|December Holiday Sales Surprise
(February 1, 2010) The December holiday market likely hit a price level that accelerated the movement of product. Wholesale values were at a six-month low by December and slaughter was up. As Randy Hammerstrom, U.S. Department of Agriculture (USDA) market news reporter, mentioned, “They found a level where they could move some meat.” Lower prices likely greased the wheel.
In the four weeks before Christmas, lamb and mutton slaughter was up 0.23 percent annually. Production was also up nearly 1 percent annually in December. Cold-storage lamb and mutton fell six-consecutive months to 15 million lbs. in December, 31-percent lower year-on-year. In 2009, lamb stocks in freezers averaged 19 million lbs. per month compared to 4 million to 9 million per month in 2003, 2004 and 2005. If feedlots are current and freezer inventories down, then the market is in better shape for Easter price gains.
Focus on Retail
Consumers are gravitating away from eating out, which might affect lamb promotional efforts. Since mid-2008, traffic in the food-service industry declined steadily and is forecasted to remain weak at least through the first half of 2010, according to a forecast by market-research company, NPD Group (meatingplace.com, 12/15/09). According to the American Meat Institute study (2009) a Nielsen (scanner retail data) survey found that 46 percent of American households are eating out less and spending more at the grocery store (meatingplace.com, 12/15/09). Scarce promotional dollars and added value might be redirected more toward retail.
The study found that value-priced prepared meals at retail posted double-digit increases in supermarkets, supercenters and club stores. Deli cold cuts and cheeses are up 7 percent and prepared foods are up almost 5 percent versus one year ago. Some of the hottest-selling prepared deli items include turkey entrees, pot pies and chicken salad.
Promotions targeting lamb might be rewarded specifically at warehouse clubs and at organic/specialty stores. The Food Marketing Institute (2009) found that warehouse club shoppers, at 37 percent, and organic/specialty store shoppers, at 46 percent, are much more likely than any format to eat lamb – least likely are supercenter shoppers.
In general, for the 20 percent to 38 percent of shoppers that have prepared lamb at home in the past year (from Shugoll Research for the American Lamb Board (ALB), 2009; Gross Marketing for ALB, 2006), promotions and advertising will likely help move product and increase demand. One key factor fueling recent supermarket meat and seafood sales was promotions, with 51 percent of recent meat and seafood being purchased on sale (meatingplace.com, 12/15/09). The same is likely true for lamb consumers. Fifty-six percent of consumers buy the lamb that is the least expensive (from Shugoll Research for ALB, 2009).
Feeder-Lamb Prices Mixed
On average, feeder-lamb prices in direct trade weakened 1 percent in 2009 to $102.56/cwt., while feeder-lamb prices at auction gained 4 percent to $110.41/cwt. In the three auctions – San Angelo, Ft. Collins and Sioux Falls – prices jumped 6 percent monthly in December to $111.33/cwt. The San Angelo auction feeder-lamb price averaged $107.50/cwt., $114.50/cwt. in Ft. Collins and $112/cwt. in Sioux Falls.
Feeder-lamb prices in direct trade fell 5 percent in December to $97.67/cwt. with sales down 6 percent monthly from November.
Corn harvest strayed late into the year, making forecasters nervous for this year’s price levels. USDA forecasted 2009/2010 prices to range from $3.25/bu. to $3.85/bu. (meatingplace.com, 12/11/09).
Hay, other than alfalfa, averaged $118.33/ton in the year ending April 2009 and then averaged $102.69/ton in the ensuing months May through December 2009. By December, however, prices had trended downward to $98.90/ton.
Slaughter-Lamb Market Current
By several indicators, feedlots were moving lambs in December, which bodes well for keeping supplies current and supporting prices for the Easter holidays.
For 2009, however, slaughter-lamb prices were down. Slaughter-lamb prices on a carcass-based formula were down 5 percent to $200.10/cwt. ($101/cwt. converted live basis). Slaughter-lamb prices at auction were down 2 percent to $96.22/cwt. Negotiated, live-basis prices were also down 2 percent in 2009 to $101.15/cwt.
Live slaughter weights were around 131 lbs. in early October, but crept up to 138 lbs. by the December holidays. For the year, live weights held steady in 2008 at 139 lbs.
Pelt Market Down 27 Percent
A weaker pelt market can limit packers’ ability to raise slaughter-lamb prices. Across all pelt types, the market was down 27 percent in 2009. Fall clips were down 13 percent to $6.39/piece and No. 1 pelts experienced a 21-percent drop in 2009 to $5.05/piece. The No. 1 pelt made an end-of-the-year gain, however, jumping from $5.50/piece in November to $5.75/piece in December.
Pelt exports were down 11 percent to 1.3 million pieces. However, leather exports were up 57 percent to 142,805 square meters.
Lamb-Slaughter Down, Adult-Sheep Slaughter Up
Lamb and mutton production was 158.3 million lbs. in 2009, down 3.4 percent
compared to 2008. While live weights held, slaughter numbers were down 2.7 percent to 2.3 million head.
Between 2008 and 2009, the portion of adult sheep slaughtered in federally inspected slaughter plants rose from 5 percent to close to 7 percent in a market of lower lamb supplies. In October 2009, adult-sheep slaughter was more than 10 percent of the total kill – levels not seen in the 2000s. In 2009, federally inspected adult-sheep slaughter jumped 29 percent year-on-year to156,240 head.
It is not certain, but likely, the rise in adult sheep was certainly a demand-pull and not a supply-push phenomenon. The ratio of lamb to adult slaughter could be a function of a growing non-traditional market as well as simply more adult sheep being processed. Cull-ewe prices softened, but replacement sheep prices have been increasing. This suggests that the rise in adult-sheep slaughter was not a consequence of producer liquidation, but perhaps the expansion of new markets.
Cull-ewe prices at San Angelo dropped 2 percent in 2009 to $32.29/cwt. which suggests producers wanted to get rid of culled ewes. There is a growing domestic Hispanic market for adult sheep; however, most mutton is exported.
Lamb and Mutton Exports Increased
Lamb and mutton exports increased in 2009, likely supporting the adult-sheep market to some extent. In the 10 months to October, mutton exports were up 60 percent to 10.6 million lbs. In the 10 months through October, lamb exports were up 4 percent year-on-year to 2.6 million lbs.
The U.S. Meat Export Federation (USMEF) reported that by October, the value of lamb exports were up 13 percent. It also reported that a near tripling of lamb-export volume to Mexico has been a major contributor to last year’s performance. USMEF forecasted that January through October lamb, plus lamb variety meat export value, exceeds $23.3 million and was on pace to match the all-time record of $27.8 million set in 2006 (meatpoultry.com, 12/21/09).
Replacement Sheep Gained
Replacement sheep of all types gained an average 13 percent in 2009. The price increase suggests that demand exceeds supplies for replacement ewes. It is hypothesized that producers are expanding flocks, but also that new farmers are beginning to raise lambs for the first time and families are buying sheep for 4-H clubs. Ewe lambs jumped 49 percent to $106.65/head, yearling ewes dropped 1 percent to $138.48/head and running-age ewes dropped 1 percent to $91.84/head.
Black-faced rams were up 8 percent to $559.65/head, white-faced lambs were up 15 percent to $583.03/head and cross-bred lambs were down 4 percent to $452.35/head. Lambs less than 50 lbs. were up 9 percent to $57.33/head.
Lamb Imports Up
U.S. Australian lamb imports were up 4 percent in 2009 year-on-year. As Meat and Livestock Australia (MLA) reported, “Australia’s strong presence in the U.S. retail sector contributed to the recovery in exports to the region as the U.S. recession resulted in higher consumer purchases of value cuts at retail for preparation in the home,” (1/7/09).
Through October 2009 (latest U.S. data available), lamb imports were up 2 percent year-on-year to 111.4 million lbs. In the same period, Australian lamb imports were up 9 percent to 78.8 million lbs. and New Zealand’s imports were down 13 percent to 32.4 million lbs. Reportedly, Australia’s November lamb exports to the United States were up 1 percent year-on-year.
According to the Livestock Market Information Center (LMIC) and the USDA Economic Research Service, lamb and mutton imports could increase 7 percent in 2010.
Lamb imports from Australia are poised to rise, but U.S. Australian lamb importers face their own market challenges. Australian lamb imports will have to compete against other Australian lamb markets in maintaining its market share.
The weak U.S. dollar will likely affect lamb importers at some point. Australian lamb exports rose in most major markets year-on-year over 2009, despite the continued appreciation of the Australian dollar – which averaged 35-percent higher in December than a year earlier at U.S. 90 cents.
Further, the tight Australian lamb supply is being felt in its processing sector. Several lamb processors have lain off employees and cut hours. Ron Cullen from the Sheepmeat Council warned that the high-priced lambs are here to stay (ABC Rural Australia, 12/10/09). Record-high lamb prices in Australia are a boon for producers and will likely encourage flock expansion.
Another factor that could restrain lamb imports to the United States is that the Middle East is becoming a sizeable competitor for Australian live-lamb market. The largest growth market for Australian lamb during 2009 was the Middle East – 41-percent higher year-on-year (MLA, 1/7/09). The gain was due to reduced competition and increased supply of light weight Australian lambs.
Wholesale Lamb Values Down Annually, Up in December
The gross carcass value fell 6 percent in 2009 to an average $249.29/cwt. The shoulder was the only major cut that gained – 6 percent to $216.41/cwt. The eight-rib rack, medium, fell 14 percent to $484.73/cwt.; the trimmed 4x4 loins fell 17 percent to $365.55/cwt. The leg, trotter-off, experienced a 3-percent drop in 2009 to $264.04/cwt.
The wholesale gained seasonally in December with average wholesale prices up 6 percent monthly to $245.60/cwt. However, on average, wholesale values were up to $20/cwt. lower than December 2008. In December, the leg jumped 6 percent to $271.58/cwt. The rack was also up 5 percent to $470.41/cwt. Loins – typically not a holiday item – fell 4 percent to $337.34/cwt. The shoulder was down 3 percent to $209.82/cwt.
Carcass Market Up Annually, Down Monthly
The East Coast carcass value gained 3 percent in 2009 to $232.22/cwt. This market went up when the wholesale market dropped. It is possible that the number of carcass buyers increased as some packers substituted purchased carcasses for live kills and thus placed pressure on prices.
However, the annual picture doesn’t reveal that since mid-2009, carcass prices trended downward to December. Just between November and December, the carcass price saw a 6-percent drop to $218.51/cwt.