Transcript Slide 1

Second-Quarter 2013
Sheep Industry Review
Prepared by
American Sheep Industry Association
for the American Lamb Board
July 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
Retail Feature Activity
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
The lamb industry is finding it footing after record-high prices in 2011 followed by a
record collapse in 2012. In 2013, the carcass market was flat, the wholesale market
continued to lose value—albeit at a slower pace—and the feeder and slaughter lamb
markets were down 25% to 42% from a year ago.
This year the industry is challenged to keep the slaughter chain moving and maintain
quality, while facing a surge of imports at retail. Lamb imports totaled 63.5 million lbs. in
January through May – up 17% year-to-year.
A combination of forces prompted the influx of lamb imports. Meat and Livestock
Australia reported that widespread dry conditions across most sheep growing regions and
heavier weights over the past five years prompted high slaughter and production
(7/5/13). Sheep and lamb slaughter from January to May was at a three-year high.
Coupled with increased Australian production has been the recent strengthening of the
U.S. dollar against the Australian dollar. Since January, the Australian dollar lost 12%
against the US$ to land at 94 Australian cents per USD. It is anticipated that the
Australian dollar will fall even further.
In January through May, total lamb availability (imports plus domestic production,
subtracting exported lamb) in the U.S. was 124.7 million lbs., up 8% year-on-year.
However, cold storage stocks were still high. When cold storage is subtracted from
disappearance, a downward trend is 2013 availability is revealed. Uncertainty prevails in
estimating volume marketed: We don’t know what percent of cold storage is imported
product.
Executive Summary, page 2
In July a light supply of old and new crop lambs continued to move to market out of
Colorado feedlots. Tight domestic supplies in the third quarter, coupled with a
slowdown in imports will help support both feeder and slaughter lamb prices in
coming months.
In early July, LMIC forecasted that third-quarter national direct slaughter lambs on a
carcass weight could range from $235 to $245 per cwt., up from an estimated $225
per cwt. in the second quarter, but down 5% year-on-year.
Sixty- to 90-lb. 3-market feeder lamb prices at auction were forecasted to range
between $125 and $135 per cwt., up 29 percent from a year ago and up from an
estimated $114 per cwt. in the second quarter.
Through July and into early August, the Muslim observance of Ramadan will likely
encourage increased retail lamb featuring activity. In early July, the New Holland
auction saw an uptick in slaughter lamb prices.
Feeder & Slaughter Lamb Markets
The 3-market feeder lamb auction price saw a 29-percent quarterly drop to
$114.01/cwt., down 42% year-on-year. Markets included San Angelo, Ft. Collins and
Sioux Falls.
Executive Summary, page 3
Feeder lambs in direct trade averaged $98.65 per cwt. in the second quarter, down 10%
quarterly and down 32% year-to-year.
Live, slaughter lamb prices at auction lost 6% quarterly to $109.20/cwt. and lost 27%
from $141/cwt. a year ago. Slaughter lamb prices on a carcass-based formula averaged
$224.87/cwt. ($112.21/cwt. live-converted) in the second quarter, down 0.5%
quarterly and down 25% year-on-year.
Feedstuffs remained high into the second quarter with minimal relief. Corn averaged
$6.99 per bu., down 1% quarterly and up 10% year-on-year. High cost of gain meant
weights going into feedlots were lower in 2013 over 2012.
Weighted average carcass prices were $249.67/cwt. in the second quarter, 0.5% lower
quarterly and down 24% from a year ago. The gross carcass value averaged
$284.88/cwt. in the second quarter, down 2% quarterly and down 20% year-to-year.
Federally-inspected slaughter lamb weights averaged 142 lbs. in the second quarter,
down 7% year-on-year. Yield Grade 4 & 5 in lbs. was 24% of total slaughter in the firsthalf 2013 compared to 30% in 2012.
I.
Feeder and Slaughter Lamb
Market Trends
Auction Feeder Lamb (60- to 90-lb.)
Prices Down 42% in a Year

The 3-market feeder lamb auction price saw a 29-percent
quarterly drop to $114.01/cwt., down 42% year-on-year.

Markets included San Angelo, Ft. Collins and Sioux Falls.

Prices averaged $120.34/cwt. in April, $116/cwt. in May and
$105.70/cwt. in June.
Three Markets Mostly Move Together
Feeder Lambs in Direct Trade
Fell Quarterly
o Feeder lambs averaged $98.65 per cwt. in Q2,
down 10% quarterly, and down 32% year-toyear.
o Feeders averaged $97.92/cwt. in April,
$100.71/cwt. in May and $97.31/cwt. in June.
Feeders in Direct Trade Down 57% in
Value from Record High
105.87
97.99
-0.07
Q2 Volume of Direct Feeder Lambs Down 10%
Quarterly to 55,350 Head; Down 32% Year-toYear
45,100
-32.24%
55,350
-9.98%
Feed Costs Still High Historically
 Corn averaged $6.99 per bu. in Q2, down 1%
quarterly and up 10% year-on-year.
 Corn averaged $6.97 per bu. in April, $6.97
per bu. in May and $7.02 per bu. in June.
Goodbye $2 Corn
 Alfalfa averaged $217.33 per ton in the quarter ending
April (season’s end), up 0.5% quarterly and 8% higher
year-to-year.
 Alfalfa was $218 per ton in April, $219 per ton in May and
$215 per ton in June.
Auction Slaughter Lamb Prices
Weakened Quarterly

Live, slaughter lamb prices at auction lost 6%
quarterly to $102.53/cwt. and lost 27% from
$141/cwt. a year ago.

Prices averaged $98.59/cwt. in April,
$101.88/cwt. in May and $107.13/cwt. in June.
Auction Slaughter Lamb Prices Over Time
Q2 Auction Slaughter Lambs on Par with 2009
Carcass-Based Formula Slaughter Lamb Prices Up
Quarterly & Down Year-to-Year

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 $224.87/cwt. ($112.21/cwt. live-converted)
in Q2, down 0.5% quarterly and down 25% yearon-year.

Weighted-average prices were $227/cwt. in April,
$222.76/cwt. in May and $224.85/cwt. in June.
Second-Quarter Slaughter Lamb Prices
on Formula Hit a 4-Year Low
Auction Slaughter Lamb Still Lower than
Slaughter Lamb Prices on Formula
Weight Helps Defines Value
The “market” is selecting for value and cost
minimization: Reduced $ for heavies.
-- Heavier lambs often have higher fabrication costs.
II.
Feeder and Slaughter Lamb
Price Projections
Feeder & Slaughter Lamb Q3 Forecasts

LMIC early July forecast:

National direct slaughter lambs on a carcass weight: $235 to $245 per
cwt., up from $225 per cwt. quarterly, but down 5% year-on-year.

Sixty- to 90-lb. 3-market (CO, SD, TX) feeder lamb prices at auction:
$125 and $135 per cwt., up 29% from a year ago and up from an
estimated $114 per cwt. in Q2.

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.

During the summer, slaughter lamb supplies tighten,
supporting prices. The third quarter is typically the highestpriced quarter.

When feeders come to market in the fall and supplies
increase, prices tend to weaken.

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.
Slaughter lambs on formula are expected to gain onehalf percent in Q3 quarterly.
LMIC forecasted tight supplies and lower imports could
provide even stronger Q3 price support.
In Q3, feeder lambs at auction could weaken by 8%
from the second quarter by historical trend.
LMIC forecast differed: prices expected to gain in Q3
LMIC Forecasted Sharp Q3 Production
Contraction

Q3 commercial slaughter numbers could slow 6% quarterly,
3% below a year ago.

Estimated commercial lamb supplies on feed in Colorado were
the lowest going into Q3 in 5 years.

This forecasted quarterly slaughter drop is the largest in over 5
years.

At the LMIC-forecasted Q3 dressed weight of 66 lbs., lower
slaughter weights will translate into much lower production.

Production is estimated to fall 10% quarterly and 9% year-onyear.
Lamb Demand Forecast?
Tighter Q3 Supplies,
Strong Beef Prices (Although a bit softer),
Stronger Income Growth, and
Quality Consistency
….Could Support Lamb Demand
**Demand growth is key to stronger prices.
Slowly, but Surely Real Incomes Making a
Sustained Come Back
Source: U.S. Dept. of Commerce
Weaker Beef Prices
Could Hurt Lamb Demand
All fresh retail beef was $487.97 per cwt. in Q2,
down 1% quarterly, up 5% year-on-year.
487.97
-0.68%
466.91
4.51%
Relief in Sight for
High Lamb Feed Costs

Likely significant yield growth over last year and modest
acreage expansion drive corn price forecasts lower.

The LMIC forecast is currently at $4.60 per bushel, down 33%
from 2012-13.

The farm price for corn in 2012/13 is estimated at $6.75 to $7.15.
The projected price range for 2013/14 is $4.40 to $5.20 per
bushel (USDA, 7/15/13).

Improved pasture & range conditions and lower-priced
competing feed could mean softer hay prices this year (LMIC,
6/2013).
Lower Feeders, Stable Feed
Helped Improve Margins

Recall the breakeven analysis is only one snapshot of
feedlot marketing.

In April/early May, over 22,000 head traded out of CA at
$96.50/cwt. and 106 lbs.

July estimated break-even was $114 to $121 per cwt.
compared to $114 per cwt., the live-converted formula
carcass-based price.
Cost of gain increased marginally in Q2.
Sensitivity Break-Even Analysis A: July kill of
April/May California lambs with a $1.30 per lb. cost
of gain.
Item
1. Total cost of feeder (106-lb. feeder @ $96.50
per cwt. in April/May 2013)
2. Average Freight from California
3. Cost of Gain in Colorado feedlot
(61 lbs. gained @ $1.30/lb. to 167 lbs.)
4. Break-even price of slaughter lamb @ 167 lbs.
Break-Even
Cost
$102.30/head
$9.00/head
$79.30/head
$190.60/head
$114/cwt.
Sensitivity Break-Even Analysis B:
July kill of April/May California lambs with a $1.50
per lb. cost of gain.
Item
Cost
1. Total cost of feeder (106-lb. feeder @ $96.50 per
cwt. in April/May 2013)
$102.30/head
2. Average Freight from California
3. Cost of Gain in Colorado feedlot
(61 lbs. gained @ $1.50/lb. to 167 lbs.)
4. Break-even price of slaughter lamb @ 167 lbs.
Break-Even
$9.00/head
$91.50/head
$202.80/head
$121/cwt.
III.
Carcass and Boxed Lamb
Market Trends
Carcass Prices Down 35% from Record High
Weighted average carcass price averaged
$249.67/cwt. in Q2, 0.5% lower quarterly and
down 24% from a year ago.

Carcass price was
$247.99/cwt. in
April, $249.73/cwt.
in May and
$251.29/cwt. in
June.
2013 Carcass Market Flat
Carcasses Trimmer: YG 4s and 5s Coming
Down

Yield Grade determination is positively correlated
with heavier slaughter lambs and increased
deposits of back fat.

Yield Grade 4 & 5 in lbs. was 24% of total slaughter
in the first-half 2013 compared to 30% in 2012.
YG 4s and 5s Coming Down
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%
1st Half
2013
7%
36%
33%
15%
8%
Q1 Gross Carcass Value
(Wholesale Average) Weakened Quarterly
and Year-to-Year

The gross carcass value averaged $284.88/cwt. in
Q2, down 2% quarterly and down 20% year-toyear.

Gross carcass value was $288.76/cwt. in April,
$283.13/cwt. in May and $282.76/cwt. in June.
Wholesale Rack Gained in Late Q2

The rack averaged
$509.30/cwt. in Q2, down
0.25% quarterly and
down 25% year-on-year.

The rack was $510.25/cwt.
in April, $501.97/cwt. in
May and $515.68/cwt. in
June.
Q2 Loins Down Quarterly

Loins, trimmed 4x4,
averaged $452.11/cwt.,
down 1% quarterly and
down 13% year-to-year.

Loins were $450.22/cwt.
in April, $450.50/cwt. in
May and $455.60/cwt.
in June.
Leg, Trotter-Off, Down
Quarterly & Down Year-to-Year

The leg averaged
$314.89/cwt. in Q2,
down 2% quarterly
and down 24% yearto-year.

The leg was
$322.38/cwt. in
April, $312.48/cwt.
in May and
$309.81/cwt. in June.
Shoulder Lost Greatest % Among
Primals in Q2

The shoulder averaged
$231.05/cwt. in Q2, down
4% quarterly and down
8% year-on-year.

The shoulder was
$236.44/cwt. in April,
$232.01/cwt. in May and
$224.71/cwt. in June.
Ground Lamb Gained in Q1, Lost in Q2


Ground lamb
averaged
$531.81/cwt. in Q2,
down 2% quarterly
and down 10% yearon-year.
Ground lamb was
$528.17/cwt. in
April, $531.89/cwt.
in May and
$535.38/cwt. in June.
530.76
540.61
1.86%
588.75
-8.18%
IV.
Retail Feature Activity
Retail Prices Lower in 2013 Year-on-Year

Feature activity in Q2 was down 18% quarterly and up 9%
year-to-year.

Prices listed in lamb features averaged $6.52 per lb. in Q2,
down 6% quarterly and down 6% year-to-year (USDA/AMS,
7/13).

Product and quality wasn’t necessarily constant over this
period.

Mix of products at retail could have changed over time.
Summer Grilling More Competitive

Loin chops averaged $9.21 per lb. in June,
down 9% year-on-year.

Shoulder blade chops were $4.90 per lb.,
down 44% year-on-year.

Shoulder round bone chops averaged
$5.68 per lb., down 32% year-on-year.
Ramadan Takes Center Page
--Feature ads increased generally through June & July.
--“The religious holiday was noted in several ads
throughout the northeast,” (USDA/AMS, 7/12/2013).
--“Retailers focused on popular shoulder and loin
chops,” (USDA/AMS, 7/12/2013).
-- In late July, the rack received a boost in featuring.
V.
Price Spreads
The Rack-Loin Price Spread
Gained Quarterly
The rack-loin price spread averaged $0.57 per cwt. in
Q2, up 10% quarterly and down 64% year-to-year.
 The loins fell sharper than the rack in Q2.

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.
The live to carcass price spread averaged $46.27
per head, up 21% quarterly and down 8% yearto-year.
-- In Q2, slaughter lamb prices up, carcass down.
Live to cutout spread was $72 per head, up 6%
quarterly and down 9% year-to-year.
-- Live lambs were up while the cutout lost value in Q2.
Carcass to cutout spread was $25 per head in
Q2, down 12% quarterly and down 9% year-onyear.
--The cutout fell 2% while the carcass lost under 1%.
VI. Pelts
Late-Quarter Lighter Demand Prompted
Supply Increases

Prices fell in June as light end-user demand caused
build-up in supplies (USDA/AMS, 6/2013).

Fall Clips were $13.99 per piece in Q2, up 6%
quarterly and down 8% year-to-year.

No. 1 pelts were $10.90 per piece in Q2, down 0.06%
quarterly and down 21% year-to-year.
Recall pelt prices are prices received by packers
for pelts from slaughter lambs processed.
VII. Replacement
Sheep
April Replacement Ewes Down 49%
Year-to-Year

May and June prices not established.

In April:
Ewes:

2-4 years: $125 per head,

5-6 years: $94 per head,

over 6 years: $70 per head.
Rams:

black-faced rams at $523 per head,

$531 per head for white-faced,

$470 per head for crossed.
VIII.
Domestic Production and
Trade
Estimated Lamb Production
About Steady with a Year Ago

In the first-half of
the year, estimated
lamb slaughter
was up 6% yearon-year.

Production was
494,319 lbs. in Q2,
up 0.3% quarterly
and down 1%
year-to-year.
Slaughter weights in Q2 held at 142 lbs.,
down 7% from 153 lbs. a year ago.
-- Weights on formula lambs averaged 167 lbs., up 4% quarterly &
down 7% year-on-year.
Q2 Cold Storage Averaged 20 Mill. Lbs. Monthly, Up
0.3% Quarterly and Down 2% Year-on-Year
-- Recall that some portion of cold storage is imported product.
At 78.5 million lbs., lamb and mutton
imports in Jan.-May was 24% higher yearon-year.
65,620
31.0%
Lamb Imports Totaled 63.5 Mill. Lbs. in
Jan. to May – Up 17% Year-to-Year
Lamb Imports Higher Each
2013 Month Except May

Australian lamb imports in Jan.-May were 42.9 mill.
lbs., up 18% year-to-year.

NZ’s lamb imports were 20.5 mill. lbs., up 17% yearto-year.
Mutton Imports Sharply
Higher Year-on-Year

At 15 million lbs., mutton imports were 63%
higher in Jan.-May compared to a year earlier.

Mutton imports from Australia were 10.2 million
lbs. in Jan.-May, up 57% year-to-year.

New Zealand mutton imports were up 68% to 4.6
million lbs. in this period.
Lamb Exports Shot Up in May
--Lamb & Mutton Exports were 3.8 Million Lbs. in Jan.May, down 14% Year-on-Year

At 263,000 lbs., lamb exports were up 80% in Jan.May year-to-year.

Mutton exports totaled 3.6 million lbs. in Jan.-May,
down 17% year-on-year.
Total Live Sheep Exports Down 29%
Year-to-Year thru May to 14,107 Head

U.S. live sheep exports to Mexico were
8,485 head in Jan.-May, 124% higher
quarterly and compared to 0 head a year
ago.

At 4,408 head, live exports to Canada
were down 79% year-to-year.
Cull Ewe Prices Lowest Since 2009
San Angelo ewe prices averaged $32.93 per cwt. in Q2, down 37%
quarterly and down 39% year-on-year.
IX.
Nontraditional Market
Nontraditional Market
Weakened in Q2

The nontraditional market is often characterized by
a lighter-weight lamb, around 100 lbs., but very
variable depending upon customer.

The nontraditional market is comprised of lambs
sold direct to consumers.

The largest nontraditional markets are the
livestock auctions at New Holland, PA and San
Angelo, TX, but nontraditional markets exists
across most auctions.
The New Holland, PA nontraditional auction
market averaged $128.38/cwt. in Q2, down 6%
quarterly and down 26% year-to-year.
X.
Total Lamb and Mutton
Availability
Total Lamb Availability Up
Through May Year-on-Year

In Jan.-May total lamb availability (imports plus domestic
production, subtracting exported lamb) was 124.7 million
lbs., up 8% year-on-year.

In this time, U.S. domestic lamb supplies were up 1% to
61.1 million lbs. compared to a year ago.

Imports were up 17% year-to-year to 63.5 million lbs.

Note: These figures do not include the nontraditional
market estimated volume.
Lamb Availability Trending Up?
We Don’t Really Know How
Much Product is on the Market
--When cold storage is subtracted,
availability trends down in 2013.
U.S. Lamb Dipped Below 50%

In Jan.-May:
Domestic lamb market share was 49%, down
from 53% year-on-year.
Domestic lamb & mutton market share was
43%, down from 51% year-to-year.
Domestic mutton market share was 16%, down
from 29% a year ago.
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.
Imported Cuts Follow General
Trend of U.S. Cuts
-- Recall imported product is lighter weight.
Price Comparison with
Imports is Tricky
Caveats:
1. Imported product might be sitting in cold
storage and not competing 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. Leg Weakened through May;
Imports Higher, Volatile
U.S. Leg More Competitive than
Imports;
Imported Price Premium Grew in 2013
U.S. Rack Still Higher-Priced but Gained
Competitiveness in 2013
–Note weight differences: U.S. rack 1.5-3 lbs. and
imported rack 28 oz.+
U.S. Rack Gaining
Competitiveness in 2013
U.S. Gained Competitiveness in the Loins in 2013
as its Price Continued to Weaken; Imports Higher
Apr/May U.S. Loins Still More
Competitive, but Lost Some Edge
Imported Shortloins Comparison with
U.S. Loins under MPR
Shoulder Competitiveness Improved:
Imported Shoulder Gained & Domestic
Shoulder Weakened in Q2
XII. Exchange Rates
The US$ Strengthened Against the A$ in 2013:
Making Imports Relatively More Competitive
Since Jan., the Australian
dollar lost 12% against
the US$.
In Q2 the U.S./Australian
dollar fell 5% quarterly to
$0.99 and down 2% yearon-year.
In Q2 the U.S./New
Zealand dollar hit $0.82,
down 2% quarterly and
up 4% year-to-year.