The economic slowdown might be less pronounced for this group, which could explain increasing lamb prices. When lamb prices rise, they are less likely than lower-income groups to cut back on lamb consumption. It is also possible that lamb demand has increased. For certain, lamb is a good grilling option considering other meat alternatives.

On the back of tight domestic and imported supplies, the carcass and wholesale markets gained in July. The East Coast carcass market gained from $238.83/cwt. to $241.27/cwt. in July.

The gross carcass value jumped 3 percent in July to $278.25/cwt. The gain was led by the loin and shoulder, which gained 23 percent and 10 percent, respectively. In July, the square-cut shoulder averaged $253.71/cwt. and the trimmed, 4x4 loins were $532.28/cwt. The medium, eight-rib rack gained less than 0.5 percent to $564.37/cwt. The leg, trotter-off, lost less than 0.5 percent to $262/cwt.

Perhaps more notable than the wholesale average in July was the 6-percent drop in carcass weight to 64.71 lbs. However, during the summer, carcass weights often drop – down to 60 lbs. in August 2002.

On Sept. 30, mandatory country-of-origin labeling (COOL) will finally be implemented. Commodities covered under COOL must be labeled at retail to indicate their country of origin. Unfortunately, the food service sector is exempt. However, COOL will likely build consciousness among consumers for American lamb and consumers might ask for American lamb at restaurants.

Lower Sheep Numbers Reflected in Lower Slaughter
The U.S. Department of Agriculture (USDA) recently reported that the sheep and lamb inventory was down 250,000 head to 7.35 million for the year ending July 2008. As LMIC pointed out, “both the breeding-ewe and market-lamb inventories were the smallest mid-year numbers reported thus far by USDA,” (7/31/08).

In July, lamb and mutton production totaled 11.7 million lbs., up from 11.6 million lbs. last July. Although more than 3,600 fewer head were slaughtered in July, higher dressed weights made up for the difference. Between May and June, lamb and mutton production fell from 12 million lbs. to 11. 7 million lbs.

Between January and May, lamb imports fell 8 percent year-to-year to 60.1 million lbs. Australia’s imports were down 6 percent in this time to 42 million lbs. and New Zealand’s imports were down 11 percent to 18 million lbs.

Mutton imports were up 7 percent to 22.4 million lbs. Total lamb and mutton supplies were down 4 percent in the first five months of the year to 82.6 million lbs. 
LMIC forecasted in early August that lamb and mutton production would likely be down 5 percent to 178.4 million lbs. year-to-year. Imports could be down 6 percent from last year to 191 million lbs.

Downward Pressure on Cull Ewe Prices
While by most accounts the lamb market has been very strong, it might be easy to overlook that the market for culled ewes has softened considerably. In San Angelo, Texas, the average price of culled ewes was $30/cwt. in July – up 11 percent from June, but down 7 percent from a year ago. In more northern areas, Montana and the Dakotas, prices have fallen as far as 2 cents per lb. to 10 cents per lb. for thin culled ewes.

There are multiple reasons for this sharp drop, but tighter regulations at the Mexican border probably top the list. Agreeably, freight from Montana to the border has doubled from about $2.50 per loaded mile to about $4.25 currently. Also, as you know, rising feed costs make keeping ewes more expensive and thus has likely increased the marketed supply.

Beginning this spring there were a couple important changes at the Mexican border that mirrored regulatory changes that occurred for imported Mexican cattle. First, Mexico only imports the healthiest looking ewes. Open wounds are not permitted and ewes must be sheared at least 30 days prior to crossing. Sore udders and prolapses are definitely unacceptable.

Perhaps more important, the Mexican government ruled that all imported ewes must be slaughtered in federally inspected slaughter facilities in Mexico. This move dramatically reduced demand for imported ewes because there is only one federally inspected facility. As one USDA market news report stated, “There just isn’t any demand anymore."

Editor’s Note: Julie is open to comments and questions and can be reached by e-mail at juniper@netecin.net or by phone: 970-487-3017.