Fourth-Quarter 2014
Sheep Industry Review
Prepared by the
American Sheep Industry Association
for the American Lamb Board
January 2015
Executive Summary
I.
Feeder and Slaughter Lamb Market Trends
II.
Carcass and Boxed Lamb Market Trends
III.
At Foodservice and Retail
IV.
Price Spreads
V.
Pelts
VI.
Replacement Sheep
VII.
Domestic Production and Trade
VIII.
Nontraditional Market
IX.
Total Lamb and Mutton Availability
X.
Price Comparison to Imported Product
XI.
Exchange Rates
XII.
Price Projections and Outlook
Executive Summary
Price rallies and excellent quality, the industry couldn’t have asked for a better year.
With prices gaining up to 47% year-to-year, yield grades 3s at a 3-year high and lower
corn prices, producers, feeders and processors likely breathed a sigh of relief. After price
slumps in 2012 and 2013, lamb prices rebounded sharply in 2014 with many averages
coming within 90 percent of the record highs enjoyed in 2011.
Figuring out why we saw stronger prices in 2014 can lend predictive insight to 2015’s
outlook. Preliminary data suggests that the availability of lamb was about 1-percent
higher, but due to data limitations (how much in the freezers), we don’t actually know
how much lamb sold last year. If supplies were actually tighter then this alone could
support higher prices. However, if supplies were indeed larger, then we have expanded
lamb demand to credit for higher prices.
Taking the optimistic route, higher lamb demand is probable for stronger demand also
translates into higher lamb prices. It is hypothesized that lamb demand took a blow
after less desirable lamb hit the markets in 2011/2012. It is reasonable that it took this
long – 3 years – to rebuild consumer confidence in lamb.
Executive Summary, page 2
Slaughter and production is likely to continue contracting in 2015. Hopefully a couple
consecutive years of relatively high feeder and slaughter lamb prices will induce flock
rebuilding efforts in 2015 and 2016.
Imports are projected to contract in 2015 according the Livestock Market Information
Center in late December 2014. After a couple of years of drought-induced liquidation the
Australian flock is expected to grow in 2015.
2014 might have been a turning point for the industry. In December the calculated share
of U.S. lamb in total lamb availability including imports and exports fell to an estimated
range of 40 to 50 percent. U.S. lamb typically accounts for about half of total supplies, but
never has been as low as 40 percent. We don’t know the actual U.S. share in retail and
foodservice and we don’t know exact numbers in the nontraditional market, nor the mix in
cold storage, but the industry is continually challenged to carve out American lamb’s
niche. 2014 proved that our market is one of the strongest lamb markets worldwide,
attracting increased import levels with strong consumer willingness to pay for lamb.
2014 Markets Rallied
In 2014 slaughter lamb prices averaged 88% of 2011 record highs and the feeder lamb
market was within 93% of its 2011 highs.
Executive Summary, page 3
The 3-market feeder lamb auction price saw a 45-percent annual gain to $205.11 per
cwt. Markets included San Angelo, Ft. Collins and Sioux Falls. Feeder lambs averaged
$177.29 per cwt. in direct trade in 2014, up 43% annually, and 15% higher than its
5-year average.
Live, slaughter lamb prices at auction gained 31% in 2014 to $156.76 per cwt., 13%
higher than its 5-year average. Slaughter lamb prices on a carcass-based formula
averaged $300.65 per cwt. ($151.10 per cwt. live-converted), up 27% annually, and
6-percent higher than its 5-year average.
Slaughter lambs in live, negotiated sales averaged $156.06 per cwt. in 2014, up 24%
annually, and 9-percent higher than its 5-year average.
The weighted average carcass price averaged $322.71 per cwt. in 2014, 23-percent
higher annually. The net carcass value (wholesale composite less processing and
packaging) averaged $335.62 per cwt. in 2014, up 26% annually. The rack made
impressive gains in 2014, supporting the cutout. The rack (8-rib medium) averaged
$816.89 per cwt. in the fourth quarter, up 2% quarterly. For the year, the rack
averaged $810.34 per cwt., up 47% annually.
I. Feeder and Slaughter Lamb
Market Trends
Auction Feeder Lamb Prices (60- to 90-lb.)
Up Quarterly, and Sharply Higher Year-on-Year
• The 3-market feeder lamb auction price saw a 45percent annual gain to $205.11 per cwt.
• Markets averaged $202.84 per cwt. in Q4, up 2%
quarterly.
• Markets included San Angelo, Ft. Collins and Sioux
Falls.
Feeder Lamb Prices at Auction Sharply
Higher Annually
Feeder Lambs in Direct Trade
Gained 43% Year-on-Year
o Feeder lambs averaged $177.29 per cwt. in
direct trade in 2014, up 43% annually, and 15%
higher than its 5-year average.
o Prices averaged $185.50 per cwt., 5-percent
higher quarterly.
After mid-year slump, feeder lamb prices rebound
sharply in the second-half of 2014
At 192,950 head, the volume of feeders in direct
trade was down 6% year-on-year in 2014 and down
17% from its 5-year average.
Auction and Direct Trade Feeder Lamb
Prices Move Together
Lower Corn Reduces Cost of Gain
• Corn averaged $4.48 per bu. in its 2013/14 marketing year
ending August, 35-percent lower year-to-year.
• Corn averaged $3.64 per bu. in Q4, down 19% year-onyear.
Increased Corn Supplies Lowered Prices
Alfalfa averaged $203.50 per ton in the first
eight months of its marketing year (MayDec.), 2-percent higher year-on-year.
Auction Slaughter Lamb Prices 31% Higher
Year-on-Year
• Live, slaughter lamb prices at auction gained 31%
in 2014 to $156.76 per cwt., 13% higher than its
5-year average.
• Prices averaged $160.58 per cwt. in Q4, 3percent higher quarterly.
2014 Saw Sharp Rally
2014 slaughter lamb prices relatively stable
compared to recent years.
Carcass-Based Formula Slaughter Lamb Prices
Gained 27% Year-on-Year
• Slaughter lamb prices on a carcass-based formula
averaged $300.65 per cwt. ($151.10 per cwt. liveconverted), up 27% annually, and 6-percent higher
than its 5-year average.
• Prices averaged $321 per cwt. in Q4, up 7%
quarterly.
Slaughter lambs on formula in 2014 reached
85% of 2011 high.
Lightest carcasses in slaughter lamb formula
trade received 2014 premiums.
Auction and Formula Slaughter Lamb Prices
Moved Together in 2014
Live, Negotiated Prices Topped
Formula Prices
• Slaughter lambs in live, negotiated sales averaged
$156.06 per cwt. in 2014, up 24% annually, and 9percent higher than its 5-year average.
• Fourth-quarter prices averaged $162.87 per cwt.,
up 6% quarterly.
Slaughter Weights Drop: Quality Current
• Slaughter weights in carcass-based formula
trades were down 3% annually to 76.87 lbs.
(162.37 lbs. live-weight).
• Weights in live, negotiated trades up 6% to
148.41 lbs.
• By comparison, federally-inspected weights
averaged 68.77 lbs. (137.27 lbs. live) in 2014,
down 0.6% annually.
2014 dressing percentage for formula lambs
averaged 50.22%, up 0.2% annually.
Formula Trades Down Year-on-Year
• In 2014 the volume of lambs purchased on formula
was down 25% annually to 416,100 head.
• Live, negotiated trades were 32-percent higher
annually to 313,125 head.
Packer-owned Trades Up
• Formula trades dropped from 29% to 20% in 2014,
down 30%.
• Negotiated trades jumped from 12% to 16%, up
31%.
• Packer-owned lambs up from 12% to 19% annually,
up 66%.
• Auction trade down an estimated 6% to 44%.
Packer Percent Up; Negotiated Trade Up;
Formula Down; Auction Down
II. Carcass and Boxed Lamb
Market Trends
Carcasses Up 23% in 2014
• Weighted average carcass price averaged $322.71
per cwt. in 2014, 23-percent higher annually.
•Prices average $343.83 per cwt. in the fourthquarter, up 7 percent quarterly.
2014 Carcass 46% of 2011 High
Carcass trade dropped from 16% of weekly
FI slaughter in 2013 to 14% in 2014
--Significant because carcass prices often used to determine
formula slaughter lamb prices in a grid.
Quality Excellent: YG 3s at 3-Year High
--Yield Grade 3s in lbs. was 41% of total slaughter in 2014
through Nov., up from 37% in 2012 and 35% in 2013.
Yield Grades for Federally Inspected Lamb and Mutton
Percentages, Fiscal Year
Source: USDA, AMS, Livestock and Seed Division
YG1
YG2
YG3
YG4
YG5
2012
5%
28%
37%
18%
12%
2013
7%
36%
35%
14%
7%
Jan-Nov
2014
6%
33%
41%
14%
6%
Percent Graded Trending Lower
In Jan-Nov. 59.4% of commercial slaughter were
graded, compared to 59.2% Jan-Nov 2013.
64% of Lambs Graded in Federally-Inspected
Slaughter in 2014 through Nov.
In 2014 Net Carcass Value was
93% of 2011 High
• The net carcass value (wholesale composite less processing
and packaging) averaged $335.62 per cwt. in 2014, up 26%
annually.
• In Q4 the net carcass value averaged $344.98 per cwt., up 5%
quarterly.
• The rack made a significant recovery in 2014, pulling up the
net carcass value.
Q4 Net Carcass Value Nearly at 3-Year High
Rack sharply higher in 2014;
other primals’ gains relatively less impressive.
Rack Averaged over $8 per Lb. in 2014
• The rack averaged
$816.89 per cwt. in
Q4, up 2%
quarterly.
• The rack averaged
$810.34 per cwt.
annually, up 47%.
Loins gained seasonably in June through the
summer and then continued to gain through
the end of the year.
• Loins, trimmed 4x4,
averaged $526.23
per cwt., up 3%
quarterly.
• Loins was $501.71
per cwt. in 2014, up
9% annually.
Leg, Trotter-Off, up 13%
• The leg averaged
$365.07 per cwt.
in 2014, up 13%
5% annually
• The leg averaged
$362.59 per cwt.
in Q4, up 3%
quarterly.
Q4 Shoulder, Square-Cut, at 3-Year High
• The shoulder
averaged $300.80
per cwt. in 2014,
up 25% annually.
• The shoulder was
$313.08 per cwt.
in Q4, up 5%
quarterly.
Ground Lamb Up 2% Year-on-Year
• Ground lamb
averaged
$540.30 per cwt.
in 2014, up 2%
annually.
• Ground lamb was
$559.82 per cwt.
in Q4, up 4%
quarterly.
III.
At Retail & Food Service
The most popular featured items in 2014 saw
higher prices: Higher rack featured at retail reflected in
higher wholesale rack as well.
Boneless leg
Shoulder blade
chop
Loin chop
Rib chop
2014
$7.38
$5.22
% Change
Year-on-Year
5%
5%
$9.18
$13.46
4%
10%
December Leg Mixed in Domestic & Imported
Combined Retail Featuring
-- In 2014 there was a shift in featuring from
domestic & imported boneless leg to bone-in and
semi-boneless leg.
-- Prices up for domestic & imported bone-in and
semi-boneless leg, but down for boneless.
Bone-in Leg
2013
2014
% change
Price No. of Ads
$5.72
2,470
$6.24
3,270
9%
32%
Source: USDA/AMS
Semi-Boneless Leg
Butterfly Boneless
Leg
Price
$5.41
$6.16
No. of Ads
4,570
5,250
Price
$7.99
$6.99
No. of Ads
40
60
Price
$6.46
$6.25
No. of Ads
8,340
6,270
14%
15%
-13%
50%
-3%
-25%
Boneless
IV. Price Spreads
Ralmonline, 2008
The Rack-Loin Price Spread Rebounded in 2014
• The rack-loin price
spread averaged
$3.09 per lb. in 2014,
up 241% annually.
• Year-to-year, the rack
jumped 47%
compared to the 9percent gain in the
loin.
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 softened marginally in 2014 as
gains in the slaughter lamb market caught up
with gains in the meat market.
The live to carcass price spread averaged $16 per head in
2014, down 53% annually. The spread averaged $22 per
head in Q4, up 34% quarterly.
Live to cutout spread was $49 per head in 2014, down
16% annually. The spread averaged $45 per head in Q4,
up 2% quarterly.
Carcass to cutout spread was $32 per head in 2014,
up 32% annually. The spread averaged $23 per head
in Q4, down 19% quarterly.
Break-Even Analysis
• Breakeven analysis is only one snapshot of feedlot
marketing.
-- Feed cost of gain differs depending upon weight in, weight out and
breed.
-- Total cost of gain includes feed costs, death loss and other costs.
• On average, total cost of gain dropped from about 95 cents
per lb. in Q3 to around 80 cents to $1 per lb. in early
January.
• The mid-January estimated break-even was $156 to $163
per cwt. compared to $161 per cwt., the live-converted
formula carcass-based price during the first half of Jan.
Cost of Gain in CO Feedlots Continued to Fall:
Reportedly about $0.80-$1.00 per lb. in Q4
Sensitivity Break-Even Analysis A:
January kill of October-traded Utah feeders with a $0.80
per lb. cost of gain.
Item
1. Total cost of feeder (2,600 head from UT traded
in early Oct. at 102.5 lbs. for $193 per cwt.)
2. Average freight from Utah
3. Cost of gain in Colorado feedlot
56.5 lbs. gained @ $0.80/lb. to 159 lbs.)
4. Break-even price of slaughter lamb @ 159 lbs.
Break-Even
Cost
$197.83/head
$5.00/head
$45.20/head
$248.03/head
$155.99 per cwt.
Sensitivity Break-Even Analysis B:
January kill of October-traded Utah feeders with a
$1.00 per lb. cost of gain.
Item
1. Total cost of feeder (2,600 head from UT traded
in early Oct. at 102.5 lbs. for $193 per cwt.)
2. Average freight from Utah
3. Cost of gain in Colorado feedlot
(56.5 lbs. gained @ $1.00/lb. to 159 lbs.)
4. Break-even price of slaughter lamb @ 159 lbs.
Break-Even
Cost
$197.83/head
$5.00/head
$56.50/head
$259.33/head
$163.09 per cwt.
V. Pelts
Pelts Weakened Sharply in 2014
• Fall Clips averaged $6.75 per piece in 2014, down 47%
annually.
• No. 1 pelts average $5.34 per piece in 2014, down 47%
annually.
• In the last half of 2014, No. 2 pelts averaged 25 cents per
pelt.
• In the last half of 2014, producers were charged up to a
$1 per pelt to discard some No. 3 and No. 4 pelts.
International Pelt Market Weakened:
Raw pelt demand from China fell as processing plants
under stricter environmental regulations and demand
from Russia down.
VI. Replacement Sheep
2014 Replacement Ewe Prices 68% Higher
Year-on-Year; Ram Prices Not Well Tested
Ewe Lambs
Yearling Ewes, 12-24 mos.
Running Age Ewes, 2-4 years
Middle Age Ewes, 5-6 years
Aged Ewes, over 6 years
$172 per head
$279 per head
$238 per head
$158 per head
$118 per head
Do Higher Replacement Ewe Prices Infer Flock
Rebuilding?
--Perhaps not yet: Total mature sheep supplies by head
(slaughter, mutton exports and live exports) was up 1.3% in Jan.Nov. 2014 year-on-year.
VII.
Domestic Production and Trade
Jan.- Nov. lamb and mutton slaughter down
1% year-on-year
Lamb/yearling slaughter was down 1%
Jan.-Nov. year-on-year;
Mature sheep slaughter was up 4% yearon-year.
At 134.9 million lbs., estimated lamb
production was down 0.7% in 2014;
Lower slaughter numbers were met with heavier weights.
Live Slaughter Weights Up Year-on-Year
Live weights up 0.08% to 137.27 lbs.
Historically U.S. Slaughter Weights Trended
Heavier through the 1990s and early 2000s
At 31.2 Mill. Lbs., Average Monthly Cold
Storage was 48% Higher Annually
Lamb and Mutton Imports Up Year-on-Year
-- At 173.7 million lbs., lamb and mutton imports in 2014 though
Nov. were up 9% year-on-year.
Lamb Imports Totaled 147.9 Mill. Lbs. in
2014 through Nov., Up 10% Year-to-Year
Australian Lamb Up; New Zealand Down
• Australian lamb imports through Nov. were 108.4 mill. lbs., up
18% year-to-year.
• NZ’s lamb imports were 38.1 mill. lbs., down 8% year-to-year.
In 2014 through Nov., lamb import value
was up 16% to $559 million year-to-year.
Mutton Imports Lower Year-on-Year
• At 25.8 million lbs., mutton imports were 5-percent higher
in 2014 through November, year-on-year.
• Mutton imports from Australia were 22 million lbs. in 2014
thru Nov., up 20% year-to-year.
• New Zealand mutton imports were down 44% to 3.1
million lbs. in this period.
Mutton Imports Lower Through November
Lamb & Mutton Exports Down 4% Year-on-year
Jan.-Nov. to 6.4 Million Lbs.
Mutton exports slow relative to higher
lamb export growth.
Total Live Sheep Exports to Mexico Down
•Total live sheep exports to Mexico in 2014
were down 37% annually to 29,040 head.
•Possible U.S. flock rebuilding efforts might
have curbed exports.
Total mature sheep supply in lbs. up 1%
Jan.-Nov. 2014 year-on-year.
-- Mutton production down 2%, mutton exports down
16% and live exports (carcass-equivalent) up 42%
Total mature sheep supply in no. of head up 1.3%
Jan.-Nov. 2014 year-on-year.
-- Mature sheep slaughter up 4%, mutton exports
(converted to no. of head) down 18% and live
exports up 31%
2014 Cull Ewe Prices Moved Higher
--San Angelo ewe
prices averaged
$60.91 per cwt.
in 2014, up 46%
annually and up
14% from its 5year average.
--Culls averaged
$65.97 per cwt.
in Q4, up 10%
quarterly.
XIII. Nontraditional
Market
Andrew, 2006.
Nontraditional Market Significant Segment
of U.S. Sheep Industry
• 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.
In 2014 New Holland prices averaged $179.45 per cwt.
for 90-110 lb. lambs, up 36% annually and 2% lower
than its 2011 high.
IX. Total Lamb and Mutton Availability
LMIC’s Forecasted Balance Sheet:
Total Lamb & Mutton Supplies up 0.8% in 2014
Production
Imports
Total
Supply
Exports
Ending
Stocks
Total
Disappearance
2013
162.9
173.1
417.0
7.2
85.0
324.8
2014
162.6
184.5
471.1
8.8
135.0
327.3
% Change
Source: LMIC, 12/31/14
-0.2%
6.6%
13.0%
21.3%
58.8%
0.8%
Total Lamb Availability Up Through November
• Total lamb availability (imports plus domestic production,
subtracting exported lamb, but excluding freezer stocks)
in 2014 through Nov. was 279.85 million lbs., up 4% yearon-year.
• In this period, U.S. domestic commercial lamb supply (less
exports) was down 1.3% to 131.9 million lbs.
• Imports were up 10% year-to-year to 147.9 million lbs.
• Note: These figures do not include the nontraditional
market estimated volume.
Total lamb availability up,
but due to unknown domestic and import
freezer inventories, it’s difficult to know
what volume was actually sold.
U.S. Gained Mutton Market Share,
but Lost Lamb Market Share
• In 2014 thru November:
Domestic lamb market share was 47%, down 6%
from the same period in 2013.
Domestic lamb & mutton market share was 45%,
down 3% year-on-year.
Domestic mutton market share was 29%, up 20%
from a year ago.
U.S. Lamb Market Share Fell to Lowest Estimated
Percentage on Record in Nov. 2014: 40%
Annual Lower Commercial Share Confirms Need
for Improved Tracking of Nontraditional and
Cold Storage Supplies
X. Imported Product Price Comparisons
U.S. Competitiveness Against the
AUS Shortloin Gained in Late 2014
U.S. Rack Premium Stayed High Through 2014
*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.
U.S. Fabricated Rack Prices Up Annually;
Imported Rack also Up
• U.S. rack, roast-ready, frenched (204C) averaged
$1,623 per cwt. in 2014, up 24% annually.
• U.S. rack, roast-ready, frenched, special (204D)
averaged $1,986 per cwt. in 2014, up 51%.
• The AUS rack cap-off, 28 oz. + was $1,093 per
cwt., up 15% annually.
U.S. Shoulder Lost Competitiveness in Q4
Imported shoulder softer while the domestic shoulder
gained.
XI. Exchange Rates
Australian Dollar Weaker Against US$;
NZ$ Stronger
-- In 2014 the Australian/U.S. dollar averaged
90 cents, down 7% from 98 cents in 2013.
-- In 2014, the New Zealand/U.S. dollar hit 83
cents, up 1.2% from 82 cents in 2013.
The Stronger U.S. Dollar Boosts Import
Competiveness
XII. Price Projections
and Outlook
Feeder and Slaughter Lamb Prices
Forecasted to Stay High
• In early January, LMIC forecasted that first-quarter
slaughter lambs on a carcass-weight basis could range
from $307-$312 per cwt., 3-percent higher year-on-year.
• LMIC forecasted 60-90 lb. feeder lambs to range from
$210-$217 per cwt., down 4% over a year ago and an
estimated 12-percent higher than feeders in direct
trade.
• Forecasts should be used with caution given high freezer
stocks.
Feeder cost of gain could stay below $1
with lower corn.
• Lower cost of gain – less than $1 per lb. -- can support feeder lamb
prices and provide improved producer returns in early 2015.
• The forecast 2014/15 corn farm price ranges from $3.20 to $3.80 per
bu., for an average $3.50 per bushel (USDA/ERS, 12/2014).
• The 2014/15 projected average is 96 cents per bu. lower than the
2013/14 estimate of $4.46 per bu. (USDA/ERS, 12/2014).
• Hay & forage conditions a wild card: Improved conditions nationally in
2014, but some western states and California and Texas, in particular,
still dry.
Index Lends Predictive Insight
• Both feeder and slaughterer lamb prices typically
strengthen thought the spring before weakening
in the summer.
• 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.
History tells us feeder lamb prices are
forecasted to gain through late spring
before weakening seasonally.
Slaughter lamb prices at auction forecasted
to rally through the spring before weakening
during the summer.
Aside from higher incomes and high-priced beef,
consumer desire for lamb important to demand
building efforts.
• The Daily Livestock Report (DLR) found that tastes
and preferences for beef likely trumped lackluster
income in expanding beef demand last year
(12/31/2014).
• Beef prices could stay high through 2015 which can
support lamb demand.
• Any gains in U.S. incomes will only support lamb
demand.
In Jan.-Nov. 2014. all fresh retail beef
jumped 13% year-on-year to $5.57 per lb.
Continued income growth in 2015 can support
lamb demand.
-- Disposable income grew 0.62% between Q2
and Q3 last year.
U.S. Market Continually Adjusts to Import
Volumes and Prices: 2015 Could See Lower
Import Levels
• Australian sheep inventory is forecasted to rise from 72.2
million head in mid-2014 to 75 million in 2015 (Meat &
Livestock Australia, 8/2014).
• Australian producers expected to rebuild flocks after “two
years of drought-induced higher turnoff and tighter
numbers,” (Meat & Livestock Australia, 8/2014).
After 2 years of import expansion, LMIC
forecasted 2015 could see a 6-percent
drop (12/31/14).
-- Lower lamb supplies can put upward pressure on prices,
but are consumers willing to pay higher prices?