Third Quarter November 2012 - Lamb Check Off > American Lamb

Report
Prepared by the
American Sheep Industry Association
for the American Lamb Board
November 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
Executive Summary
2012 has been a tumultuous year for the lamb industry with a dramatic loss in value for
feeder and slaughter lambs, lower meat prices, high feed costs and backed up lambs in
feedlots.
Retail and wholesale lamb prices hit record highs last November, putting pressure on
consumers. Consumers rebelled at the higher price point and retail and foodservice
orders began to slow. Consequently, lambs on feed began to get backed up and got
heavier. It wasn’t until early November 2012 that reportedly Old Crop lambs were
“cleaned up.” Through 2012 consumer income growth and consumer expenditures grew
slowly; insufficient advances to put the much-needed boost back into lamb demand.
The recent U.S. Department of Agricultural lamb purchase program and good sales
through the December holidays should get the feedlots back to current weights and
move inventories product. 2013 will likely see tight slaughter lamb supplies, reduced
slaughter weights and lower production. Even with higher feed costs, feeder lamb prices
could rebound with accelerated consumer income growth.
Feeder lamb prices took the brunt of the market downturn in the past year. Feeder lamb
prices at auction hit $99 per cwt. in September—the lowest level in four years. It was a
little over a year, May 2011, when we saw the record $228 per cwt. average at auction.
In the third quarter, the 3-market feeder lamb auction price saw a 44-percent quarterly
decline and a 53-percent year-on-year drop.
Executive Summary, page 2
Feeder lamb prices in direct trade hit a three-year low in the third quarter. Feeder
lambs averaged $105.87 per cwt., 27-percent lower quarterly and 53-percent lower
year-on-year. Feeder offers were constrained by high feed costs, uncertain slaughter
dates and great uncertainty in the slaughter lamb market.
In 2012 the U.S. lamb industry had a lot more product to take to market then the
market was accepting at those prices. Total lamb availability to consumers through
August (in which last import data is available) was down 1% year-to-year to 184.34
million lbs. While domestic production was up 4% in this period, imported product
shrank 6%. Lower lamb supplies suggest higher prices at foodservice and retail, not
lower. Consumer lamb demand apparently faltered. Lamb prices in retail grocery
features saw an estimated 5% drop in the past year.
Slaughter lamb prices at auction saw a 15-month downward slide by September.
Live, slaughter lamb prices at auction lost 30% to $98.20 per cwt. between quarters
and lost 45% year-to-year. Slaughter lamb prices on a carcass-based formula
averaged $251.11 per cwt. ($127.83 per cwt. live-converted) in the third quarter,
down 17% quarterly, and down 33% year-on-year.
A concern among many industry proponents is that the meat market doesn’t seem
to have fared as bad as the feeder and slaughter lamb market in this current
downturn. Carcass prices averaged $313.30 per cwt. in the third quarter, 14-percent
lower quarterly and a down 19% from a year ago. The gross carcass value averaged
$322.24 per cwt., down 10% quarterly and down 21% year-to-year.
Executive Summary, page 3
All primals weakened through the year. The loins, leg and shoulder saw muted
losses at wholesale compared to the losses experienced by the higher-valued rack.
The rack averaged $593.20 per cwt., down 13% quarterly and down 34% year-onyear. Loins, trimmed 4x4, averaged $543.54 per cwt., up 4% quarterly and down
6% year-to-year. The leg averaged $358.37 per cwt. in the third quarter, down 14%
quarterly and down 16% year-to-year. The shoulder averaged $231.38 per cwt. in
the third quarter, down 8% quarterly and down 26% year-on-year.
Relative to the primals, ground lamb held its value for much of 2012 before
weakening in the summer. Ground lamb averaged $552.42 per cwt. in the third
quarter, down 7% quarterly and down 6% year-on-year.
• The 3-market feeder lamb auction price saw a 44-percent
quarterly decline to $102.13/cwt., down 53% year-onyear.
• Markets included San Angelo, Ft. Collins and Sioux Falls.
• Prices not established in Ft. Collins in September.
• Prices averaged $112.21/cwt. in July, $94.48/cwt. in
Aug. and $99.69/cwt. in Sept.
Feeders Hit a Three-Year Low
Feeder Lambs in Direct Trade Averaged
$105.87/cwt., 27% Lower Quarterly, 53%
Lower Year-on-Year
Feed Costs Still High
• Corn averaged $6.36 per bu. in its 2011/12 marketing year through
August, 15% higher year-to-year.
• Corn averaged $6.37 per bu. in June, $7.14 per bu. in July and $7.63
per bu. in Aug.
• Alfalfa averaged $202 per ton in Q3, 3% lower quarterly, 4% higher
year-on-year.
• Alfalfa averaged $198 per ton in July, $203 per ton in Aug. and $205
per ton in Sept.
• Live, slaughter lamb prices at auction lost 30% to
$98.20/cwt. between quarters and lost 45% year-toyear.
• Prices averaged $108.93/cwt. in July, $98.15/cwt. in
Aug. and $87.53/cwt. in Sept.
• At 140,400 head, formula trades were up 3% quarterly and up 68%
year-on-year.
• Slaughter lamb prices on a carcass-based formula averaged
$251.11/cwt. ($127.83/cwt. live-converted) in Q3, down 17%
quarterly and down 33% year-on-year.
• Weighted-average prices were $268.84/cwt. in July, $251.85/cwt.
in Aug. and $232.65/cwt. in Sept.
Heavier-Carcass Discount Widened
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 and possible
continued, but slow, income growth.
• The ALB is challenged to boost consumer preference
for lamb through continued taste samplings and
promotions.
• From 2000 to 2010, population growth in the United States was driven
almost exclusively by racial and ethnic minorities (Pew Research Center).
• Middle Eastern and Eastern European prioritize lamb quality (Williams,
Capps, 2011) and will react to lamb promotions which will help boost
demand.
• Hispanics were responsible for 56% of the nation's population growth over
the past decade.
• Hispanics will respond to lower-priced lamb (Williams, Capps, 2011).
• Ethnic groups consume 58% of lamb (Williams, Capps, 2011).
Higher Trending Beef Prices Support Lamb
Demand
• Inflation-adjusted
per capita
disposable
income gained
0.7% and 0.6%
in the first two
quarters of
2012, after three
quarters of
contractions.
• These volatile times means any price forecast should be used with
caution.
• In mid-October LMIC forecasted: Slaughter lambs on a carcass-based
formula and feeder lamb prices could fall 25% to 46% year-to-year,
respectively.
• By Q1 slaughter lamb prices could range from $285-$295 per cwt.,
12% lower year-to-year.
• By Q1 60-90 lb. 3-market ave. (CO, SD, TX) feeders could range
from $135-$145 per cwt., down 34% year-to-year.
• In 2012 seasonality in price trends was trumped by a
backlog of market-ready lambs and lower consumer
demand.
• The predictive power of seasonal analysis might thus be
compromised.
• 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 drought-inflicted 2012 corn crop is forecasted to be the lowest in six
years.
• USDA reported that September U.S. corn stocks were 988 million bushels, the
lowest carryout since 1995/96.
• The USDA Economic Research Service forecasted the 2012/13 corn average
at $7.10-$8.50 per bu.
• Higher corn forecasts were partly explained by lower-than-expected early
season cash and futures prices.
•
• Carcass prices averaged $313.30/cwt. in Q3,
14-percent lower quarterly and down 19% from a year ago.
• Carcass price was $333.46/cwt. in July, $313.21/cwt. in
Aug. and $293.22/cwt. in Sept.
• Yield Grade determination is positively correlated with
heavier slaughter lambs and increased deposits of back
fat.
• Yield Grade 1 & 2 in lbs. was 27% of total slaughter in
May –the lowest level since late 2005--but rose to 37%
by August.
• 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%
1-8/2012
5%
28%
36%
19%
13%
Q3 Gross Carcass Value
(Wholesale Average) Weakened Quarterly
and Year-to-Year
• The gross carcass value averaged $322.24/cwt. in Q3,
down 10% quarterly and down 21% year-to-year.
• Gross carcass price was $332.95/cwt. in July,
$320.18/cwt. in Aug. and $313.59/cwt. in Sept.
Third-Quarter Gross Carcass Value was 7%
Higher than its 5-Year Average
• The rack averaged $593.20/cwt. in Q3, down 13%
quarterly and down 34% year-on-year.
• The rack was $625/cwt. in July, $592.83/cwt. in Aug. and
$561.78/cwt. in Sept.
• Loins, trimmed 4x4, averaged $543.54/cwt., up 4% quarterly
and down 6% year-to-year.
• Loins were $550.57/cwt. in July, $544.56/cwt. in Aug. and
$535.50/cwt. in Sept.
• The leg averaged $358.37/cwt. in Q3, down 14%
quarterly and down 16% year-to-year.
• The leg was $376.49/cwt. in July, $357.52/cwt. in Aug.
and $341.12/cwt. in Sept.
• The shoulder averaged $231.38/cwt. in Q3, down 8%
quarterly and down 26% year-on-year.
• The shoulder was $230.34/cwt. in July, $224.58/cwt.
in Aug. and $239.21/cwt. in Sept.
• Ground lamb averaged $552.42/cwt. in Q3, down 7%
quarterly and down 6% year-on-year.
• When wholesale prices drop, retailers are reluctant to drop prices, but
will increase featuring.
• Feature activity was up 19% from September 2011 to mid-October
2012.
• Prices listed in lamb features were down 5% over this same period to
mid-October.
• Product and quality wasn’t necessarily constant over this period. Mix of
products at retail could have changed over time.
• The rack-loin price spread fell 69% in Q3 to
$0.60 per lb., down 84% year-on-year.
• Industry still killing Old Crop (OC) lambs in October when OC
lambs typically finished slaughtering by mid-summer.
• Producers losing an estimated $65 per cwt. or $264 per
head.
• September estimated break-even was $163 to $176 per cwt.
compared to a price range of $88 to $119 per cwt. (auction & liveconverted formula slaughter lamb price).
Item
Cost
1. Total cost of feeder (92.5-lb. feeder @ $197 per
cwt. in Nov./Dec. 2011)
$182/head
2. Average Freight from CA, TX, ID
$6.00/head
3. Cost of Gain in Colorado feedlot
(162.5 lbs. gained @ $1.40/lb. to 255 lbs.)
$228/head
4. Break-even price of slaughter lamb @ 255 lbs.
$416/head
Break-Even
$163/cwt.
Item
Cost
1. Total cost of feeder (92.5-lb. feeder @ $197 per
cwt. in Nov./Dec. 2011)
$182/head
2. Average Freight from CA, TX, ID
$6.00/head
3. Cost of Gain in Colorado feedlot
(162.5 lbs. gained @ $1.60/lb. to 255 lbs.)
$260/head
4. Break-even price of slaughter lamb @ 255 lbs.
$448/head
Break-Even
$176/cwt.
• Margins do not include packer costs: Lamb sale
value minus its purchase value.
• Positive margins partly because the value of live
slaughter lambs fell more sharply than carcass &
cutout values.
The live to carcass price spread averaged $99
per head, up 16% quarterly and up 128%
year-to-year.
• The mid-year carcass value exceeded the cutout.
• In Q3, the cutout halted its downward fall and
held steady--even increased in some weeks--while
the carcass continued its weakening trend.
Carcass to cutout spread was $6/head in
Q3, up from -$7/head and down 56% yearon-year.
• The Agricultural Marketing Service reported that the October pelt
trade was light to moderate with some interest in top quality large
square footage pelts (USDA/AMS, 10/2012).
• Fall Clips were $12.90 per piece in Q3, down 15% quarterly and
down 30% year-to-year.
• No. 1 pelts were $10.48 per piece in Q3, down 24% quarterly and
down 32% year-to-year.
• Recall pelt prices are prices received by packers for slaughter lambs
processed.
• Q3 ewe prices not well tested: Not reported in either July
or August.
• In September, ewes averaged $138.32 per head, down
36% year-on-year. The high was $216 per head for 12-14
month yearling ewes and the low was $68 per head for
aged ewes.
• In Q3, rams were about 34% lower than a year ago.
Black-faced rams averaged $694 per head and whitefaced rams brought $930 per head.
• At 1.43 million head, commercial slaughter was down 1%
through August year-to-year.
• Live slaughter weights were up 3% through August to 146 lbs.
• Heavier weights boosted production.
• Production was 101.2 million lbs., up 6% through August yearto-year.
• Australian lamb imports through Aug. were 60.9 Mill. Lbs., Down
1% Year-to-Year
• Through Aug., NZ’s lamb imports were 25.8 Mill. Lbs., Down
16% Year-to-Year
Mutton Imports Sharply
Lower Year-to-Year
• At 14.2 million lbs., mutton imports were 50% lower
though August compared to the same period a year
ago.
• Mutton imports from Australia were 9.6 million lbs.,
down 27% in this period.
• New Zealand mutton imports were down 69% to 4.6
million lbs.
• At 198,000 lbs., lamb exports were down 68% through August year-to-year.
• Mutton exports totaled 6.6 million lbs. through August, down 46% year-on-year.
617
198
-68%
12,173
6,553
-46%
12,790
6,751
-47%
• U.S. live sheep exports to Mexico were zero
through August. Last live exports to Mexico
were in early November 2011.
• Live exports to Canada were down 15%
through August to 28,913 head.
Total Lamb Availability Contracted Through August
Compared to a Year Ago
• Through August, total lamb availability (imports plus domestic
production, subtracting exported lamb) was 184.34 million
lbs., down 1% year-on-year.
• Through August, U.S. domestic lamb supplies were up 4%
year-to-year and lamb imports were down 6%.
Total Lamb Availability Contracted an
Annual Average of 3% from 2007 to 2011
• In the eight months through Aug., domestic lamb
market share was 53%, up 4% year-to-year.
• Through Aug., domestic lamb & mutton market
share was 51%, up 11% year-to-year.
• Through Aug, domestic mutton market share was
33%, up 25% year-on-year.
• 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.
Note: 1.) Imported product is lighter weight.
2.) Prices reported in Commerce data could be established in
forward pricing.
Insufficient Partial Boneless Prices for Comparison
• A weakened dollar means U.S. importers must now pay
more for a unit of foreign currency, which increases
prices to U.S. consumers.
• Sustained--albeit weak--U.S. economic growth and signs
of housing sector recovery could add strength to U.S.
dollar.
• In Q3 the U.S./Australian dollar was $1.04, up 3%
quarterly and down 1% year-to-year.
• In Q3 the U.S./New Zealand dollar hit $0.809, up 2%
quarterly and down 3% year-to-year.

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