(January 1, 2010)  It’s probably nice to have 2009 behind you. The year likely had many holding their breath, knowing the market probably wouldn’t hold up to the highs enjoyed in 2008, but hoping that it wouldn’t fall too far. The lamb market fared well in 2009 and is in good position to strengthen further into 2010 as consumer spending increases, more is spent eating out and ethnic cuisine increases its share on the plates of U.S consumers.

The expanding ethnic population (50 percent by 2050!) and the increasing desire to explore ‘ethnic’ fare will continue to bolster lamb consumption in coming years.

It is hypothesized that the portion of ethnic populations eating lamb and the amount of lamb consumed each year is much higher by ethnic residents than for the non-Hispanic Caucasian population. The Beef Checkoff Program has already conducted numerous studies and projects to adapt to this changing consumer profile. One of many checkoff findings was that Hispanics spend 42 percent more on beef than non-Hispanic shoppers (The High Plains Journal, 11/23/09). It’s hypothesized that similar expenditures occur with lamb.

It is also hypothesized that we might see younger Caucasian consumers eating more lamb (contrary to the older groups currently reported) as they explore new tastes. Sheila Lowrie, spokeswomen for Dillons, reported, “Customers are being more adventurous. Discovering cultures through recipes and specialty food items is becoming more and more popular,” (The High Plains Journal, 11/23/09).

Stronger Prices Forecasted for Feeder Lambs
The feeder-lamb market held up well in the first-half of 2009, but then fell sharply lower in the second-half of the year compared to its five-year average.

The Livestock Market Information Center (LMIC) forecasted in early December that 60-lb. to 90-lb. Texas feeder-lamb prices could jump 23 percent between the fourth quarter of 2009 and the first quarter of 2010 (LMIC, 12/6/09). LMIC further posted that feeder-lamb prices could stay above $100/cwt. for the remainder of 2010.

Feeder-lamb prices in direct trade gained 5 percent to $102.42/cwt. in November in relatively light test. Volume traded was down 80 percent to 4,900 head between October and November. The majority of trades were out of Texas and California with some from North Dakota and Nevada.

The volatility of live, auction feeder-lamb prices has been increasing in recent years. In 2006 and 2007, prices were relatively stable with the standard deviation less than $4/cwt. The standard deviation is a measure of how widely values are spread out from the average of a given year. In 2008, the standard deviation rose to $6/cwt. and then jumped to $10/cwt. in 2009 through November.

However, 2009 wasn’t as extreme as 2001 where the price dispersion from the average was $19/cwt. In 2001, live feeder-lamb prices shot up to $107/cwt. in the spring, then plummeted to below $60/cwt. by the fall run.

It is not certain if this is the beginning of a trend or an aberration. It is possible that two different markets are polarizing the live, auction feeder-lamb trade. In the spring, feeder-lamb prices are likely dictated by the ethnic and Easter trade for slaughter. However, by the fall, feeder lambs are purchased by feeders for finishing in feedlots.
November corn prices jumped to levels higher than a year ago. Delayed harvest and speculation in the stock markets (fueled by higher oil, gold and a weak U.S. dollar) likely led to the upward price pressure. The U.S. Department of Agriculture’s Economic Research Service (USDA/ERS) estimated corn prices could range from $3.25/bu. to $3.85/bu. in the 2009/2010 season (USDA/ERS, 11/13/09). Reduced demand from feeding operations might yet lower the high-end of this estimate. Corn averaged $4.06/bu. in 2008/2009.

Formula-Based Slaughter Lamb Weakened
Slaughter-lamb prices in 2009 were on par with the five-year average during the first-half of the year, but then dropped lower into the third and fourth quarters. Relatively low cost of gain (down to $0.65/lb.) likely helped feeders maintain red ink through the year.

Carcass-based formula slaughter-lamb prices fell 20 percent in volume in November to 77,300 head. Prices also fell by 2 percent to $193.07/cwt., as weights gained 1 percent to 74.35 lbs. dressed. When this is converted to a live basis, prices fell 2 percent to $97.84/cwt.

Slaughter lambs gained weight going into December. By weight, the 65-lb. to 75-lb. carcass-based formula slaughter lambs dropped 30 percent in volume to 42,716 head and weakened 1 percent to $194.86/cwt. The second-largest weight category, 75-lb. to 85-lb., gained 31 percent to 33,100 head, but fell 4 percent to $191.65/cwt.
Live prices at auction for slaughter lambs gained 2 percent in November to $93.77/cwt.  The highest-priced market reported was Equity Electronic Auction at $95.44/cwt. followed by $94.17/cwt. in the Intermountain region. San Angelo was the lowest-priced market at $90/cwt.

Reported live, negotiated trades in November dropped more than half in volume to 7,400 head. In lighter trade, prices jumped nearly 3 percent to $141.88/cwt.

LMIC forecasted in early December that Western direct slaughter lambs by carcass weight could see a 2-percent price gain between the fourth quarter of 2009 and the first quarter of 2010 (LMIC, 12/6/09). LMIC also forecasted that slaughter-lamb prices could rise to a high of $218/cwt. on a carcass basis in the third quarter. While surely welcomed news, price forecasts were still not as high as levels enjoyed in 2008 when prices reached the high $220s per cwt. in the third quarter.

November Meat Market Volatile and Lower
At the beginning of November, gross carcass prices averaged $239.39/cwt., shot up to $242.30 by mid-November, but then fell back to $240.83/cwt. by the end of the month. On average, prices fell 1 percent to $241.14/cwt. in November.

The loins, trimmed 4x4, took the hardest hit in November, sliding 6 percent to $351.39/cwt. The shoulder, square-cut, also fell 3 percent to $216.54/cwt. The eight-rib rack, medium, fell 2 percent to $448.42/cwt.

On the upside, the leg started to gear up for the November and December holidays, with a 2-percent gain to $256.04/cwt. The leg gained seasonally into the fourth quarter, but was up to $16/cwt. lower than its three-year high. 

Overall, the rack and loins in 2009 were sharply lower than the respective five-year average, but the leg and shoulder were much higher.

East coast carcass prices dropped 2 percent between October and November to land at $220.10/cwt. November prices were $11/cwt. lower than a year ago, but $2/cwt. higher than November 2007.

2009 Lamb Imports Compensate (Almost) for Domestic Contraction
In the nine months through September, total lamb supplies in the United States dropped 4 percent year-on-year to 207.81 million lbs. Domestic lamb supplies, less lamb exports, were down 8 percent to 106.71 million lbs. Over the same period, lamb imports were up nearly 1 percent.

For most of the 2000s, lamb supplies remained relatively constant. However, in late 2007, a downward trend began, which became clearer in late 2009 with sharp month-to-month drops.

LMIC forecasted in early December that per capita lamb consumption would fall from an estimate 1 lb. per person in 2008 – where its been for years – to 0.96 lb. per person in 2009 and 2010 (LMIC, 12/6/09).

However, there is good news in sight: LMIC forecasted a slowdown in industry contraction. It forecasted that commercial lamb slaughter would fall 3 percent between 2008 and 2009; fall another 4 percent between 2009 and 2010, but then fall only 1 percent between 2010 and 2011 (LMIC, 12/6/09).

Reduced lamb availability at retail and in foodservice venues could challenge efforts to build lamb demand.  However, inventory expansion might be in the works. By late November, there were reports that the demand for replacement sheep exceeded supplies.

November’s domestic slaughter was 1-percent higher than November 2008 at 181,811 head. Weights were down in November compared to a year ago in 2008 so production remained the same, 12.3 million lbs.

In the nine months through September, lamb imports were up nearly 1 percent year-on-year to 101 million lbs. During this time, Australian lamb imports were up 8 percent to 71 million lbs. and New Zealand lamb imports were down 12 percent to 30 million lbs.

Mutton imports were down 35 percent through September compared to the first nine months of 2008. At 24 million lbs., mutton imports were comprised of 18 million lbs. (a 24-percent year-on-year drop) of Australian mutton and 6 million lbs. of New Zealand mutton (a 56-percent drop).

Increased Imports Likely
USDA forecasted that U.S. agricultural imports are expected to increase further in FY 2010. Agricultural imports fell 7 percent between 2008 and 2009, but were forecasted to rebound as consumer spending slowly rebounds (AgWeb, 12/1/09). LMIC corroborated this prediction in late November with a 7-percent increase in imports forecasted for 2010 (11/30/09).

Australia’s lamb market could be ready to expand. Very high prices for Merino and first-cross ewes as well as reduced mutton-slaughter numbers suggest production expansions in the future. However, the strong Australian dollar and weak U.S. dollar might restrain export gains – at least to the United States. The Australian dollar is expected to strengthen further and to peak in mid-2010, with highs ranging between 96 U.S. cents and 99 U.S. cents (Meat and Livestock Australia (MLA), 11/19/09). In 2009, Australian lamb exports to the United States were curbed by the weak U.S. dollar. However, Australian lamb exports to the Middle East increased 34 percent year-on-year through October (MLA, 11/4/09).

The potential exists for increased New Zealand lamb imports. Boosted by high lambing percentages, New Zealand lamb exports are expected to rise by 1 million to 23.5 million, a 4.4-percent gain over last year. However, the forecasted export volume is still 6-percent below the average from 2001 to 2008 (New Zealand Press Association, 11/23/09).

Lamb Export Market ‘Solid’
The U.S. Meat Export Federation (USMEF) reported, “U.S. lamb exports closed the third quarter at a very solid pace, fueled by continued strong performance in the Caribbean and a surge in exports to Mexico. January through September lamb plus lamb variety meat exports reached 8,344 metric tons, which already exceeded the volume achieved in the entire calendar year of 2008. The export value of $21.1 million was 12-percent ahead of last year’s pace (Farm Futures, 11/18/09). The USMEF Web site (www.usmef.org) lists 19 U.S. lamb exporters, only one of which is a top lamb packer.

Mutton exports jumped 60 percent in the nine months through September year-on-year to 9.5 million lbs.

USDA reported that a recovering global economy is expected to help boost U.S. agricultural exports in FY 2010 to $1.4 billion higher than FY 2009 (AgWeb, 12/1/09).

Slaughter ewe exports to Mexico were down 27 percent year-on-year to 76,647 head in the eleven months through November.

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