Transcript Slide 1

Fourth-Quarter 2013
Sheep Industry Review
Prepared by the American Sheep Industry Association for the
for the American Lamb Board
January 2014
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
The first-quarter of 2014 holds much promise for the U.S. sheep industry given
excellent quality of lamb, continued tight supplies, higher feeder and slaughter
lamb prices, lower feed costs and return to profitability for many in the producer
and feeder sectors.
What is less certain is what will happen at retail and to packer margins. Lamb’s
excellent quality in 2014, coupled with high-priced substitute proteins and slow
income gains will hopefully lend some support to lamb demand and boost lagging
wholesale and retail prices.
In the Markets
The 3-market feeder lamb auction price saw a 64-percent quarterly jump to
$187.20/cwt., up 83% year-on-year. Feeder lambs in direct trade averaged
$172.90 per cwt. in the fourth quarter, up 57% quarterly, and up 76% year-toyear.
Live, slaughter lamb prices at auction gained 38% quarterly to $153.93/cwt., 64percent higher year-on-year. Slaughter lamb prices on a carcass-based formula
averaged $275.22/cwt. ($139/cwt. live-converted), up 19% quarterly and up
25% year-on-year. Slaughter lambs in live, negotiated sales averaged
$149.72/cwt. in the fourth quarter, up 27% quarterly and up 46% year-on-year.
Executive Summary, page 2
Weighted average carcass prices averaged $292.13/cwt. in the fourth quarter,
13-percent higher quarterly and up 16% from a year ago. Yield Grade 4 & 5 in
lbs. was 21% of total slaughter in the first eleven months of 2013 compared to
31% in the same period of 2012. The gross carcass value averaged
$333.16/cwt. in the fourth quarter, up 19% quarterly and 10-percent higher
year-on-year. Lamb primal prices were relatively steady in 2013, but with a
sharp year-end gain.
Production & Trade
In the fourth quarter, estimated lamb slaughter fell 5% quarterly to 486,914
head, down 22 percent year-on-year. Lamb production was 31.7 mill. lbs. in
the fourth quarter, down 8% quarterly and down 29% year-on-year.
At 158.9 million lbs., lamb and mutton imports in January through November
were 14% higher year-on-year. Lamb imports totaled 134.3 million lbs. in
January through November, up 15% year-to-year.
Executive Summary, page 3
In January through November total lamb availability (imports plus domestic
production, subtracting exported lamb) was 268.03 million lbs., up 8% yearon-year. In this period, U.S. domestic commercial lamb supply was down 1%
to 133.7 million lbs. compared to a year ago and imports were up 15% yearto-year to 134.34 million lbs.
In one nontraditional market, New Holland Sales Stable, lamb sales
increased 8-percent annually in 2013.
Price Projections and Outlook
Tight supplies domestically and worldwide will likely support prices through
2014.
After years of price volatility, lamb prices should stay steadier this year, and
strong. In early-February, the Livestock Market Information Center (LMIC)
expected slaughter lambs on a carcass-weight basis to range from $295 to
$298 per cwt. in the first quarter (about $149 per cwt. live), 31-percent
higher than a year ago. LMIC forecasted 60-90 lb. feeder lambs to range
from $193 to $200 per cwt., up 32%. By the fourth quarter of 2013, many
feeders were making money, after three years of losses for some.
I. Feeder and Slaughter Lamb
Market Trends
Q4 Auction Feeder Lamb Prices (60- to 90-lb.)
Nearly Doubled Year-to-Year
• The 3-market feeder lamb auction price saw a 64-percent
quarterly jump to $187.20/cwt., up 83% year-on-year.
• Markets included San Angelo, Ft. Collins and Sioux Falls.
• Prices averaged $182/cwt. in Oct., $182/cwt. in Nov. and
$198/cwt. in Dec.
Prices jumped $90/cwt. from
the summer to year’s end
Feeder Lambs in Direct Trade
Gained 76% Year-on-Year
o Feeder lambs averaged $172.90/cwt. in Q4, up
57% quarterly, and up 76% year-to-year.
o Feeders averaged $166/cwt. in Oct.,
$176/cwt. in Nov. and $177/cwt. in Dec.
December Feeders in Direct Trade up
$80/cwt. from Year’s Low in June
Most feeders in direct trade already traded by Q4;
Feeder trade spiked in September
Price of Corn Dropped Sharply in Late-2013
 Corn averaged $4.31 per bu. in Q4, down 29%
quarterly and down 41% year-on-year
(USDA/AMS, 1/2014).
 Corn averaged $4.34 per bu. in Oct., $4.23 per
bu. in Nov. and $4.37 per bu. in Dec.
Corn Began to Fall in June
Alfalfa averaged $190 per ton in Q4,
down 6% quarterly and down 12% year-on-year
Q4 Auction Slaughter Lamb Prices
14-Percent Higher Year-on-Year
• Live, slaughter lamb prices at auction gained 38%
quarterly to $153.93/cwt., 64-percent higher
year-on-year.
• Prices averaged $151/cwt. in October, $152/cwt.
in November and $159/cwt. in December.
Auction Slaughter Lamb Price
Rebounded 37% Since its 7-Year Low in Aug. 2012
Late-2013 Auction Slaughter Lamb Prices
Rebounded to December 2010/2011 Levels
Carcass-Based Formula Slaughter Lamb Prices
Gained Steadily through 2013
• At 103,300 head, formula trades were down 31% quarterly
and down 34% year-on-year.
• Slaughter lamb prices on a carcass-based formula averaged
$275.22/cwt. ($139/cwt. live-converted), up 19% quarterly
and up 25% year-on-year.
• Weighted-average prices were $255/cwt. in Oct., $279/cwt. in
Nov. and $292/cwt. in Dec.
• In Q4, average weight was 74.13 lbs., down 6% quarterly and
down 10% year-on-year.
Prices Rebounded 33% Since October
2012’s Stabilization
Prices by Weight Trended Together; Heaviest
Carcasses No Longer in the Mix
Live, Negotiated Prices Top Formula Prices
• Slaughter lambs in live, negotiated sales averaged
$149.72/cwt. in Q4, up 27% quarterly and up 46%
year-on-year.
• Lambs averaged $141/cwt. in Oct., $152/cwt. in Nov.
and $156/cwt. in Dec.
• Q4 weights were 137 lbs., up 2% quarterly and down
2% year-on-year.
II. Carcass and Boxed Lamb
Market Trends
Carcasses Gained Quarterly and Year-on-Year
• Weighted average carcass price averaged $292.13/cwt. in
Q4, 13-percent higher quarterly and up 16% from a year ago.
• Carcass price was $273/cwt. in Oct., $288/cwt. in Nov. and
$302/cwt. in Dec.
• Lightweight carcasses received a 40-percent premium to the
heaviest at $388 to $277 per cwt. in Q4.
Carcass Rebounded 26% from its Late-2012 Low
2013 Carcass Price Gains Accelerated in Q4
YG 1s (Minimal Back Fat) Up with Very
Current Market
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 21% of total
slaughter in the first eleven months of 2013
compared to 31% in the same period of 2012.
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%
5%
38%
43%
13%
2%
4%
27%
49%
17%
3%
5%
28%
37%
18%
12%
7%
37%
34%
14%
8%
2010
2011
2012
1-11/2013
Live, Negotiated Sales Up in 2013;
Formula Down
Q4 Gross Carcass Value
(Wholesale Average) Up Quarterly
and Up Year-to-Year
• The gross carcass value averaged $333.16/cwt. in Q4,
up 19% quarterly and 10-percent higher year-on-year.
• Gross carcass value was $306/cwt. in Oct., $333/cwt.
in Nov. and $360/cwt. in Dec.
December’s Wholesale Market Higher than a Year Ago
Gross Carcass Value 20-Percent
Lower than Nov. 2011 Record High
Lamb Primals Relatively Steady Over Past Year,
but with Year-end Gain
December Rack 10-Percent Lower than its
Record High in 11/2011, but Sharply
Higher than its Annual Average.
• The rack averaged
$676.08/cwt. in Q4,
up 33% quarterly and
up 27% year-on-year.
• The rack was
$552/cwt. in Oct.,
$686/cwt. in Nov.
and $790/cwt. in
Dec.
After Holding Virtually Flat for Most of 2013,
Loins Gained Steadily Through Q4
• Loins, trimmed 4x4,
averaged
$478.14/cwt., up 6%
quarterly and down
4% year-to-year.
• Loins were $467/cwt.
in Oct., $477/cwt. in
Nov. and $490/cwt.
in Dec.
Leg, Trotter-Off, Climbed Steadily Through Q3
and Q4
• The leg averaged
$354.31/cwt. in
Q4, up 18%
quarterly and up
6% year-to-year.
• The leg was
$332/cwt. in
Oct., $355/cwt.
in Nov. and
$377/cwt. in Dec.
Shoulder Shot Up 27% Since September
• The shoulder averaged
$267.08/cwt. in Q4, up
18% quarterly and up
10% year-on-year.
• The shoulder was
$246/cwt. in Oct.,
$266/cwt. in Nov. and
$290/cwt. in Dec.
Ground Lamb Down
Quarterly and Year-on-Year
• Ground lamb
averaged
$517.55/cwt. in Q4,
down 1% quarterly
and down 2% yearon-year.
• Ground lamb was
$497/cwt. in Oct.,
$522/cwt. in Nov.
and $533/cwt. in
Dec.
III.
At Retail & Food Service
Food Service Sector Growth Down in Late 2013
• December saw a 0.2% drop in restaurant same-store sales and
a 2.6% drop in customer traffic (Nation’s Restaurant News from
NRN-MillerPulse survey, 1/15/2014).
• Lower sales likely due to the combination of bad winter
weather, a late Thanksgiving and a shorter holiday shopping
season.
• “With improving macroeconomic factors as a tailwind going
into the new year, Larry Miller, founder and chief executive of
the monthly MillerPulse report, projected a modest 2-percent
increase in industry-wide same-store sales for 2014,” (Nation’s
Restaurant News, 1/15/2014).
samestore
sales
• +1% sales
• -2%
traffic
• -4%
traffic
Source: Nation’s Restaurant News, 1/2014
Fine Dining
• -2%
Fast Food
Casual
Breakdown of December Food Service Indices
• -1% sales
• -4%
traffic
Retail Featured Lamb Leg Price Lower
Year-on-Year and Featuring Down
Leg Bone-In
Leg,
Boneless
Leg, Semiboneless
Dec. 2012
Dec. 2013
% Change
$6.60
$6.92
$5.87
$6.46
-11%
-7%
$5.76
$5.41
-6%
IV. Price Spreads
Ralmonline, 2008
The Rack-Loin Price Spread Increased Sharply in Q4
• The rack-loin price
spread averaged
$1.98 per cwt. in Q4,
up 261% quarterly
and up 522% year-toyear.
• In the last year, the
rack price jumped
33% while the loins
saw only a 6-percent
gain.
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 Gained in Q4
The live to carcass price spread averaged $4.60
per head in Q4, down 89% quarterly and down
7% year-to-year.
-- In Q4, as
slaughter lamb
prices gained
sharply, the
meat market
lagged,
squeezing
margins.
Live to cutout spread was $38.21 per head in Q4,
down 30% quarterly and down 7% year-to-year.
-- In Q4, the
gain in
slaughter
lamb values
outpaced the
growth in the
cutout,
putting
pressure on
margins.
Carcass to cutout spread was $32.96 per head in Q4,
up 134% and down 1% year-on-year.
-- In Q4,
the cutout
gained
faster
than the
carcass,
raising the
cutoutcarcass
price
spread.
V. Pelts
Pelts Down Quarterly and Year-to-Year Due to
Lower Seasonal Demand
• Fall Clips were $11.24 per piece in Q4, down 7% quarterly
and down 5% year-to-year.
• No. 1 pelts were $9.10 per piece in Q4, down 2% quarterly
and down 12% year-to-year.
• Recall pelt prices are prices received by packers for pelts
from slaughter lambs processed.
Pelt Values Dropped Seasonally in Late-2013
VI. Replacement Sheep
Oct./Nov. Replacement Ewes Up 16% Year-to-Year
Oct. & Nov. Ewes (per
head):
• 2-4 years: $149, up
20% year-on-year.
• 5-6 years: $97, up
16% year-on-year.
• Over 6 years: $72, up
10% year-to-year.
• December prices not
established.
VII.
Domestic Production and Trade
Donald Macleod, Stornoway, Scotland, 2010.
Lower slaughter and lower weights in Q4
translate to lower production.
• In Q4, estimated lamb slaughter fell 5% quarterly to
486,914 head, down 22% year-on-year.
• Lamb production was 31.7 mill. lbs. in Q4, down 8%
quarterly and down 29% year-on-year.
• With Q4 very tight supplies and retail and foodservice
demand higher seasonally and possibly annually, we
might see cold storage stocks down in January.
Q4 Slaughter Down 22% Year-on-Year
Which Way is Lamb Production Trending?
Slaughter Weights in 2013 Averaged 137 lbs.,
Down 37% Year-on-Year
-- Between Q3
and Q4, live
weights dropped
from 135 lbs. to
129 lbs.
--Slaughter
weights were
126 lbs. in Oct.,
129 lbs. in Nov.
and 132 lbs. in
Dec.
Cold Storage Averaged 21.06 Mill. Lbs. per Month in
2013, down 1% from 2012’s Average
- Recall that some portion of cold storage is imported product.
Cold storage
was 21.8 mill.
lbs. at the
beginning of
December,
down 9%
monthly and up
15% year-onyear.
Lamb and Mutton Imports Higher
At 158.9 million lbs., lamb and mutton imports in
Jan.-Nov. were 14% higher year-on-year.
Lamb Imports Totaled 134.3 Mill. Lbs. in
Jan. to Nov. – Up 15% Year-to-Year
Lamb Imports 34% Higher in
November Year-on-Year
Both Australian and New Zealand
Lamb Up Year-to-Year
• Australian lamb
imports in Jan.Nov. were 91.9
mill. lbs., up 11%
year-to-year.
• NZ’s lamb
imports were
41.4 mill. lbs., up
25% year-toyear.
Mutton Imports Higher Year-on-Year
• At 24.6 million lbs., mutton imports were 6% higher in
Jan.-Nov. compared to a year earlier, same period.
• Mutton imports from Australia were 18.3 million lbs. in
Jan.-Nov., up 18% year-to-year.
• New Zealand mutton imports were down 26% to 5.6
million lbs. in this period.
Mutton Imports Higher in 2013
Through November
Lamb & Mutton Exports Down 35%
January to November Year-to-Year;
Lamb Exports Up & Mutton Exports Down
2013 Lamb Exports on Track to Double Annually
Total Live Sheep Exports Down 2% Year-to-Year
through November to 49,411 Head
• U.S. live sheep exports to Mexico were 27,979
head in Jan.-Nov. compared to 0 head during
the same period in 2012.
• At 21,348 head, live exports to Canada were
down 55% year-to-year.
Q4 Cull Ewe Prices Saw Strong Gains after Third-Quarter
Record-Low
--San Angelo ewe prices
averaged $48.37 per
cwt. in Q4, up 44%
quarterly and down
0.2% year-on-year.
--Culls averaged
$33/cwt. in Oct.,
$35/cwt. in Nov.
and
$33/cwt. in Dec.
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.
December Highs Hit $160 per cwt. for 90-130
Lbs. at Nontraditional Market in PA
• Prices averaged $144.15/cwt. in Q4, 18-percent higher quarterly and up
36% from a year ago for 90- to 110-lb. slaughter lambs.
• For heavier lambs – 110-130 lbs. – prices averaged $144.51/cwt., up 25%
quarterly and up 29% year-on-year.
• New Holland Sales Stable saw an 8-percent annual increase in lamb sales
in 2013.
Nontraditional (New Holland) Lamb Market
Prices Mirror Commercial Market
IX. Total Lamb and Mutton Availability
Boosted by Imports, Total Lamb Availability Up 8%
Through November Year-on-Year
• In January through November, total lamb availability (imports plus
domestic production, subtracting exported lamb) was 268.03 million
lbs., up 8% year-on-year.
• In this period, U.S. domestic commercial lamb supply was down 1% to
133.7 million lbs. compared to a year ago.
• Imports were up 15% year-to-year to 134.34 million lbs.
• Note: These figures do not include the nontraditional market estimated
volume.
Total Lamb Availability Trending Up
Could we have three years of total lamb
market expansion?
U.S. Lamb Market Share: 50%
• In January to November:
Domestic lamb market share was 50%, down from
53% year-on-year.
Domestic lamb & mutton market share was 46%,
down from 51% year-to-year.
Domestic mutton market share was 24%, down
from 32% a year ago.
Domestic Share of Lamb Market Contracting,
Challenging Growth
X. 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. – AUS Rack Price Spread Widened in Q4
*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. Rack Premium Jumped from to $160 in June to
$670 per cwt. in December 2013
U.S. Shortloin Competitive against Imports
U.S. Loins Lost Competitiveness & then Gained in Q4
U.S. Shoulder Competitiveness Declined in Late 2013:
Imported shoulder dropped while the domestic
shoulder price increased.
Shoulder Premium Shot Up in Late 2013
XI. Exchange Rates
In 2013 the US$ Gained 14% Against the A$;
Imports More Competitive
-- In Q4 the
U.S./Australian dollar
gained 1% quarterly
to $0.93, down 11%
year-on-year.
-- In Q4, the
U.S./New Zealand
dollar hit $0.83, up
4% quarterly and up
0.5% year-to-year.
Price of one AUD in USD dropped through 2013;
Lower Australian lamb prices helped counteract the strong
Australian dollar (Meat & Livestock Australia, 12/2013).
XII. Price Projections
and Outlook
Tight Supplies Domestically and Worldwide
will Likely Support Prices through 2014
• After years of price volatility, lamb prices should stay
steadier this year, and strong.
• In early-February, LMIC expected slaughter lambs on a
carcass-weight basis to range from $295 to $298 per
cwt. in the first quarter (about $149 per cwt. live), 31percent higher than a year ago.
• LMIC forecasted 60-90 lb. feeder lambs to range from
$193 to $200 per cwt., up 32%.
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 can be 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 Forecasted to Gain 8% Above
Annual Average in Q1
Slaughter Lamb Prices at Auction Predicted to Gain 5%
Above Annual Average in Q1
Break-Even Analysis
• Many feeders were in the red for the past three years; some just now
making money.
• Recall the breakeven analysis is only one snapshot of feedlot marketing.
• Cost of gain fell an estimated 27% between quarters: from about $1.38 per
lb. in Q3 to around $1.13 per lb. in Q4.
• Some feeders saw cost of gain fall below $1 in late Q4.
• December estimated break-even was $120 to $122 per cwt. compared to
$148 per cwt., the live-converted formula carcass-based price.
Cost of Gain Fell Sharply in Q4
Sensitivity Break-Even Analysis A:
December kill of September feeders with a $1.10 per lb. cost
of gain.
Item
1. Total cost of feeder (98-lb. feeder @ $120 per
cwt. in September 2013)
Cost
$117.60/head
2. Average freight from NV, UT, CO, WY
$4.00/head
3. Cost of gain in Colorado feedlot
(34 lbs. gained @ $1.10/lb. to 132 lbs.)
$37.40/head
4. Break-even price of slaughter lamb @ 132 lbs.
Break-Even
$159/head
$120/cwt.
Sensitivity Break-Even Analysis B:
December kill of September feeders with a $1.15 per lb. cost
of gain.
Item
1. Total cost of feeder (98-lb. feeder @ $120 per
cwt. in September 2013)
Cost
$117.60/head
2. Average freight from NV, UT, CO, WY
$4.00/head
3. Cost of gain in Colorado feedlot
(34 lbs. gained @ $1.15/lb. to 132 lbs.)
$39.10/head
4. Break-even price of slaughter lamb @ 132 lbs.
$160.70head
Break-Even
$122/cwt.
LMIC Forecasted Total Supply
Expansion in Q1
• LMIC estimated in mid-February that with slaughter weights about
even with a year ago, domestic production could be down 2% in
Q1 year-on-year.
• LMIC forecasted that Q1 imports could be down 6% year-on-year.
• Given increases in beginning stocks and noncommercial
production (farm), total supply could be up 3% in Q1 compared to
a year ago.
Producer/Feeder Profitability up in 2014?
• Producer profitability could be up with lower feed costs.
• Feeder lamb prices higher, hay below $200 per ton and extreme drought
areas shrinking nationally.
• However, a historic drought in California has eroded grazing pasture and
threatened much-need water for raising sheep. Some producers selling
off some ewes.
• USDA forecasted corn at the farm gate could range from $4.05 - $4.75
per bu. in its 2013/14 marketing year (12/2013).
• Many reports put corn around $4.40 per bu. in 2014.
While Producers/Feeders Profit, Returns Less
Certain at Wholesale and Retail
• Global meat consumption growth is forecast at a modest +1.5%
(International Meat Secretariat, 1/2014).
• In December, consumers reported that their primary challenge was
finding affordable foods to fit within their budget, (Food Demand Survey
(FooDS), Oklahoma State University. 12/2013).
• Tight budgets and slow income and job growth will restrict price
increases at retail and challenge lamb demand.
• “There is a continued cautiousness of the meat sector: with serious
consumer and retailer price resistance,” (The International Meat
Secretariat, 1/2014)
Can excellent lamb quality trump other lamb
demand factors in 2014?
Lovers of Lamb
Appreciate Excellent
Lamb Quality
Price of Substitute
Proteins Still High
Incomes
Sluggish, but
Gaining
Lamb
Demand
Expansion?