SHEEP MARKET SAGA
December 9, 2013
At their most recent sale, Nov. 21, St. Onge Livestock sold a good run of 77-pound feeder lambs for $2.14 per pound. Some 87 pounders brought $1.85 per pound and a small bunch of lambs weighing 100 pounds were worth $1.75 per pound.
Just three months earlier the very same market, Newell Sheepyards in Newell, S.D., reported selling nearly 200 head of 79-pound lambs for $1.16, 89 pounders for $1.13 and some 110 pounders fetched their seller $1.05 per pound.
In three months the market has shot up higher than many expected. It seemed pounds were valuable early in the selling season but as the price of corn continues to drop, the lighter lambs have seemed to become just as desirable.
Sheep producers don't have to reach back very far in their memories to recall a fantastic high in the market followed by a painful low. In 2011, Newell Sheepyards sold 80-pound lambs for $2.34 – the most dollars per lamb any area sheep producers had seen. Just one year later that price had been slashed to less than one-half, with reports of similar weight lambs selling for just over $1 per pound.
So the saga of the up-and-down sheep market continues.
Nisland, S.D., sheep producer Dwight Kitzan believes the domestic lamb market is greatly affected by quantity and value of imported product competing for the consumer's attention. While he greatly appreciates the current lamb price, saying he didn't expect the market to go "that high, that fast," he also worries the industry is facing another nosedive. "The biggest problem that this industry is going to have is the imports."
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"This high market that we're going through now, I wouldn't want to guess how this is going to turn out," Kitzan says with concern that imports combined with low corn prices could drop the bottom out of the market for the second time in just three years. "I think that the critical point was where we were at last time when fats hit $1.68 which converts to over $3 in the carcass. Fats now are around $1.40," Kitzan explained. "What I see are heavier lambs again," he added, citing a drop in corn prices.
Right now, the feeders can't get enough lambs. "This is carrying out in the cattle market right now too," he commented, referring to the short supplies and high prices of feeder calves. He added that some "lighter" cattle are being slaughtered before being fully finished.
"Some of this management stuff has led to a whole different numbers game," Kitzan said, in reference to heavier animals and carcasses. "I think the packers around the world saw this coming, and I think the beef industry is where we were 30 years ago and catching up faster every year … to me this beef thing could get ugly," he worries, regarding the combination of imported meat and the speedy downturn in corn prices which could result in a glut of fed cattle.
Kitzan attributes the 2012 price drop to a compounding problem of feeders buying their fill of lambs, the break-even price being established at an all time high, then feeders facing the inability to sell finished lambs for a profit. Some of the larger feeders then kept those lambs until they were overfat and some were likely past the point of qualifying for the industry's most valuable "lamb" grade. When the overfed lambs – some almost 30 percent heavier than industry standard – were finally slaughtered, it resulted in oversupply because of the excess pounds, spiraling the market downward.
"They just opened up Uruguay on lamb and there are no quotas. It seems like when they reach a trade agreement for beef there is usually a target or quota." Kitzan sees a bigger influence on the U.S. market than just the lamb and mutton that Uruguay has to ship. "If the U.S. opened it up to Uruguay, it makes me wonder if there is something in the wind with Australia and New Zealand. Otherwise why would they be looking at a South American market?"
Sheep numbers worldwide are in great decline, Kitzan explained, but because of progressive breeding practices, meat production has not necessarily dropped in some countries. "Australia has about half the sheep numbers they had in 1995 but they are producing about 30 percent more lamb," he explains, attributing the difference to growthier, better doing sheep.
Australia recently shipped 40 million metric tons of mutton to China, Kitzan said, which he roughly equates to approximately 20 million ewes. He believes that could be enough ewes removed from the breeding flock to significantly impact production in Australia, even with the heavier lambs they are now producing.
Executive Director for the American Sheep Industry Association Peter Orwick said that he doesn't expect the lamb and mutton delivered from Uruguay to come in large amounts. "Uruguay shipped lamb to the United States prior to their last foot and mouth disease outbreak and I don't recall their presence and then absence in our market as being significant," he said.
"Trade must be two-way," he said on behalf of his organization. "The U.S. government needs to get our lamb back in the Japanese market, open up Taiwan for American lamb as well as Europe and China. High end restaurants in those markets would prefer American racks over the Aussie or Kiwi product. Japan is part of the dozen plus country Trans pacific partnership trade treaty in negotiation now," he explained. Orwick shared a letter from the ASI to U.S. Ag Secretary Michael Vilsack and Ambassador Michael Froman urging them to expedite the export of American lamb to Japan. The letter was co-signed by U.S. Meat Export Federation, American Lamb Board, Mountain States Rosen Company and Superior Farms.
Orwick explained that American lamb "was collateral damage from the cattle BSE crisis and while beef is now back in Japan, lamb is still not allowed." In the letter, the group said it believes $13 million in lamb shipments to Japan is an attainable goal.
"Lamb is the only free traded red meat in America," Orwick commented, referring to the lack of a quota on the Uruguayan agreement. He also explained that, in contrast to Argentina, foot and mouth is not an issue in Uruguay.
"A key piece of news on imports is that New Zealands drought is causing a shortage of at least two million slaughter lambs. In 2010, they lost a million lambs in a snow storm and the shortage of meat was bad enough that they abandoned some of the retailers in the U.S. that year," Orwick said.
Orwick echoed Kitzan's comments on Australia sending large amounts of mutton to China. He added, "Imports of lamb were down to a five year low in 2012. Import volume increased in 2013 due to drought in Australia and New Zealand and the resulting increase in slaughter."
Another concern Kitzan mentions is the continued trend across the Midwest of converting grassland to cropground. "Even if we wanted to, you can't gain that back for meat production," he worries. F