Third-Quarter 2013
Sheep Industry Review
Prepared by
American Sheep Industry Association
for the American Lamb Board
October 2013
Executive Summary
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
Feeder and Slaughter Lamb Market Trends
Feeder and Slaughter Lamb Price Projections
Carcass and Boxed Lamb Market Trends
At Foodservice and Retail
Price Spreads
Pelts
Replacement Sheep
Domestic Production and Trade
Nontraditional Market
Total Lamb and Mutton Availability
Price Comparison to Imported Product
Exchange Rates
Executive Summary
By late in the third quarter there was rising optimism on the part of producers and
feeders with strengthening feeder and slaughter lamb prices. Feeder and slaughter
lamb offers were likely higher due to lower feed costs and concerns over tightening
supplies. Feed costs for both corn and hay were lower than a year ago and good
moisture through the summer in many sheep regions lends itself to promising winter
grazing. Overall, improved feed conditions and higher feeder lamb prices was the
necessary impetus for some reported flock rebuilding – retaining ewe lambs and
higher replacement stock prices.
A major winter storm in South Dakota and neighboring states in early October
resulted in the loss of hundreds of sheep and lambs, a significant set-back for some
highly populated sheep sates. The loss of lambs might mean further price increases if
concerns heighten about the availability of supply.
On a more cautionary note, while feeder and slaughter lamb prices saw significant
gains in the third quarter, the carcass and wholesale market saw little movement.
Executive Summary, page 2
In early October, the government shutdown meant the suspension of U.S. Department
of Agriculture (USDA) sheep and lamb price and production data. Fortunately for the
sheep industry, the market was in an upswing at the time of the shutdown and
continued to gain through the reporting cessation.
In the Markets
The 3-market feeder lamb auction price saw a 1-percent quarterly drop to $113.02/cwt.,
up 12% year-on-year. Feeder lambs in direct trade averaged $109.85/cwt. in the third
quarter, up 11% quarterly, and up 4% year-to-year.
Live, slaughter lamb prices at auction gained 9% quarterly to $111.47/cwt. , 14-percent
higher year-on-year. Slaughter lamb prices on a carcass-based formula averaged
$231.46/cwt. ($116/cwt. live-converted), up 3% quarterly and down 8% year-on-year.
The gross carcass value averaged $279.28/cwt. in third quarter, down 2% quarterly and
down 13% year-to-year. The weighted average carcass price averaged $258.54/cwt. in
the third quarter, 4-percent higher quarterly and down 11% from a year ago.
Executive Summary, page 3
Domestic lamb market share was 49%, down from 53% year-on-year. Contracting market
share challenges reinvestment and innovation in the industry.
An increased number of slaughter lambs has more than compensated for lower slaughter
weights in maintaining (even increasing) production. In the first-nine months of the year,
estimated lamb slaughter was 1.48 mill. head, up 8% year-on-year. Lamb production was
1.04 mill. lbs., up 0.8% year-on-year. In the third quarter, cold storage averaged 21.5
mill. lbs., up 10% quarterly and down 9% year-on-year.
Forecasts
Lamb retail prices should increase toward the December holidays, bolstered by improved
incomes and higher beef prices. Quality consistency and tight supplies will help support
prices. The Livestock Marketing Information Center (LMIC) forecasted both slaughter and
feeder lamb prices to increase quarterly, up to 11 and 32 percent higher than a year ago,
respectively.
LMIC forecasted in late September that commercial production could be 5-percent lower in
the fourth quarter year-on-year. Imports could fall 2 percent year-to-year and total supply
could be down 7 percent year-to-year.
I. FEEDER AND SLAUGHTER LAMB
MARKET TRENDS
Auction Feeder Lamb (60- to 90-lb.)
Prices Up 12% in a Year
• The 3-market feeder lamb auction price saw a
1-percent quarterly drop to $113.02/cwt., up
12% year-on-year.
• Markets included San Angelo, Ft. Collins and
Sioux Falls.
• Prices averaged $108/cwt. in July, $110/cwt. in
Aug. and $121/cwt. in Sept.
Three Markets Gained Thru 2013
Feeder Lambs in Direct Trade
Gained Quarterly
o Feeder lambs averaged $109.85 per cwt. in
Q3, up 11% quarterly, and up 4% year-to-year.
o Feeders averaged $102/cwt. in July,
$107/cwt. in August and $120/cwt. in
September.
Sept. Feeders in Direct Trade
Down 17% from Sept. 5-Year Ave.
105.87
97.99
-0.07
September Direct Feeder
Trade 40% Higher Year-on-Year;
92% Higher than its 5-Year High
Feed Costs Coming Down
 Corn averaged $6.88 per bu. in its 2012/13 marketing
year, 8-percent higher year-on-year.
 Corn averaged $6.97 per bu. in June, $6.79 per bu. in
July and $6.21per bu. in August.
 The early-October Omaha corn prices moved into the
$4.00 per bu. range, the lowest for any week since early
October 2010.
Corn Began to Fall in June
Alfalfa averaged $201 per ton in Q3,
down 0.5% year-on-year,
and fell from $209 to $194 per ton within the quarter.
Q3 Auction Slaughter Lamb Prices
14-Percent Higher Year-on-Year
• Live, slaughter lamb prices at auction gained
9% quarterly to $111.47/cwt., 14-percent higher
year-on-year.
• Prices averaged $109/cwt. in July, $108/cwt. in
August and $117/cwt. in September.
Auction Slaughter Lamb Price Rebounded 37%
Since its 7-Year Low in Aug. 2012
Q3 Auction Slaughter Lamb Prices
Higher than Q1 Prices
Carcass-Based Formula Slaughter Lamb Prices
Gained Steadily through 2013
• At 155,100 head, formula trades were down 3%
quarterly and up 14% year-on-year.
• Slaughter lamb prices on a carcass-based formula
averaged $231.46/cwt. ($116/cwt. live-converted),
up 3% quarterly and down 8% year-on-year.
• Weighted-average prices were $227/cwt. in July,
$229/cwt. in Aug. and $238/cwt. in Sept.
• In Q3, average weight was 78.6 lbs., down 6%
quarterly and down 12% year-on-year.
In Rebound Period Since last October,
Slaughter Lamb Prices up 7%
Heaviest Carcasses Received
Discount
Live, Negotiated Slaughter Lamb
Sales up Quarterly
• Slaughter lambs in live, negotiated sales averaged
$118.34/cwt. in Q3, up 0.4% quarterly and up 3%
year-on-year.
• Lambs averaged $119/cwt. in July, $117/cwt. in
Aug. and $120/cwt. in Sept.
• Q3 weights were 134 lbs., down 6% quarterly and
down 5% year-on-year.
II. FEEDER AND SLAUGHTER LAMB
PRICE PROJECTIONS
LMIC Forecasted that Tight Supplies
will Likely Support Prices
• LMIC’s late September forecasts:
• Q4 national slaughter lambs by carcass weight in
direct trade could range from $245 to $250 per cwt.
– 11 percent higher year-on-year.
• Sixty- to 90-lb. 3-market feeder lambs could range
from $130 to $140 per cwt. – 32 percent higher.
• These volatile times means any price forecast
should be used with caution.
Seasonal Index Lends
Predictive Insight
• Price trends--up or down--depend on which factor
dominates, supply or demand.
• When feeders come to market in the fall and
slaughter lamb supplies increase, prices tend to
weaken, but pulled up by holiday demand needs.
• The index shows the average relationship of prices
in each month to the average for the year. An
index of 105 means prices are 5% above the
annual price average.
Feeder Lamb Prices
Expected to Climb Through the Year’s End
Slaughter Lamb Prices at Auction
Predicted to Gain through Q4
LMIC Forecasted Sharp
Q4 Production Contraction
• LMIC forecasted in late September that commercial
production could be 5-percent lower in the fourth
quarter year-on-year.
• Imports could fall 2 percent year-to-year.
• Total supply could be down 7 percent year-to-year.
• Bottom line: Industry supplies expand and contract
which helps fuel price volatility.
Extreme Price Volatility is a Cost to the Industry
-- in Lower R&D, Loss of Infrastructure, and Most Important, Loss of
Producers & Sheep
Lamb Demand Forecast?
Tighter Q4 Supplies,
Strong Beef Prices,
Stronger Income Growth, and
Quality Consistency (More YG 2s and 3s)
….Could Support Lamb Demand
Inflation-Adjusted Income
Making Slow Rebound
Retail Beef Charges Up 11% in 2 Years
487.97
-0.68%
466.91
4.51%
Why is Retail Beef Higher?
• Beef supplies down. (Contrary to increased domestic
and imported lamb at retail.)
• Incomes up.
• “Last year’s record-high production costs and droughtreduced supplies continue to force retail meat prices
higher with beef, pork and chicken prices setting new
records again in August,” said Len Steiner and Steve
Meyer (Daily Livestock Report, 9/18/13).
• By the same reasoning, why haven’t these factors
forced retail lamb higher (or have they?)?
Good News for the Lamb Industry
• A recent Food Demand Survey (FooDS)
conducted at Oklahoma State University found
consumers’ willingness-to-pay for steak and
hamburger increased by 8.30% and 4.21%,
respectively, from August to September.
• Willingness to pay is another way to think of
lamb demand.
Lower Lamb Feed Costs
• LMIC forecasted that the 2013/14 marketing year average corn price
received by producers could average $4.50 per bushel (10/3/13), down
from $6.88 per bu. in its 2012/13 year.
• In mid-September, USDA reported that the corn basis is beginning to
correct, slowly making corn delivered to the feedlot in the low to mid $6
range (USDA/AMS, 9/13/13).
• The December corn future settled at $4.42 per bu. on October 15.
• Corn supplies up: Corn stocks at the end of the marketing year in August
were more abundant than analysts expected and a record crop is
possible.
• Improved pasture & range conditions mean softer hay prices this year
(LMIC, 6/2013).
Feeders See Some Positive Profits
• Recall the breakeven analysis is only one snapshot
of feedlot marketing.
• Many feeders have been in the red for the past
three years; some just now making money.
• Cost of gain fell from about $1.30 per lb. to $1.10 to
$1.20 per lb. late in the third quarter.
• Early October estimated break-even was $118 to
$121 per cwt. compared to $119 per cwt., the liveconverted formula carcass-based price.
Cost of Gain Falls into Q3
Sensitivity Break-Even Analysis A:
October kill of late August California lambs with a
$1.10 per lb. cost of gain.
Item
1. Total cost of feeder (100-lb. feeder @ $112.50
per cwt. in late August 2013)
2. Average Freight from California
3. Cost of Gain in Colorado feedlot
(45 lbs. gained @ $1.10/lb. to 145 lbs.)
4. Break-even price of slaughter lamb @ 145 lbs.
Break-Even
Cost
$112.50/head
$9.00/head
$49.50/head
$171/head
$118/cwt.
Sensitivity Break-Even Analysis B:
October kill of late August California lambs with a
$1.20 per lb. cost of gain.
Item
Cost
1. Total cost of feeder (100-lb. feeder @ $112.50 per $112.50/head
cwt. in late August 2013)
2. Average Freight from California
3. Cost of Gain in Colorado feedlot
(45 lbs. gained @ $1.20/lb. to 145 lbs.)
4. Break-even price of slaughter lamb @ 145 lbs.
Break-Even
$9.00/head
$54/head
$175.50/head
$121/cwt.
III. CARCASS AND BOXED LAMB
MARKET TRENDS
Carcass Gained Quarterly,
Yet Down Year-on-Year
• Weighted average carcass price averaged
$258.54/cwt. in Q3, 4-percent higher
quarterly and down 11% from a year ago.
• Carcass price was $256/cwt. in July,
$259/cwt. in Aug. and $262/cwt. in Sept.
• Lightweight carcasses received premium at
$323 to $352 per cwt. in Q3.
Carcass Prices Down 32%
from Record High
Carcass Made Slow,
but Steady Gains in 2013
Carcasses Trimmer:
YG 4s and 5s Coming Down
• Yield Grade determination is positively
correlated with heavier slaughter lambs.
• Yield Grade 4 & 5 in lbs. was 23% of total
slaughter in the first eight months of 2013
compared to 30% in 2012.
YG 1s (Minimal Back Fat) Up with
Very Current Market
Yield Grades for Federally Inspected Lamb and Mutton
Percentages, Fiscal Year
Source: USDA, AMS, Livestock and Seed Division.
YG1
YG2
YG3
YG4
YG5
2008
5%
31%
47%
14%
3%
2009
4%
34%
45%
14%
4%
2010
5%
38%
43%
13%
2%
2011
4%
27%
49%
17%
3%
2012
5%
28%
37%
18%
12%
1-8/2013
8%
37%
32%
14%
9%
Why Have Yield Grade 5s Been
Increasing in 2013?
Formula Purchases Up in 2013
--Do purchases on a grid mean improved quality
consistency?
Q1 Gross Carcass Value
(Wholesale Average) Weakened Quarterly
and Down Year-to-Year
• The gross carcass value averaged $279.28/cwt. in
Q3, down 2% quarterly and down 13% year-to-year.
• Gross carcass value was $280/cwt. in July,
$278/cwt. in Aug. and $280/cwt. in Sept.
Sept. Wholesale Market Higher than 2008 & 2009
but 43% Lower than 2010-2012’s September
Gross Carcass Value 32-Percent
Lower than Nov. 2011 High
Lamb Primals Relatively
Steady Over Past Year
The Rack Fell the Sharpest Since its
Record-High in June 2011, 43%
• The rack averaged
$507.19/cwt. in Q3,
down 0.4%
quarterly and
down 15% year-onyear.
• The rack was
$509/cwt. in July,
$496/cwt. in Aug.
and $517/cwt. in
Sept.
Q3 Loins Steady Most of 2013,
but Fell in September
• Loins, trimmed 4x4,
averaged
$452.32/cwt., up
0.05% quarterly and
down 17% year-toyear.
• Loins were $455/cwt.
in July, $458/cwt. in
Aug. and $444/cwt.
in Sept.
Leg, Trotter-Off, Lost Greatest %
Among Primals in Q3
• The leg averaged
$299.49/cwt. in
Q3, down 5%
quarterly and
down 16% yearto-year.
• The leg was
$300/cwt. in July,
$297/cwt. in Aug.
and $301/cwt. in
Sept.
Shoulder Down Quarterly and
Year-on-Year
• The shoulder averaged
$2226.50/cwt. in Q3,
down 2% quarterly and
down 2% year-on-year.
• The shoulder was
$225/cwt. in July,
$227/cwt. in Aug. and
$227/cwt. in Sept.
Ground Lamb Down
Quarterly and Year-on-Year
• Ground lamb
averaged
$520.27/cwt. in
Q3, down 2%
quarterly and
down 6% year-onyear.
• Ground lamb was
$523/cwt. in July,
$515/cwt. in Aug.
and $523/cwt. in
Sept.
IV.
AT RETAIL & FOOD SERVICE
Food Service Sector Growth
• The National Restaurant Association’s Restaurant
Performance Index (RPI) declined for the third
straight month in August, although still above the
level indicating expansion of the sector (9/2013).
• The Current Situation Index rose between July
and August, but the Expectation Index
(measuring the outlook for the next 6 months)
was down.
• Lamb carcass trade 17% of FI slaughter in Q3, up
from 14%.
Food Inflation Mixed for Retail Proteins
• The price of food at home gained 1% between Q2
2012 and Q2 2013.
• Beef and veal gained 2% in this period,
• Pork dropped 0.5% and
• Poultry jumped 5% (USDA/ERS, 10/2013).
• The featured retail lamb price fell 6% between the
second quarters of 2012 and 2013; however, the
product mix wasn’t identical across quarters.
Retail Feature Activity Down Quarterly
• Feature activity in Q3 was down 16% quarterly
and up 4% from a year ago.
• Feature price of all lamb items was $6.43 per lb.,
down 1% quarterly and down 7% year-on-year.
• Note: This is not an apples-to-apples comparison
for featured products will differ between periods.
Popular Feature Items Weakened Quarterly
• The shoulder blade chop averaged $4.74 per lb. in
Q3, down 6% quarterly and down 1% year-on-year.
• The number of shoulder blade chop features fell
26% quarterly and was down 27% year-on-year.
• Loins chops averaged $8.68 per lb. in Q3, down 4%
quarterly and down 6% from a year ago.
• The number of loins chop features were down 4%
quarterly and up 77% from a year ago.
V. PRICE SPREADS
The Rack-Loin Price Spread Typically Gains
Toward the December Holidays
• The rack-loin
price spread
averaged $0.55
per cwt. in Q3,
down 4%
quarterly and
down 66% yearto-year.
• In the last year,
the loins fell
sharper than the
rack, widening
the spread.
Understanding Packer Spreads
• Packer price spreads do not include any costs of
processing.
• Packers sell wholesale primals (cuts) which are
combined together and called the cutout.
• Packers also sell carcasses, to the processing
industry and to one another.
• The price spreads assume that all that is processed
sells and no allowance is made for cold storage
tonnage.
Packer Spreads Down in the Last Year
The live to carcass price spread averaged $40.14 per head
in Q3, down 13% quarterly and down 45% year-to-year.
-- In last year, the
carcass dropped
12% and slaughter
lambs gained 4%.
Live to cutout spread was $54.45 per head, down
24% quarterly and down 49% year-to-year.
-- In the past year,
the cutout was
down 18% and
slaughter lambs
were up 4%.
Carcass to cutout spread was $14.09 per head in Q3,
down 43% quarterly and down 56% year-on-year.
-- In the past year,
the cutout fell 19%
while the carcass
lost under 13%.
VI. PELTS
Pelts Down Quarterly and Year-to-Year
Due to Lower Demand
• The stronger US$ contributed to the lower undertone
in September, reducing the competitiveness of U.S.
pelts on export markets (USDA/AMS, 9/13/13).
• Comparatively smaller lambs in the product mix
resulted in reduced credits (USDA/AMS, 9/27/13).
• Fall Clips were $12.14 per piece in Q3, down 13%
quarterly and down 6% year-to-year.
• No. 1 pelts were $9.25 per piece in Q3, down 15%
quarterly and down 12% year-to-year.
Recall pelt prices are prices received by packers for pelts from
slaughter lambs processed.
--Many producers do receive pelt credits.
VII. REPLACEMENT SHEEP
July Replacement Ewes
Up 2% Year-to-Year
• August and
September prices
not established.
July Ewes (per head):
• 12-24 mo: $155
• 2-4 years: $116.25
• 5-6 years: $88.13
• Over 6 years: $63.16
VIII.
DOMESTIC PRODUCTION AND TRADE
Increased slaughter numbers
and lower weights mean production falls only
marginally.
• In the first-nine
months of the
year, estimated
lamb slaughter
was 1.48 mill.
head, up 8%
year-on-year.
• Lamb
production was
1.04 mill. lbs., up
0.8% year-onyear.
Lamb Production Trended Downward
in 2009-2011, but Up in Last Two Years
Slaughter Weights in 2013 thru Sept. were 140 lbs.,
Down 6% Year-on-Year
-- At 136 lbs., Q3
live weights were
4-percent lower
quarterly.
--Slaughter
weights were
141 lbs. in July,
136 lbs. in Aug.
and 133 lbs. in
Sept.
In Q3, cold storage averaged 21.5 mill. lbs.,
up 10% quarterly and down 9% year-on-year.
-- Recall that some portion of cold storage is imported product.
Cold storage was
19.3 mill. lbs. in July,
23.3 mill. lbs. in Aug.
and
21.9 mill. lbs. in Sept.
Lamb and Mutton Imports Higher
At 106.8 million lbs., lamb and mutton imports in Jan.July were 21% higher year-on-year.
Lamb Imports Totaled 88.7 Mill. Lbs. in
Jan. to July – Up 16% Year-to-Year
Lamb Imports Higher Each Month
in 2013 Except May
Aust. and NZ Lamb Up Year-to-Year
• Australian
lamb imports
in Jan.-July
were 59.3 mill.
lbs., up 13%
year-to-year.
• NZ’s lamb
imports were
29.3 mill. lbs.,
up 23% yearto-year.
Mutton Imports Sharply
Higher Year-on-Year
• At 18 million lbs., mutton imports were 56%
higher in Jan.-July compared to a year
earlier.
• Mutton imports from Australia were 12.8
million lbs. in Jan.-May, up 66% year-to-year.
• New Zealand mutton imports were up 26% to
5 million lbs. in this period.
Mutton Imports on Upward Trend Since
mid-2011
Lamb & Mutton Exports Down 17%
January to July Year-to-Year
Lamb exports up
110% through July
to 350,000 lbs.
Mutton imports
down 20% through
July to 4.4 mill. lbs.
May Lamb Exports Hit a 4-Year High
Total Live Sheep Exports Down 16% Year-to-Year
through July to 22,522 Head
• U.S. live sheep exports to Mexico were
16,090 head in Jan.-July compared to 0
head during the same period in 2012.
• At 6,348 head, live exports to Canada
were down 76% year-to-year.
Q3 Cull Ewe Prices Lowest on Record
--San Angelo ewe
prices averaged $33.39
per cwt. in Q3, up 1%
quarterly and down
25% year-on-year.
--Culls averaged
$33/cwt. in July,
$35/cwt. in Aug.
and
$33/cwt. in Sept.
IX. NONTRADITIONAL MARKET
Nontraditional Market
Got Late-September Boost
• The nontraditional market is often characterized by a
lighter-weight lamb, around 100 lbs., but very variable
depending upon customer.
• The nontraditional market is mainly comprised of lambs
sold direct to consumers.
• Some nontraditional lambs are processed by state
inspected plants and even some FI plants.
• The largest nontraditional markets are the livestock
auctions at New Holland, PA and San Angelo, TX, but
nontraditional markets exists across most auctions.
Eid ul-Adha Supported September
Nontraditional Markets
• Eid ul-Adha, the Muslim Festival of Sacrifice, is
probably the most important Muslim holiday for the
sheep and lamb industry.
• Sheep auctions see an increased number of buyers
in the few weeks before the holiday which
reportedly helps boost prices.
• This year, the holiday was October 15, but the date
falls about 12 days earlier each year according to
the Muslim lunar calendar.
New Holland Lambs Lower
• Prices averaged $122.05 per cwt. in Q3, 6-percent
lower quarterly and down 36% from a year ago for
90- to 110-lb. slaughter lambs.
• Prices gained from $120 per cwt. in August, to $133
per cwt. in September to $141 per cwt. in the first
two weeks of October for 90- to 110-lb. lambs.
X. TOTAL LAMB AND MUTTON
AVAILABILITY
Total Lamb Availability Up
Through July Year-on-Year
• In Jan.-July total lamb availability (imports plus domestic
production, subtracting exported lamb) was 175 million
lbs., up 9% year-on-year.
• In this time, U.S. domestic lamb supplies were up 2% to
86.3 million lbs. compared to a year ago.
• Imports were up 16% year-to-year to 88.7 million lbs.
• Note: These figures do not include the nontraditional
market estimated volume.
Total Lamb Availability Trending Up
U.S. Lamb Market Share Below 50%
• In January to July:
Domestic lamb market share was 49%,
down from 53% year-on-year.
Domestic lamb & mutton market share
was 45%, down from 51% year-to-year.
Domestic mutton market share was 22%,
down from 33% a year ago.
Domestic Share of Lamb Market Contracting,
Challenging Growth
XI. IMPORTED PRODUCT PRICE
COMPARISONS
Domestic & Imported Cuts not Identically Specified:
Challenges an “Apples to Apples” Comparison
• U.S. Commerce data only offers broad cut
categories.
• There are limitations to USDA/AMS/MRP import
data:
• Confidentiality measures can sometimes
prohibit price reporting.
• The volume threshold might not be met if
smaller importers/reduced volumes are
imported.
Price Comparison with
Imports is Tricky
Caveats:
1. Imported product might be sitting in cold
storage and not competing directly with
domestic product at a specific time period.
2. Imported product is lighter weight.
3. Prices reported in Commerce data could have
been established in forward pricing.
U.S. Rack Still Higher-Priced
*Note weight differences: U.S. rack 1.5-3.0 lbs. and imported rack
28 oz. +, not a perfect comparison but useful as a snapshot.
But U.S. Rack Gained
Competitiveness in 2013
Imported Shortloins Comparison with U.S.
Loins under MPR
U.S. Loins Gained In Competitiveness
U.S. Shoulder Competitiveness Improved:
Imported Shoulder Gained & Domestic Shoulder Weakened in Q3
Shoulder Premium Down in 2013
XII. EXCHANGE RATES
In 2013 the U.S. Dollar Gained 12% Against the A$;
Imports More Competitive
In Q3 the
U.S./Australian dollar
fell 7% quarterly to
$0.92, down 12% yearon-year.
In Q3 the U.S./New
Zealand dollar hit
$0.80, down 3%
quarterly and down
1% year-to-year.