|Winter Storm Hits Colorado
(Feb. 1, 2007) In late December and again in early January, Colorado was hit by a blizzard, leaving people and livestock stranded. As the No. 1 state for lamb on feed, it also meant increased costs to some feeders, reduced weight gain in some lots and even deaths in some lots.
The full effect of the storms has probably not been fully realized in the markets. During the storms, there was minimal loss in slaughter numbers, but distribution from slaughter to fabrication to market was disrupted. Perhaps not as much product was shipped during the holidays as could have been (Quam, K., 1/3/07). The timing of the storms was uncanny because the affect on feeder-lamb, slaughter-lamb and dressed prices will likely be minimal.
Although feeders incurred extra costs to feed lambs during the storms, feeder lambs from California do not enter Colorado feedlots until late January or early February. If ample feeder-lamb supplies are available, we might see some of the storm costs to feeders passed on in lower offer prices.
One impact from the storms is likely to be muddy pelts when the snow melts. This will mean that feeders will be taking extra measures to clean the pelts before shipping. Packers will probably try not to pass increased costs onto the wholesale market because demand in early January is seasonally low already.
An initial concern related to the storms was rising lamb weights, but lighter-than-average weights going into the storms and lower rates of gain for some during the storm may mean weights caught up after the storm. Weights have been building since October as seen in rising dressed weights from about 67 lbs. in October to 71 lbs. in December. Lower slaughter rates during December and into January from a loss in an operating day from the storm and possible reduced slaughter from a loss in labor at a Colorado plant have meant lambs are not moving as fast and thus gaining weight. In the last four years, the average dressed weight was 69.4 lbs., thus 67 lbs. is lighter than average. The lambs went into the lots last fall lighter than normal, but fall/early winter gains were good (although corn prices were rising).
The weather can always wreak havoc on livestock markets. In fact, economists can only explain and measure a portion of the full variability in lamb prices. For example, one study explained 72 percent of the variability in slaughter-lamb prices (Ward, C., 1999). Effects from the weather fall into the 28 percent of price variation that was not accounted for. The most important factors affecting slaughter-lamb prices in 1991 and again in 1996 were wholesale-lamb prices, pelt prices, marketing method, production and time of year (Ward, C., 1999).
Feeder-lamb prices and slaughter-lamb prices follow a seasonal trend. Feeder-lamb prices are typically high in the spring and lowest in late summer. In recent years and in the early 1990s, prices followed similar trends; however, in the late 1990s seasonality was less pronounced. Slaughter-lamb prices are typically highest in the summer months and lowest during the fall and winter. However, in the last four years, the seasonality has been somewhat muted.
If supplies become tight due to losses from the winter storm or slower weight gains, then slaughter-lamb prices could strengthen. Slaughter-lamb prices are inversely related to lamb production (Ward, C., 1999; Purcell, W., 1998). That said, updated research is recommended because in 2006, production was lower year-to-year and so were slaughter-lamb prices. The inverse relationship between slaughter-lamb prices and production may have become weaker. In 2006, lamb and mutton production fell 1.5 percent year-to-year to 176.8 million lbs. At 2.5 million head, slaughter numbers fell 0.5 percent in 2006 and dressed weights fell 1 percent to 69.7 lbs. Formula slaughter-lamb prices by carcass weight fell an average 23 percent in 2006 compared to 2005. Live, slaughter-lamb prices were down 17 percent.
Another explanation for lower prices and relatively lower production is that over-fat lambs may have been depressing prices. There were more Yield Grade 4s and 5s last year due to over-fat lambs that did indeed burden the market price. However, the conditions leading up to that involved probable higher cold storage quantities of legs. Thus, it is hard to tell yet what impact storage of imported legs had during that period. In addition, it is not uncommon to have more Yield Grade 4s and 5s during January, and 20 percent is not as high as is seen from time to time when there is a market drop.
December Holidays Boosted
Feeder-lamb (60 lb. to 90 lb.) prices gained 2.2 percent in December to land at $108.92/cwt. Live slaughter-lamb prices fell an average 4.7 percent between November and December. The largest, regional decline was in the Wyoming, Colorado and Montana Intermountain Region where prices fell 5 percent to $86.06/cwt. in thin trade. Prices in the Midwest and Iowa weakened by 2 percent to 3 percent.
Formula-lamb purchases by carcass weight weakened by 2.2 percent in December with the 55-lb. and lower weight category losing the most, 4.3 percent to average $186.87/cwt. Fifty-five lb. to 65 lb. lost 3.4 percent to land at $188.53/cwt.; 65-lb. to 75-lb. carcasses fell 2.5 percent to average $192.67/cwt.; the 75-lb. to 85-lb. weight category fell 1.3 percent to average $193.05/cwt.; and 85-lb. and heavier carcasses gained 0.5 percent at $189.12/cwt.
As the Easter holiday approaches, domestic production will likely increase as will imports. Slaughter-lamb prices will also most likely strengthen. In early December, Livestock Marketing Information Center (LMIC) forecasted that western direct slaughter lambs by carcass weight could range between $186/cwt. and $196/cwt. in the first quarter of 2007. Texas feeder lambs, 60 lbs. to 90 lbs., were forecasted to range between $104/cwt. and $109/cwt. for the first quarter (LMIC, 12/4/06).
Wholesale meat values were down almost 9 percent between 2005 and 2006 at $229.14/cwt. The gross carcass value was weighted down primarily by the 17-percent loss in value ($212.19/cwt.) in the leg, trotter-off, as well as the 12-percent drop in the price of the eight-rib rack, medium ($561.65/cwt.). Shoulders, square-cut, lost 6 percent, but the loin, trimmed 4x4, gained 0.33 percent in 2006.
The 6.4-percent gain in the leg in December and the 1-percent gain in the rack were not sufficient to outweigh the 5.7-percent drop in the loin and the 8-percent fall in the price of shoulders. Meat prices fell about 0.5 percent to average $251.76/cwt. in December.
Pelt prices have been generally trending downward since 2002, although they hit a plateau in mid 2003 and 2004. The No. 1 pelt fell 56 percent between 2002 and 2006 to $5.37. Fall clips fell 56 percent since its nine-year high of $13.42 in 2003.
Could Imports Slow?
From January to October, lamb imports were up 1 percent to 119 million lbs. In this period, Australia’s imports gained 4 percent year-to-year, and New Zealand’s imports were down 5 percent from the previous year. Mutton imports were up 26-percent annually to 33 million lbs. in the 10 months to October. Australia’s mutton imports were up 28 percent and 6 percent for New Zealand within this period.
Australian imports may slow in 2007. Australian lamb production is forecasted to fall 3 percent in the 2006-2007 season if poor weather continues in the southern regions (meatnews.com, accessed 1/4/07). Producers are offloading stock at lighter weights due to lack of pasture and high feed costs. The Australian Bureau of Agricultural and Resource Economics forecasted that its exports could fall 4 percent in 2006-2007, “largely reflecting lower export demand to the United States,” (meatnews.com, accessed 1/4/07). However, economists differ. In late December, LMIC forecasted a 7-percent increase in lamb and mutton imports in 2007.
Total lamb and mutton meat exports were up 115-percent annually from January to October to 16 million lbs. Sixty-eight percent of this volume was sold to Mexico and the remainder to the Caribbean (15 percent) and Canada (11 percent). Live ewe exports to Mexico totaled 124,099 head in 2006, up 56 percent from 2005.
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