(January 1, 2009)  We can’t ignore it; the United States is in a recession. Along with softer demand, increased challenges to the sheep and lamb industry will come this year. Last year, pricier meats lost value as the economy slowed while chicken prospered. However, according to a new study by Packaged Facts, beef remains about half of all meat sales (12/2008). This is good news for the sheep industry: Americans like red meat.

Packaged Facts found that meat is one of the most dynamic commodities in the United States today. “This is primarily due to the trend of adding value to livestock through organic, grass-fed, free-range and other farm practices, as well as the growing trend to brand customer-ready meat,” (12/2008).

Meat retailing is more and more competitive. Adding value is key for success, and increasingly, consumers look for value. New and different marketing tactics including branding, minimal ingredient addition and case-ready packaging will catch consumers’ eyes and can make the difference in whether Americans choose lamb.

Lamb sales have been historically very seasonal. Increasingly, however, the number of lambs harvested for the holidays is muted relative to the rest of the year. This might be a tribute to the industry in its effort to promote lamb as an everyday choice as well as the popularity of lamb among the growing ethnic population. To successfully promote lamb in the United States, there must be a consistent, quality supply throughout the year.

Lamb Supplies Tightened
Demand for lamb could fall as consumers look for cheaper substitutes. The Livestock Market Information Center (LMIC) forecasted that total domestic and imported lamb supply could fall 4.3 percent in the fourth quarter year-to-year. Typically, tighter supplies mean higher prices, but the U.S. recession, if consumer meat purchasing habits are affected, might put a damper on sales.

In the first 47 weeks of the year to the end of November, 151.1 million lbs. of lamb and mutton were produced, down nearly 6 percent from 160.3 million lbs. during the same period last year. Lamb production alone was down 6.3 percent to 143.4 million lbs. In November, 15.4 million lbs. were produced. Live weights increased 2.1 percent to 134.8 lbs. from October. Dressed weights rose from 66.5 lbs. to 67.8 lbs.

Lamb imports were down 11 percent year-to-year to 100.2 million lbs. through September. Australia’s imports were down 14 percent, and New Zealand’s imports were down 6 percent. In November, Australia’s lamb imports were down 14 percent year-to-year (Meat and Livestock Australia, 12/5/08). Reportedly, New Zealand lamb exports to the United States increased 8 percent year-to-year in October due to the weaker New Zealand dollar and the stronger U.S. dollar. Exchange rate shifts might yet entice more lamb into the United States and away from other export destinations for both Australian and New Zealand lamb.

U.S. mutton imports were up 19 percent year-to-year to 36.3 million lbs. through September.

Lamb supplies have been particularly tight in Australia. For the first time, contracts for lamb during Australia’s winter were out six months. Tatiara Meat Co. livestock manager, Dale Cameron, commented that processors chased supply last winter, (Stock and Land, Australia, 12/3/08). Australia’s sheep inventory is at its lowest level since 1920 – 79.2 million sheep. Prolonged drought, low wool prices and a transfer into cropping have been cited as common reasons for the contraction. However, there is also hope as producers appear to be holding onto their breeding stock in case the market turns around.

Supplies have been equally tight in New Zealand. In the past year, New Zealand’s lamb flock declined 15 percent (or 4.3 million head), with a drop in the number of lambs tallied in the spring of 2008, to 27.3 million (Meat and Wool New Zealand, 12/3/08). Drought and expanding dairy enterprises are thought to be the underlying cause. Exports from New Zealand will likely continue to shrink. Nearly half, or two-thirds, of the value of New Zealand’s exported lamb fulfills its European quota, so the remainder will be shipped to countries such as the United States.

In New Zealand, the production of lambs harvested for export markets is predicted to fall by 23 percent year-to-year to 20.36 million head for the 12 months to September 2009.

U.S. lamb and mutton exports were up 10 percent year-to-year through September to 8.4 million lbs. Exports to Mexico were down 60 percent, exports to Canada were up 24 percent and exports to other countries combined more than doubled. 

Feeder-Lamb Prices Gained
Feeder-lamb prices at auction in San Angelo, Ft. Collins and Sioux Falls gained from $92.23/cwt. in October to $100.86/cwt. in November. The average was actually higher year-to-year, but far below the $130/cwt. recorded in November 2006. With most sales completed by October, feeder-lamb direct trade was very quiet in November. By many accounts, feeder-lamb prices could be higher. Uncertainty at the retail level might be trickling down in tempered price offers.

Corn prices dropped for the fourth consecutive month by November to $3.94/bu. The U.S. Department of Agriculture (USDA) Economic Research Service (ERS) reported, “Higher projected ending stocks, larger foreign grain supplies and continued declines in cash and futures prices are reducing prospects for 2008/2009 prices received by producers,” (11/13/08). As a consequence, ERS-projected farm prices were lowered between $4/bu. and $4.80/bu. (USDA/ERS, 11/13/08). The average for the 2007/2008 marketing year was $4.20/bu.

As of Dec. 4, the March 2009 corn contract traded at $3.34/bu. and the July futures was $3.55/bu. (Chicago Board of Trade, 12/4/08).

Slaughter-Lamb Market Strong
Overall, the slaughter-lamb market weakened marginally in November yet remained historically strong.

Average slaughter-lamb prices at auction gained in November from $93.93/cwt. to $94.10/cwt.  The market in San Angelo remained in the high 80s per cwt., but markets in Kalona, Iowa, and Sioux Falls, S.D., averaged about $97/cwt. – up about 4.5 percent from October. Equity Electronic Auction gained about 10 cents per cwt. to $95.83/cwt.

Slaughter-lamb formula prices on a carcass basis fell from $220.13/cwt. to $216.34/cwt. in November as weights gained from 72.18 lbs. to 73.30 lbs. In general, although the lighter-weight carcasses saw the greatest price jump, the market still placed a premium on 65 lb. to 75 lb. carcasses.

Slaughter-lamb formula prices on a live basis fell from $108.18/cwt. to $106.66/cwt. between October and November. During this period, weights gained from 146.32 lbs. to 149.40 lbs.

November’s slaughter-lamb formula live basis and carcass basis averages were the highest since the 2001 inception of Mandatory Price Reporting. Slaughter-lamb prices might soften in the new year if packer margins are squeezed from softer demand and lower byproduct values.

Packer Returns Weakened in November
Packer returns might be affected by a weaker byproduct market for non-meat items from sheep after slaughter such as the bone meal, tallow, cheek meat, liver and hide. As LMIC explained, “Foreign buyers are the foundation for U.S. byproducts, and those markets have deteriorated dramatically in recent weeks,” (11/24/08). 

The unexpected recent strength of the U.S. dollar against a basket of currencies means that lamb imports are relatively cheaper for importers, but many sheep- and lamb-exported byproducts and wool lose some competitiveness on international markets. The stronger dollar likely contributed to weaker pelt prices in November. Pelt prices weakened by roughly 19 cents per piece from October to November. Fall clips averaged $7.56, No. 1s were $6.56, No. 2s were $5.56, No. 3s were $2.56 and No. 4s were $1.56.

Wholesale Lamb Holds
The 2008 lamb market through November did very well, with a 5-percent gain year-to-year in the first 11 months of the year. The loin, in particular, was notable because it surpassed its five-year high this past summer, but has since fallen below the five-year average. The leg gained seasonally in November, as expected, which gives some assurance of healthy holiday sales.

On average, November wholesale values were about even with last year, but up to $24/cwt. higher than the 2002 to 2007 average. Wholesale lamb values (i.e., gross carcass value) lost 1 percent in November to $263.82/cwt. A significant depreciation in the loin was offset, to some degree, by gains in the leg and shoulder. Loins, trimmed 4x4, lost 9 percent in November to $422.96/cwt. and the rack, medium eight-rib, lost 2 percent to $531.95/cwt. The shoulder gained 0.4 percent to $225.60/cwt. and the leg gained 3 percent to $266/cwt.

What might be of some concern is that typically the wholesale market shows steady gains in the fourth quarter in preparation of the holiday season. Last year, prices declined through October and November. What might be of comfort is that the USDA lamb purchase program likely helped support the market in a time when the recession could soften any market.

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.