Transcript Slide 1

Prepared by the
American Sheep Industry Association
for the American Lamb Board
July 2012
Executive Summary
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
Feeder and Slaughter Lamb Market Trends
Feeder and Slaughter Lamb Price Projections
Carcass and Boxed Lamb Market Trends
Retail Feature Activity
Price Spreads
Pelts
Replacement Sheep
Domestic Production and Trade
Total Lamb and Mutton Availability
Price Comparison to Imported Product
Exchange Rates
Weaker prices and lower per capita consumption point to contracted lamb demand in
the second quarter. Through May total lamb availability (imports plus domestic
production, subtracting exported lamb volume) was 115.4 million lbs., down 2% yearon-year. Retail prices are not available, but featured-lamb prices were higher into the
second quarter (due partly to a higher-valued mix) and feature activity was up. By
June, wholesale lamb had lost value for seven consecutive months, from a recordhigh in November of $410/cwt. to $344/cwt.
The industry is challenged to promote lamb demand in a period when two important
factors--beef prices and incomes--are stagnant. While ethnic population growth will
help boost lamb demand, consumers’ preference for lamb can also supersede other
factors in expanding lamb demand.
Expanding lamb demand is crucial as a catalyst for healthy margins throughout the
marketing chain and in promoting industry growth. In the 2012 second quarter, the
U.S. lamb industry finds itself in a unique predicament. Very slow income growth and
sluggish economic recovery put the brakes on passing higher lamb production costs
onto consumers. Since last fall, the industry has found that at every price point,
consumers have been buying less lamb. Meanwhile, dry pastures and high-priced
corn and hay have put pressure on feed costs, filling feedlots and straining feeder and
lamb producer margins.
Feeder lamb trade is uncertain in the third quarter. Producers have to manage feed and risk in a
period when all feed options are less than optimal. To compound the problem, most feeders are
reluctant to buy lambs when they are still feeding Old Crop lamb and slaughter lamb prices are
down.
Since a record-high last August, feeder lambs lost about $80/cwt., or about 35%, by June. The
volume of feeders in direct trade in the first six months of the year was less than one-half of last
year’s mid-year volume. The 3-market feeder lamb auction price saw a 14-percent quarterly decline
to $182.57/cwt. and down 20% year-on-year. Feeder lambs in direct trade averaged $145.59/cwt.,
19% lower quarterly and 20% lower year-on-year.
Live, slaughter lamb prices at auction lost 7% to $140.79/cwt. between quarters and lost 22% yearto-year. Slaughter lamb prices on a carcass-based formula averaged $301.26/cwt. ($151.63/cwt.
live-converted) in the second quarter, down 9% quarterly, and down 17% year-on-year.
With feed costs looming higher in the third quarter, the industry is pressured to pass higher costs
onto consumers, but recent history showed us limits to this strategy. Options for maintaining feed
costs are constrained for pastures are very dry in many sheep producing regions and hay and corn
are high. Corn averaged $6.31 per bu. in the second quarter, 1% higher quarterly and down 1%
from a year ago. Alfalfa averaged $207.66 per ton in the second quarter, 5% higher quarterly, 30%
higher year-on-year.
The Livestock Market Information Center reported on July 17 that 71% of the nation’s
cattle were found in pastures ranking as Poor and Very Poor condition, up from 39% a
year ago.
An additional concern in the second quarter was that there was acute concern that
the corn crop would not produce as feeders had hoped. Many forecasted that a record
crop could put corn below $5 per bushel, but lack of moisture and hot temperatures
by mid-summer had forecasts well above $7 per bushel. As of mid-July, 38% of all
corn was reported as being in Poor or Very Poor Condition (CME Group, 7/17/12).
The live to carcass and live to cutout price spreads remained positive in the second
quarter as meat market declines lagged behind the weakening slaughter lamb
market. The East Coast carcass market averaged $366.10/cwt. in the second quarter,
2-percent lower quarterly and a down 6% than a year ago. The gross carcass value
averaged $356.72/cwt. in the second quarter, down 7% quarterly and down 12%
year-to-year.
With higher corn, lamb prices are expected to rise. The strength of consumer demand
for lamb will determine the extent to which higher feed costs play out at retail.
Distinct demands for different lamb cuts, markets and value-added products will likely
reveal itself.
I.
Feeder and Slaughter Lamb
Market Trends
Auction Feeder Lamb (60- to 90-lb.) Prices Weakened
Sharply
• The 3-market feeder lamb auction price saw a 14-
percent quarterly decline to $182.57/cwt., down 20%
year-on-year.
• Markets included San Angelo, Ft. Collins and Sioux
Falls.
• Prices averaged $213.97/cwt. in April, $180.98/cwt. in
May and $152.75/cwt. in June.
Three Markets Converge in Q2
Feeder Lambs in Direct Trade
Averaged $145.59/cwt., 19% Lower
Quarterly, 20% Lower Year-on-Year
Feeder &
Slaughter
Lamb
Prices
Converge
Volume of Direct Feeder Lambs More than
Doubled Quarterly (up 120%) to 45,100 head, Up
111% Year-on-Year
But in the first-half of the year, the volume was less than half of
last year’s mid-year volume.
Second-Quarter Feed Costs
Still High
• Corn averaged $6.31 per bu. in Q2, 1% higher quarterly and
down 1% from a year ago.
• Corn averaged $6.34 per bu. in April, $6.33 per bu. in May and
$6.25 per bu. in June.
• Alfalfa averaged $207.66 per ton in Q2, 5% higher quarterly, 30%
higher year-on-year.
• Alfalfa averaged $207 per ton in April, $215 per ton in May and
$201 per ton in June.
Auction Slaughter Lamb Prices
Down Quarterly, but Up Historically
• Live, slaughter lamb prices at auction lost 7% to
$140.79/cwt. between quarters and lost 22%
year-to-year.
• Prices averaged $147.89/cwt. in April,
$140.41/cwt. in May and $134.09/cwt. in June.
Q2 was Still 17-Percent Higher
than its Second-Quarter 5-Year Average
of $120.66/cwt.
Q2 Prices Fall Unseasonably Due
Likely to Retail Slowdown
Carcass-Based Formula Slaughter Lamb Prices Lower
Quarterly & Year-to-Year
• At 135,800 head, formula trades were down 10% quarterly and
up 9% year-on-year.
• Slaughter lamb prices on a carcass-based formula averaged
$301.26/cwt. ($151.63/cwt. live-converted) in Q2, down 9%
quarterly, and down 17% year-on-year.
• Weighted-average prices were $315.38/cwt. in April,
$297.46/cwt. in May and $290.95/cwt. in June.
Auction Prices Hold Below Formula Prices
Premium for Lightest-Weight Carcasses
Narrowed by June
II.
Feeder and Slaughter Lamb
Price Projections
Consumer Demand is Key to Stronger
Feeder and Slaughter Lamb Prices… and
Ultimately to Industry Growth
• Lamb demand in the third quarter could get a
boost from possible higher beef prices, but not
necessarily from income gains.
• The ALB is challenged to boost consumer’s
preference for lamb through continued taste
samplings and promotions.
If Beef Prices Move Higher,
It Could Support Lamb Demand
Fresh retail beef averaged $4.65/lb. in Q2,
up 0.02% quarterly and up 4.6% year-to-year.
Positive Income Growth Can
Promote Lamb Demand, But Recent
Growth Minimal
• Inflation-adjusted disposable income gained
0.2% monthly in May (Bureau of Economic
Analysis, 7/2012).
• Per capita disposable income gained 0.15%
between Q4 2011 and the first quarter.
Disposable (Take-Home) Personal Income
Has Been Flat
Lamb Prices Forecasted to Gain Quarterly and Post
Lower Year-to-Year Values in Q3
• The Livestock Market Information Center (LMIC) estimated
in late July that carcass-based formula slaughter lambs
could strengthen quarterly by an estimated 11% in Q3 to
$332/cwt. and average about 12% lower year-to-year.
• Forecasts based upon underlying tight supply situation.
• If all meat moves higher with higher corn prices then retail
lamb might also gain, helping to support higher slaughter
lamb prices.
Feeder Lamb Forecasts
• USDA Agricultural Marketing Service (AMS) reported in July: “Demand
very light and trade activity slow. With the overstock of market ready
lambs in the feedlot and a decreasing carcass market, lamb feeders are
very reluctant to buy feeder lambs.”
• USDA/AMS continued: “Corn and hay prices are increasing rapidly
pushing cost of gains to even higher levels. The combination of all these
factors coupled with very light consumer demand is pushing bids for feed
lambs lower.”
• However, (higher-valued) New Crop relative to Old Crop sales could
continue to drive feeder market.
• LMIC estimated that 60-lb. to 90-lb. Texas feeders could average
$190/cwt. in Q3, 5% higher quarterly and 8% lower year-to-year.
Seasonal Price Indices Contradict LMIC Forecasts
• In 2010 and 2011, increasingly tight supplies trumped other
seasonal factors, overwhelming seasonal patterns.
• Current lower demand and short-term ample feedlot
supplies can trump the fundamental of continued tight lamb
supplies resulting in softer, not stronger, prices.
• 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.
The index for feeder lamb prices at auction estimated a
10% price weakening in Q3 from its annual average.
The index for converted formula carcass-based slaughter
lamb prices estimated a 0.07% weakening in Q3.
The index for live, auction, slaughter lamb prices
forecasted an 8-percent weakening—from its annual
average--- in Q3.
Forecasts for Higher Lamb Feed Bill
• In the 18 primary corn-growing states, 30 percent of the crop is now in poor or
very poor condition, up from 22 percent the previous week (U.S. Drought
Monitor, 7/10/12).
• Half of the nation’s pastures and ranges were in poor or very poor condition
as of July 10, up from 28% in mid-June (U.S. Drought Monitor, 7/10/12).
• The hot, dry conditions have also allowed for a dramatic increase in wildfire
activity since mid-June. As of early July, the year-to-date acreage burned by
wildfires increased from 1.1 million to 3.1 million (U.S. Drought Monitor,
7/10/12).
• 80% chance that December corn is forecasted to range between $5.90 and
$10.10 per bu. (Hilker, J., MSU, 7/25/12).
Hay Forecasted to Stay High
• It is forecasted that hay acres could increase 3% this year
(USDA, 4/30/12).
• LMIC reported, “Hay prices in most regions of the nation
are still expected to be below a year ago, even in alfalfa,
but this is largely expected because of the pull-back
demand by the livestock industries, especially dairies.
Dairies and cattle feeders alike struggled with high prices
last year and have not recuperated from costs,” (7/9/12).
III.
Carcass and Boxed Lamb
Market Trends
Carcass Prices Lower, Yet 37% Higher
than its 5-Year Q2 Average
•Carcass prices averaged $366.10/cwt. in Q2,
2-percent lower quarterly and a down 6% than a
year ago.
• East Coast carcass price was $377.70/cwt. in
April, $368.51/cwt. in May and $352.10/cwt. in
June.
Carcass Trade 17% of Total Weekly Slaughter, Down
from Average 22% in 2010 & 2011
YG 1 and 2 Down in 2012
• Yield Grade determination is positively correlated
with heavier slaughter lambs and increased deposits
of back fat.
• Yield Grade 1 & 2 in lbs. was 32% in Jan.-May of
total slaughter compared to 39% a year ago.
• Yield Grade 4 & 5 in lbs. was 28% in Jan.-May
compared to 18% a year ago.
Affect of Heavier Carcasses
• Larger carcass will have a larger loin eye/rib eye area,
which can make them more valuable.
• Plant throughput is inherently higher with larger
carcasses.
• However, the shoulder is one item that is difficult to
remove fat from when the carcasses are Yield Grade 4 or
5. Trimming it can be labor intensive and will squeeze
packer margins.
• Legs and loins primarily carry fat on the outside of the cut.
Yield Grades for Federally Inspected
Lamb and Mutton
Percentages, Fiscal Year
Source: USDA, AMS, Livestock and Seed Division.
YG1
YG2
YG3
YG4
YG5
2007
4%
32%
47%
12%
3%
2008
5%
31%
47%
14%
3%
2009
4%
34%
45%
14%
4%
2010
5%
38%
43%
13%
2%
2011
4%
27%
49%
17%
3%
1-5/2012
4%
24%
36%
21%
15%
YG 1 & 2 Trended Down
Since Mid-2011
Q2 Gross Carcass Value
(Wholesale Average) Softer Quarterly
and Year-to-Year
• The gross carcass value averaged $356.72/cwt. in
Q2, down 7% quarterly and down 12% year-to-year.
• Gross carcass price was $367.25/cwt. in April,
$359.03/cwt. in May and $343.89/cwt. in June.
Second-Quarter Gross Carcass Value
was 22% Higher than its 5-Year
Average
Gross Carcass Value Down $66/cwt. Since
Record-High Last November
Wholesale Rack Dropped Below $7/lb. for
First Time Since Mid-2010
• The rack averaged $681.97/cwt. in Q2, down 12%
quarterly and down 24% year-on-year.
• The rack was $715.18/cwt. in April, $685.62/cwt. in May
and $645.11/cwt. in June.
June Rack Falls Back to 2010 Levels
Q2 Loins Gained Year-to-Year in June
• Loins, trimmed 4x4, averaged $522.49/cwt., down 1%
quarterly and up 0.4% year-to-year.
• Loins were $513.34/cwt. in April, $515.73/cwt. in May
and $538.40/cwt. in June.
Loins Holds Value Compared to Summer
Values in the Past Two Years
Leg, Trotter-Off, Down Quarterly and
Down Year-to-Year
• The leg averaged $415.26/cwt. in Q2, down 5%
quarterly and down 7% year-to-year.
• The leg was $426.03/cwt. in April, $418.55/cwt. in May
and $401.19/cwt. in June.
Leg Still High Historically
Shoulder Gained Sharply in 2011
• The shoulder averaged $251.38/cwt. in Q2, down
11% quarterly and down 22% year-on-year.
• The shoulder was $265.03/cwt. in April,
$256.50/cwt. in May and $232.61/cwt. in June.
Shoulder is an expensive cut to remove fat from
when the carcasses are heavier, Yield Grade 4
or 5.
Ground Lamb is One Item That Gained
Quarterly
• Ground lamb averaged $590.98/cwt. in Q2, up 0.4%
quarterly and up 4% year-on-year.
• Ground lamb and loins only products to gain year-to-
year.
IV.
Retail Feature Activity
Retail Prices Move Up Quicker
Than They Come Down
• When wholesale prices drop, retailers are reluctant to drop
prices, but will increase featuring.
• USDA/AMS reported lower wholesale prices make it “more
favorable” for retailers to feature lamb into June.
• In Q2 feature activity jumped 20% quarterly and was up 40%
year-to-year.
• Feature-average prices in Q2 were $7.00/lb., up 6% from a year
ago and up 3% quarterly.
• In Q2 some higher-valued items such as rack and rib chops were
featured more, moving the average price higher.
Feature Activity Aimed to Move Product
• Feature activity of the shoulder blade chop—one of the
more featured items-- was up 30% in Q2 year-to-year with
prices down 3% to $5.12/lb.
• Offseason leg features unusual, yet…leg feature activity
was up 61% in Q2 compared to a year ago with feature
prices averaging $7.48/lb., down 1% year-to-year.
• Loins chops are often featured during the summer grilling
season. This year, feature activity was up 34% in Q2 with
prices 7% lower from a year ago at $9.32/lb.
Shoulder blade chop prices—one of the more
featured products—dropped sharply into July.
V.
Price Spreads
The Rack-Loin Price Spread very Volatile,
Marginally Higher
• The rack-loin price spread fell 36% in Q2 to
$1.59 per lb., down 57% year-on-year.
Feeders in the Red due to Heavy Lambs,
Prolonged Days on Feed & Higher Feed Costs
• Industry still killing Old Crop (OC) lambs when OC lambs
often finished slaughtering by May.
• Producers losing an estimated $38 per cwt. or $76 per head.
• June estimated break-even was $172 to $185 per cwt.
compared to $134 to $147 per cwt. slaughter lambs (auction
& live-converted formula slaughter lamb price).
• By comparison, LMIC reported that July steers sold on cash
market lost more money than ever before, over $250 per head
(7/9/12).
Cost of gain up sharply in Q2 to $1.30 to $1.50 per lb.
– about 20% higher than a year ago and 128% higher than its 5year low in Q1 2010.
Sensitivity Break-Even Analysis A:
June kill of Old Crop California feeders that entered Colorado feedlots in
January at $1.30 cost of gain.
Item
Cost
1. Total cost of feeder (75-lb. CA feeder @ $232
per cwt.)
$174/head
2. Freight from California
$8.00/head
3. Cost of Gain in Colorado feedlot
(125 lbs. gained @ $1.30/lb. to 200 lbs.)
$162.50/head
4. Break-even price of slaughter lamb @ 200 lbs.
$344.50/head
Break-Even
$172.25/cwt.
Sensitivity Break-Even Analysis B:
June kill of Old Crop California feeders that entered Colorado feedlots in
January at $1.50 cost of gain.
Item
Cost
1. Total cost of feeder (75-lb. CA feeder @ $232 per
cwt.)
$174/head
2. Freight from California
$8.00/head
3. Cost of Gain in Colorado feedlot
(125 lbs. gained @ $1.50/lb. to 200 lbs.)
$187.50/head
4. Break-even price of slaughter lamb @ 200 lbs.
$369.50/head
Break-Even
$184.75/cwt.
Live to Carcass Price Spread Up
• The value of live slaughter lambs fell more
sharply than carcass values.
• The live to carcass price spread averaged
$82 per cwt., up 7% quarterly and up 118%
year-to-year.
Carcass to Cutout (Ave. Wholesale Values) Price
Spread Fell into Negative
• The carcass held its value relative to the weaker cutout
value.
• The carcass was worth $7/cwt. more than the cutout in Q2.
• The carcass to cutout spread was -$7/cwt. in Q2, down
222% quarterly from $6/cwt. and down 173% year-on-year
from $10/cwt.
Cutout to Live Spread was $59/cwt., down 8% in
Q2 and up 78% Year-to-Year
In Q2, the cutout weakened by more than the live lamb.
VI. Pelts
Late Q2 U.S. Pelt Prices Suspended
Under Limited Trade and Weaker Demand
• Stronger U.S. dollar made U.S. pelts less competitive in
international markets.
• Heavy offerings from Australia, Ireland and England flooded the
market leading to lower prices (USDA/AMS, 6/2012).
• Early Q2 prices: Fall Clips were $15.50 per piece, down 13%
quarterly and down 2% year-to-year.
• Early Q2 prices: No. 1 pelts were $14.06 per piece, down 6%
quarterly and up 4% year-to-year.
• Recall pelt prices are prices received by packers.
Absence of Pelt Report Interrupted
LRP-Lamb
• Several weeks of pelt prices were not reported in June
and July due to the lack of pelt trades.
• Coverage price for LRP-Lamb not issued during this time.
• LRP-Lamb is based upon a slaughter lamb price
prediction model in which pelt prices are an integral
component because slaughter lamb offers can be partly a
function of pelt prices.
VII. Replacement Sheep
Ewes Not Traded; Rams Weaker
• Only ram prices reported in the second quarter
(only in April), ewe trades not established.
• In April, black-faced rams averaged $573.31 per
head, white-faced rams were $597.28 per head
and cross-bred rams were $549.19 per head.
• Prices about 27% lower than a year ago.
VIII.
Domestic Production and Trade
Federally-Inspected (FI) Lamb & Mutton
Production Up in Q2
• At 687,437 head, FI slaughter was up 41% quarterly
and up 32% year-on-year.
• FI lamb & mutton production was 52 million lbs. in
Q2, up 39% quarterly and up 46% year-on-year.
• Heavier weights boosted production.
Estimated Slaughter Weights Climbed Through
Q2, Boosting Production
153-lb. Average in Q2, up 2% Quarterly and Up 5%
Year-to-Year.
Estimated Q2 Lamb Slaughter was Up 34%
Year-on-Year and Production was Up 40%
Q2 Estimated Lamb Production a Higher Portion of Easter
Production Than in Past Years
June Cold Storage was 19.7 Mill. Lbs., Down
0.13% Monthly and Up 31% Year-on-Year
Lamb Imports Through May Totaled 54 Mill. Lbs. -Down for 3rd Consecutive Year in this Period
Lamb Imports Through May
Down 8% Year-to-Year
• Australian lamb imports through May were 36.4 Mill. Lbs.,
down 6% Year-to-Year
• Through May, NZ’s lamb imports were 17.6 Mill. Lbs.,
Down 13% Year-to-Year
Mutton Imports Sharply
Lower Year-to-Year
• At 9.2 million lbs., mutton imports were 63% lower
in the five months through May year-to-year.
• Mutton imports from Australia were 6.5 million lbs.,
down 45% in this period.
• New Zealand mutton imports were down 79% to
2.8 million lbs.
Lamb & Mutton Exports were 4.4 Million Lbs.
through May, down 46% Year-on-Year
• At 146,000 lbs., lamb exports were down 72% through May year-to-year.
• Mutton exports totaled 4.3 million lbs. through May, down 44% year-on-
year.
Live Sheep Exports Down 53%
Through May
• U.S. live sheep exports to Mexico were
zero through May. Last live exports to
Mexico were in early November
• Live exports to Canada were down 34%
through May to 19 million lbs.
Cull Ewe Prices Fall in Q2, but High Historically
San Angelo ewe prices averaged $54/cwt. in Q2, down 28% quarterly
and up 4% year-on-year and 29% higher than its 5-year Q2 average.
IV.
Total Lamb and Mutton Supplies
Total Lamb Availability Contracted in Five
Months Through May Compared to a Year Ago
• Through May total lamb availability (imports plus
domestic production, subtracting exported lamb volume)
was 115.4 million lbs., down 2% year-on-year.
• Through May, U.S. domestic lamb production was up
3% year-to-year and lamb imports were down 8%.
Total Lamb Availability Contracted an
Annual Average of 3% from 2006 to 2011
U.S. Lamb Market Share Up
• In the five months through May, domestic
lamb market share was 53%, up 4% year-toyear.
• Through May, domestic lamb & mutton
market share was 51%, up 18% year-toyear.
• Through May, domestic mutton market share
was 29%, up 60% year-on-year.
X. Imported Product Price
Comparisons
U.S. Leg Loses Competitiveness Compared to 2011
In the first five months of 2012, the U.S. leg, trotter-off, was $4.31
per lb. and the imported leg was $4.11 per lb.
Through May, the U.S. Leg Had a $0.20 per lb.
Premium, Compared to -$0.15 per lb. a Year Ago.
U.S. Loins Less Competitive
In the first five months of the year, the U.S. loins, trimmed 4x4
was $5.23 per lb. and the imported loins was $5.19 per lb.
U.S. Loins Gained Competitiveness
U.S. loins held a $1.21/lb. premium in Jan.-May 2011 and
narrowed to $0.06/lb. this year.
U.S. Rack Less Competitive
U.S. rack still less competitive in Q2, but both
values down quarterly.
 The U.S. rack averaged $1,473/cwt. in Jan.-May
and the imported equivalent was $1,104/cwt.
U.S. Gained 15% in Price Competitiveness
between Jan.-May 2011 and the same period 2012.
XI. Exchange Rates
Stronger U.S. Dollar in Q2
• Rate change makes imports relatively more
competitive and exports less competitive.
• In Q2 the U.S./Australian dollar was $1.01 down
4% quarterly and down 5% year-to-year.
• In Q2 the U.S./New Zealand dollar hit $0.79, down
3% quarterly and down 1% year-to-year.