Sheep production forecasted to rise in 2005

Cattle Market & Farm Reports, Editorials
Sep 13, 2004
by WLJ
By Dr. Julie Stepanek Shiflett
Juniper Economic Consulting

USDA's Economic Research Service (ERS) expects to see production increases in 2005 from 194 million pounds this year to 197 million pounds in 2005. The numbers may be revised downward, given the recently released report that inventory is down. However, production gains still are likely.
As of July 1, year-to-year total sheep and lamb inventory is down almost two percent, from 7.8 million in mid-2003 to 7.65 million in mid-2004. However, the rate of decline in inventory is slowing—in the mid- to late-1990s, the year-to-year decline in inventory was roughly between four and five percent. Beginning in 2001, the average annual decline was 2.6 percent.
The numbers of ewe lambs that have been held back since the beginning of the USDA's ewe-lamb retention program added to those currently being held back means we should expect to see more lambs on the market beginning next spring. According to ERS, one indicator that producers are not selling stock is the sharp drop in production since Easter of this year, despite the fact that prices remained high. Although seasonal slow-down is expected, the significant production drop has led ERS to surmise that producers think higher prices will persist, and they are therefore holding back lambs.
Overall, the market is primed for inventory gains: feeder- and slaughter-lamb prices are high and demand is stable. Driven by strong demand and tight supplies, feeder- and slaughter-lamb prices remained high through July. San Angelo slaughter-lamb prices averaged $92.90 per cwt in May, $97.50 per cwt in June, and $100.13 per cwt in July. During the first-half of 2004, slaughter-lamb prices averaged $98.22 per cwt, compared to $93.07 per cwt during the same period in 2003.
Year-to-year and seasonal feeder-lamb prices remained high in July. Between June and July, San Angelo feeder-lamb prices held steady, at $112 per cwt, but above $97.93 per cwt, the average price last July. After the spring holidays, feeder-lamb prices began to weaken seasonally, from close to $121 per cwt in April to $112 per cwt in July. Price pressure on feeder lambs may ease in the fall because corn prices weakened recently due to good to excellent growing conditions and forecasted record production. In July, Omaha corn fell from $2.33 per bu to $2.17 per bu.
Speculation of weakening pelt prices may put pressure on boxed lamb prices in the next couple of months. It is thought that pelt demand may slow because buyers are reluctant to pay current prices, although pelt prices remained strong in recent months.
Gross carcass value dropped between June and July, from $235.91 per cwt to $229.58 per cwt Boxed prices were mixed in response. The middle meats lost value, leg prices dropped and shoulders increased. The rack fell from $526.91 to $513.33 per cwt, loins dropped from $460.95 per cwt to $456.42 per cwt, legs dropped from $231.04 per cwt to $214.56 per cwt, and shoulders rose from $167.27 per cwt to $171.35 per cwt.
Between April and May, the average feature-weight price of lamb (domestic and imported) rose from $4.23 per lb. to $5.06 per lb. Between January and May, the average feature-weighted retail price was $4.84 per lb., up year-to-year from $4.37 per lb. The feature-weighted average price of domestic lamb was $4.83 per lb. between January to May, compared to $4.89 per lb for imported lamb.
Domestic lamb prices increased from $4.56 per lb. in March, to $4.86 per lb. in April, and to $4.98 lb. in May. The five-month, January-to-May domestic retail price averaged $4.83 per lb., up from $4.38 per lb. over the same period in 2003. Imported lamb prices decreased from $4.87 per lb. in March, to $4.54 per lb. in April, and to $5.01 per lb. in May. The five-month January-to-May 2004 imported retail price averaged $4.89 per lb., up from $4.35 per lb. over the same period in 2003.
Overall, the volume of sales sold under featuring dropped in 2004. The January-to-May featuring percentage for domestic lamb was 15 percent, down year-to-year from 17 percent. Similarly for imports, the percent featuring was 24 percent this year, down year-to-year from 37 percent. Featuring may be down because margins are tight: Recent exchange rate movements worked against imports.
In July, the U.S. dollar versus the Australian and New Zealand dollars began to work against imports, yet imports remained strong. The USD/AUD was 0.77 USD/AUD in January and February, but strengthened to 0.69 USD/AUD in June, before falling to 0.72 USD/AUD during the first three weeks of July. The USD/NZD was 0.68 USD/NZD in January and February, before falling to 0.62 USD/NZD in May and June, and then falling to 0.65 USD/NZD during the first three weeks of July.
Lamb imports in May were 13.7 million lbs., up year-to-year from 11.4 million lbs. New Zealand surpassed Australia in the quantity of imports in May at 6.89 million lbs., compared to 6.76 million lbs. for Australia.
Although import prices are rising, the import share of lamb in our market continues to rise. In 2003, lamb imports averaged 42.5 percent of total lamb availability (domestic production and imports) and 48.5 percent in January to May 2004.
Year-to-year live and meat exports to Mexico were down sharply. In the first half of 2004, a total of 36,474 sheep and lamb head were exported to Mexico—down more than 50 percent from 90,112 during the same period in 2003. In May, more than 12,000 head were exported. However, that number dropped to 4,113 head in June and to about 1,500 head in July. Lamb variety meat exports to Mexico totaled $73,409 in January to May 2004, down from $693,026 in January to May 2003. During the same time period, year-to-year lamb variety meat exports to Mexico totaled 77 metric tons, down from 734 metric tons in 2003.
Preliminary research suggests that the demand for leg of lamb (‘whole' sub-primal or retail-ready leg) may have increased in recent years. Price increases are accompanied by increased sales and reduced featuring. Leg of lamb prices increased 10 percent between 2002 and 2003, and then three percent between 2003 and the first five months of 2004. Volume of sales fell seven percent between 2002 and 2003, but then rose 22 percent between 2003 and the first five months of 2004. Year-to-year volume of sales sold under featuring fell 36 percent between January through May 2004 (heightened demand months) and the previous year.
In Australia, lamb prices have risen sharply over the past three years. Strong export demand and the drought are helping to drive prices up. Sheepmeat Council Executive Director Bernie O'Sullivan reported, "there had been a 50 percent jump in the price of lamb at the butcher/supermarket in the past three years."
By contrast, strong demand has meant New Zealand is finding it difficult to fill customers' orders. In fact, one reporter commented, "Some New Zealand companies are using Australian lamb to supplement supplies. It fills the gap but it's ironic to be using their lamb in our hard-won markets." Recent inventory reductions and consequent tight supplies were attributed to adverse weather and competition from more other lucrative farming enterprises. However, a recent survey indicated that the sheep flock increased by 0.9 percent this year.Australian Wool Prices at Historic Highs
Medium and broad range Australian wool hit record highs on international markets in July. Although wool prices in Australian dollars fell in its 2003 and 2004 season, prices in U.S. dollars were relatively high due to exchange rate movements. The price of 21-micron wool has only been higher in three of the last 13 seasons. The price of 21-micron wool rose from 612 U.S. cents/kg (277.55 U.S. cents per lb.) to 622 U.S. cents per kg (282.09 U.S. cents per lb.) from mid- to late July.
Producers know they can capture price premiums on top of already high prices through improved management practices and wool presentation. In the United States, micron is the only routinely and widely recognized measure categorizing wool. However, there are a host of other factors important in the pricing wool as suggested by the broad range of prices reported for each grade in the USDA reports. For example, at the end of July the price of Grade 70s wool (19.15-20.59 microns) ranged from $2.30-$2.65 per lb. Differences in 35 cents per pound can be explained by the numerous not measured or non-measurable wool characteristics such as strength and presence of vegetable matter. Regional differences can also explain some of the price ranges.
Woolmark recently reported that in Australia, micron explains only half of price variation. Strength, staple measurement, length, style and color are also important factors in determining price. After micron, strength was most important in explaining price difference (15 percent) of 18.6-24.5 micron merino fleece wool.
If an internationally accepted systematic method of identifying and categorizing wool clips with non-measured characteristics is adopted in the U.S., its market will expand. This is because wool could increasingly be sold by description only, without a visual inspection. In addition, producers will be accurately rewarded for their pelts. The AWEX-ID system, a system used in Australia to describe non-measured qualities of wool, does just that
The AWEX-ID system is currently being introduced in the U.S. However, research has already been conducted on the premiums that are received for certain wool characteristics other than diameter. For example, research revealed that producers do receive a price premium if their wool is labeled with length and strength measurements.
The U.S. wool market was very slow in July. Most warehouses had already depleted their spring inventories. By the end of July, wool prices, clean, delivered, averaged Grade 70s (19.15-20.59 micron) $2.30 per lb.-$2.65 per lb., Grade 64s (20.60-22.04 micron), $2.20 per lb.-$2.50 per lb., Grade 62s (22.05-23.49 micron) $2.00 per lb.-$2.30 per lb., and Grade 60s (23.50-24.94 micron), $1.70 per lb.-$2.00 per lb.
(Reprinted from September 2004 issue of Sheep Industry News with permission of American Sheep Industry Association.)