(February 1, 2009)  From beef to blueberries, from popcorn to pork, producers have supported U.S. Department of Agriculture (USDA)-backed promotion programs. The sheep industry’s own lamb referendum is up for a vote in February.

The American Lamb Board (ALB) has successfully expanded lamb demand since its inception in 2002. Statistical results found that a doubling of lamb promotion expenditures would result in a 4.36-percent increase in per capita lamb consumption (ALB, 8/2008). Additionally, for every dollar spent on lamb promotion, it yields $44.45 in additional lamb sales revenue (ALB, 8/2008).

There might be some concern that the producer benefit from the lamb checkoff is far less than the retail benefit. There is much literature, however, to support the fact that producers do benefit from generic checkoff programs (Wohlgenant, M., 2006). Recent research with new data revealed that retailers’ response to wholesale price changes is much more rapid and significant than previously thought (Rojas, C. et al., 2008). This is encouraging and might warrant more research on the nature of the wholesale to producer price transmission as well.

The crux of ALB’s mission is to expand lamb demand. Increased lamb demand means selling more lamb at higher prices. The relatively recent high prices are good, but as supplies expand – because high prices attract industry expansion – prices could soften. Suppose prices are now lower and supply is larger. This doesn’t encourage investment, profitability and growth.

ALB is in a good position to expand lamb demand. It can enhance consumer awareness, which is expected to change buying behavior toward lamb, which is then expected to affect sales and prices.

In 2008, wholesale lamb prices were up 4 percent annually, but lamb sales were down an estimated 7 percent. An estimated lamb-demand index, which is a function of the volume of lamb consumed and prices, revealed that lamb demand fell an estimated 8 percent in 2008. This suggests that prices were higher due to tight supplies and not necessarily because demand was up – it wasn’t.

Since 2000, lamb demand has grown an average 1.5 per annum. In some years, there has been expansion and in others, weakening. The lamb-demand index cannot isolate the effect of the checkoff promotional dollars. Greater influences such as softer incomes in the current economic slowdown very likely outweigh the positive effect of lamb promotion and thus, the demand index drops. Nonetheless, it is clear that producer investment in the lamb checkoff program is very positive and helps strengthen producer prices as well as the position of lamb in the consumer diet.

Lamb Supplies Tighten
The U.S. sheep and lamb inventory has been contracting as reflected in lower production figures. Federally inspected lamb and mutton production fell 8 percent from 174.1 million lbs. in 2007 to 160.9 million lbs. in 2008. The production decline was primarily due to a 9-percent drop in slaughter numbers to 2.3 million head. For the year, live weights were up about 0.5 percent to 139 lbs. (69 lbs. dressed). The drop in slaughter numbers is likely due, in part, to extremely low lambing rates in many parts of the country this past year due to spring storms and drought conditions in Texas and New Mexico.

The Livestock Market Information Center (LMIC) anticipated a slow down in the rate of industry contractions. We will likely still see declines in slaughter numbers and production in 2009 and 2010, but not as steep as producers begin to rebuild flocks. LMIC forecasted a 3-percent drop in slaughter numbers and a 4-percent drop in production in 2009 (1/4/09).

In the ten months through October, lamb and mutton imports were down 9 percent to 148.5 million lbs. Lamb imports were down 15 percent year-on-year to 109.6 million lbs. In the same period, Australian lamb imports were down 18 percent and New Zealand imports were off 6 percent. After hitting 89 percent of domestic lamb supplies in 2007, lamb imports were 78 percent of domestic lamb supplies through October 2008.

Mutton imports were up 13 percent in the first 10 months of 2008 to 38.9 million lbs. Australia’s mutton imports were down 19 percent, but New Zealand’s imports were up 326 percent.

Although lamb prices have been historically high in Australia, ewe prices are also high and ewe slaughter continues. It was reported that lamb supplies will likely drop sharply in the next couple years unless there are significant gains in flock fertility and lambing percentages (Weekly Times Now, Australia, 1/2/09).

New Zealand lamb exports dropped 23 percent by volume in 2008 (Farming UK, 1/6/09). It too faces stiff competition from competing agricultural enterprises, particularly dairy.

The U.S. Department of Agriculture’s (USDA) Economic Research
Service (ERS) forecasted that lamb and mutton imports could fall from a forecasted 186 million lbs. in 2008 to 181 million lbs. in 2009 – down 3 percent (12/18/08). LMIC forecasted that lamb and mutton imports could fall from an estimated 189 million lbs. in 2008 to 179 million lbs. – down 5 percent.

Throughout 2008, monthly lamb and mutton cold-storage supplies were an average 3.3 million lbs. higher than corresponding 2007 monthly levels. At 21.6 million lbs., lamb and mutton in cold storage in December was up 6 percent year-on-year and the highest monthly level since the early 1970s. If Easter imports are down, the sheep and lamb industry will likely be able to get current (supplies equal consumption) by April. 

Lamb Exports to Caribbean Up
Through October 2008, lamb muscle-cut exports to the Caribbean doubled in volume and tripled in value over the same period in 2007. In the ten months through October 2008, lamb exports jumped 126 percent to 2.5 million lbs. year-on-year. Through October 2008, 72 percent of U.S. lamb exports went to Bermuda.

Elizabeth Wunderlich, U.S. Meat Export Federation (USMEF) representative in the Caribbean, reported that American lamb has the distinct advantage of being fresh when competiting against Australian and New Zealand supplies. Wunderlich explained, “With fresh lamb, we have an opportunity to promote some of the less familiar cuts – cuts like lamb sirloin, Denver ribs and lamb shank,” (CattleNetwork.com, KS, 12/19/08).

The Bahamas, Jamaica, the British Virgin Islands and Aruba were also important Caribbean destinations. The Netherlands, Italy and Switzerland were important European markets.

U.S. mutton exports were down 9 percent through October 2008, to 6.6 million lbs. Mexico and Canada remained the dominant mutton export markets.

Feeder-Lamb Prices Stable in 2008
In 2008, the price of corn and oil fell sharply, yet didn’t outweigh the effect on returns of dampening demand due to the global economic recession. On the bright side, the cost of gain in feedlots is likely down sharply from the $120 observed early last fall.

Feeder-lamb prices at auction – San Angelo, Ft. Collins and Sioux Falls – were relatively stable with a 0.09-percent lift from $105.69/cwt. in 2007 to $105.78/cwt. in 2008.

Feeder lambs in direct trade gained 0.6 percent in 2008 from $102.60/cwt. to $103.20/cwt. In 2008, feeder-lamb direct trades were down 29 percent in volume year-on-year. Some of the difference might be accounted by fewer trades reported by USDA, but also reduced supplies.

LMIC forecasted that 60-lb. to 90-lb. Texas feeder lambs could rise up to $112/cwt. to $117/cwt. in the first quarter of 2009, about 1-percent higher year-on-year (1/4/09). LMIC forecasted that for each quarter in 2009, feeder-lamb prices could reach 2-percent to 3-percent higher than last year’s levels (1/4/09). 

Higher feeder-lamb forecasts might be a function of softer corn prices.

By December 2008, corn prices softened substantially from a $4.45/bu. average in the 2007/2008 season. The average was $4.05/bu. in December 2008, down from the annual high of $5.47/ bu. last June. USDA/ERS forecasted that the 2008/2009 season average corn farm price is projected at $3.65/ bu. to $4.35/ bu., down on both ends of the range from last month’s $4/bu. to $4.80/bu. (12/15/08).

Hay, other than alfalfa, also softened. Within the last half of 2008, prices fell from $130/ton to $113/ton. The 2007/2008 average through April was $117.42/ ton.

2008 Slaughter Lamb Prices Stronger
Slaughter-lamb prices at auction gained an average 2 percent in 2008 to $97.66/cwt. Kalona, Iowa, was stronger than average at $98.49/cwt. The San Angelo market jumped 7 percent in 2008 to average $96.75/cwt. The Wyoming/Colorado/Montana Intermountain region saw prices soften by 1 percent to $96.76/cwt. The South Dakota market gained 3 percent to $97.51/cwt.

Prices also strengthened at the Equity electronic auction. In 2008, 21,313 head sold through the Equity Cooperative Livestock Sales Association. The average price was  $99.10/cwt. for lambs weighing 130.48 lbs. By comparison, 24,355 head were sold in 2007 at an average 132.80 lbs. and $97.51/cwt. In both years, lambs primarily were sold from Wisconsin, North Dakota, Illinois and Kansas.

Formula carcass-based lambs sold 6-percent stronger in 2008 at $211.30/cwt. When converted to a live basis, this represents a 4-percent gain at roughly $104.60/cwt. Live-based formula slaughter lambs gained 6 percent in 2008 to $104.20/cwt.

Some of the price strengthening in slaughter-lamb prices likely came from tighter supplies. Formula slaughter lambs were down 11 percent in 2008 to 881,765 head.
Regardless of weight, slaughter lambs sold on a carcass-based formula were stronger in 2008. Carcasses 55-lbs. and lighter were up 3 percent per annum at $205.91/cwt., 55-lb. to 65-lb. carcasses were also up 3 percent to $204.38/cwt., 65-lb. to 75-lb. carcasses were up 5 percent to $210.21/cwt., 75-lb. to 85-lb. carcasses were up 7 percent to $210.79/cwt. and 85-lb. and heavier carcasses averaged $202.56, up 11 percent from 2007.  

The volume of live, negotiated slaughter lambs fell 1 percent in 2008 to 172,114 head. Prices gained 5 percent in 2008 to $103.30/cwt.

After weaker slaughter-lamb prices in 2006, LMIC forecasted that 2009 could bring the third consecutive year of price strengthening. Price gains might not be as pronounced, however. It was forecasted that Western Direct slaughter-lamb prices could gain 4 percent annually in 2009 and 5 percent in the first quarter.

In 2008, San Angelo cull ewe prices slipped for the third consecutive year. Average prices weakened 19 percent annually to $33.28/cwt. The 2003 to 2007 average was $45.73/cwt.

Meat Market Very Strong
The 65-lb. to 75-lb. lamb carcass price average was $230.72/cwt. in 2008, up 7 percent from 2007, up 16 percent from 2006 and up 6 percent from 2005. Average carcass prices gained 0.5 percent between November and December last year, to $233.25/cwt. Sixty-five lb. to 75-lb. carcasses lost 2 percent in December to $217.35/cwt. The lightest carcasses, 55-lb. and lighter, gained 3 percent to about $263/cwt.

Wholesale lamb gained 5 percent in 2008 annually to $264.54/cwt. The gain was likely supported by the 7-percent gain in the leg, trotter-off, to $271.12/cwt. and the 20-percent jump in the price of the square-cut shoulder to $203.48/cwt. 

The gain in the shoulder was likely due to the $2 million USDA lamb purchase program. Starting in September 2008, USDA purchased three rounds of shoulder chops and leg roasts. Although the shoulder value has strengthened considerably, and although it represents about 24 percent of the carcass by weight, the rack and loin remain the most valuable cuts. In 2008, the rack was worth 77 cents per lb., the loin was worth 57 cents per lb., the leg, 12 cents and the shoulder was sold at 11 cents per lb.

The eight-rib rack, medium, dropped 3 percent in 2008 to $564.93/cwt. The loin, trimmed 4x4, also weakened by 5 percent to $441.65/cwt. Both the rack and loin hit an eight-year peak in 2007. Perhaps tighter domestic supplies and lower imports helped propel prices upwards but then weakening demand in 2008 pulled prices back.

U.S. pelt prices gained about 55 cents per pelt in 2008. Fall clips jumped $1.08 to $7.36, No. 1s gained 54 cents to $6.40, No. 2s gained 80 cents to $5.30, No. 3s gained 30 cents to $2.65 and No. 4s gained 6 cents to $1.71.

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.