2014 Sheep Industry Review

Prepared by the American Sheep Industry Association

for the American Lamb Board May 2015

ContentsExecutive SummaryI. Feeder and Slaughter Lamb Market TrendsII. Feedstuff TrendsIII. Slaughter Lamb Market TrendsIV. Carcass and Boxed Lamb Market TrendsV. Retail & Food ServiceVI. Price SpreadsVII. PeltsVIII. Replacement SheepIX. Domestic Production and TradeX. Nontraditional MarketXI. Total Lamb and Mutton AvailabilityXII. Imported Product Price ComparisonsXIII. Exchange RatesXIV. Price Projections and Outlook

Executive Summary

The sheep and lamb industry enjoyed a good year in 2014. Although freezer inventories were high, strong lamb demand helped support higher retail prices, an increase in lamb imports, and higher live and meat prices. The industry was able to maintain high-quality lambs throughout the year which likely contributed to the market’s robustness. Replacement ewe prices were 60-percent stronger in 2014 and suggests that flock rebuilding was occurring.

In the Live MarketsThe 3-market feeder lamb auction price saw a 45-percent gain in 2014 to $204.36/cwt. Markets included San Angelo, Ft. Collins and Sioux Falls. At $177.24/cwt. feeder lamb prices in direct trade were 43-percent higher year-on-year.

Slaughter lambs prices gained 26% to 31% in 2014 depending upon market. Slaughter lamb prices at auction gained 31% in 2014 to $156.76/cwt. Formula- traded slaughter lambs gained 26% to $300.86/cwt. ($151.10/cwt. live-weight equivalent). Live, negotiated prices strengthened by 24% to $156.06/cwt.

Executive Summary, page 2

Pelts LowerThe international pelt market was depressed in 2014. Fall Clips (previously shorn) averaged $6.75 per piece in 2014, down 47% annually. No. 1 pelts (previously shorn) averaged $5.34 per piece, 47-percent lower. Imperials (never shorn) averaged $8.04 per pelt, 34-percent lower.

Feedstuffs DownAt 98 cents per lb., estimated cost of gain in Colorado feedlots fell 24% year-on-year. Corn averaged $6.88 per bu. in 2013/14, up 8% year-on-year. Alfalfa averaged $198.33 per ton in 2013/14, down 6% year-on-year.

In the Meat MarketsThe lamb meat market was sharply higher in 2014. The weighted average carcass price averaged $322.71/cwt. in 2014, 24-percent higher year-on-year. The net carcass value (after processing/packaging costs) averaged $355.62/cwt., 26-percent higher annually. All primals gained in 2014 with the loin, trimmed 4 x 4 gaining the relatively low 9% and the 8-rib rack, medium seeing the largest gain at 47%

.

Executive Summary, page 3

Production and TradeIn 2014 domestic production was down, yet higher imports led to higher lamb availability – not counting freezer inventories. Lamb and mutton production was up 0.1% in 2014 to 155.9 million lbs. Monthly cold storage in 2014 averaged 31.2 mill. lbs. per month, up 48% year-on-year. Quality was excellent in 2014 with 74% of lambs receiving yield grades 2s and 3s, compared to 71% in 2013.

Federally-inspected weights averaged 68.77 lbs. in 2014, down 0.06%. Slaughter weights in carcass-based formula trades averaged 76.87 lbs. (153.16 lbs. live-weight), 3-percent lower than 2013.

Domestic lamb production was down 0.4% to 149.7 mill. lbs., lamb imports were up 12% to 164.5 mill. lbs., and total consumption (or disappearance) was up 6% to 314.2 mill. lbs. Higher lamb availability coupled with higher prices set the stage for strong demand heading into 2015.

I. Feeder and Slaughter Lamb Market Trends

Feeders Jumped 43%-45% in 2014

The 3-market feeder lamb auction price saw a 45-percent gain in 2014 to $204.36/cwt.

Markets included San Angelo, Ft. Collins and Sioux Falls.

At $177.24/cwt. feeder lamb prices in direct trade were 43-percent higher year-on-year.

Feeder Lamb Prices in Direct Trade Typically Lower than Auction Prices – Partly Due to Heavier Weights

Direct Trade Down Sharply from 10 Years Ago, but Maintains in Recent

YearsDirect trade dropped 7% in 2014 to 192,950

head

II. Feedstuff Trends

At 98 cents per lb., cost of gain fell 24% year-on-year.

Alfalfa averaged $198.33 per ton in 2013/14, down 6% year-on-year.

Corn averaged $6.88 per bu. in 2013/14, up 8% year-on-year.

III. Slaughter Lamb Market Trends

2014 Slaughter Lamb Prices Gained from 26% to 31% Depending Upon Market

o Slaughter lamb prices at auction gained 31% in 2014 to $156.76/cwt.

o Formula traded slaughter lambs gained 26% to $300.86/cwt. ($151.10/cwt. live-weight equivalent).

o Live, negotiated prices strengthened by 24% to $156.06/cwt.

Slaughter Lamb Prices Rebounded in 2014

Lightest Carcasses Maintained Strong Premium in 2014

2014 Slaughter Weights Current

Slaughter weights in carcass-based formula trades averaged 77 lbs. (153.16 lbs. live-weight), 3-percent lower in 2014.

Weights in live, negotiated trade were 148 lbs., up 6%.

By comparison, federally-inspected weights averaged 69 lbs. in 2014, down 0.06%.

Formula Sales Continued to Contract – Indicator of Reduced Value-Based Pricing?

Packer-owned lambs and live, negotiated trades up in 2014; formula down & auction down.

IV. Carcass and Boxed Lamb

Market Trends

Carcasses & Cutout Higher Annually

Weighted average carcass price averaged

$322.71/cwt. in 2014, 24-percent higher year-on-

year.

The gross carcass value averaged $369.45/cwt.,

up 24%

The net carcass value (after processing/packaging

costs) averaged $355.62/cwt., 26-percent higher

annually.

Lamb Meat Market Sharply Higher in 2014

14% of FI Harvest was Sold as Carcasses in 2014, Down from 16% in 2013

Primals and Ground Lamb Higher Annually

8-rib rack, medium gained 47% to $810.34/cwt.

Leg, trotter-off, 4365.07/cwt., 13-percent higher.

Shoulder, square-cut, saw a 25-percent gain to

$300.80/cwt.

Loin, trimmed 4x4 $501.71, up 9% annually.

Ground lamb $540.38/cwt., up 2% annually.

Rack Gained Sharply in 2014; Other Primals Saw More Moderate Gains

2014 Quality Excellent

Yield Grades for Federally Inspected Lamb and MuttonPercentages derived from total lbs.Source: USDA, AMS, Livestock and Seed Division

  YG1 YG2 YG3 YG4 YG5

2012 5% 28% 37% 18% 12%

2013 7% 36% 35% 14% 7%

2014 6% 33% 41% 14% 6%

Percent Graded Trending Lower

V. Retail & Food Service

The Most Popular Featured Items (domestic and imported) Gained

in 2014, $ per lb.

2013 2014 % ChangeBoneless Leg 7.12 7.38 4%Shoulder blade chop 4.96 5.29 7%Loin chop 9.03 9.18 2%Rib chop 12.97 14.87 15%

VI. Price Spreads

Ralmonline, 2008

Rack-Loins Price Spread Jumped from $0.91 per lb. in 2013 to $3.09 per lb. in

2014 (over 240%)--Rack gained 47%, loin gained 9% in this

period.

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.

Live to carcass and cutout spreads both increased in 2014

The live-to-carcass spread averaged $16.07 per head in 2014, down 53%.

The live-to-cutout spread averaged $49.33 per head, down 16% annually.

The carcass-to-cutout spread averaged $32.19 per head, up 32% annually.

Packer Spreads Narrowed in 2014

VII. Pelts

International Pelt Market Depressed

Reduced Russian demand and reduced demand from Chinese tanneries facing environmental clean-up costs

Fall Clips (previously shorn) averaged $6.75 per piece in 2014, down 47% annually.

No. 1 pelts (previously shorn) average $5.34 per piece, 47-percent lower in 2014.

Imperials (never shorn) averaged $8.04 per pelt, 34-percent lower.

U.S. Pelt Prices Weaker

VIII. Replacement Sheep

Replacements Saw Strong Price Gains in 2014, $ per head

Ewe Lambs

Yearling Ewes

Young

Ewes, 2-4

years

Middle

Aged

Ewes, 5-6

years Aged Ewes

Rams Black Face

Rams White Face

Rams Cross Bred

2010 134 197 159 120 91 551 474 4542011 196 287 250 194 152 717 1035 7682012 184 211 153 152 105 518 627 5492013 122 170 138 99 71 508 648 4702014 172 279 238 158 118 650 479 697

% change in

2014 41% 64% 72% 60% 66% 28% -26% 48%

Is Flock Rebuilding Occurring?

IX. Domestic Production and Trade

Lamb & mutton production was up 0.1% in 2014 to 155.9 million lbs.

2014 mature sheep harvest up 3% to

136,300 head;

lamb & yearling harvest down 1% to 1.968

mill. head.

Total Lamb Disappearance Up in 2014

1. Domestic lamb production down 0.4% to 149.7 mill. lbs.,

2. Lamb imports up 12% to 164.5 mill. lbs., and

3. Total consumption (or disappearance) up 6% to 314.2 mill. lbs.

Domestic production down; imports up

2014 Live Harvest Weights Averaged 137 Lbs., Even with 2013

Monthly cold storage in 2014 averaged 31.2 mill. lbs. per month,

up 48% year-on-year

Lamb imports were up 11.9% in 2014 to 164.5 mill. lbs.

Total Lamb & Mutton Imports Up 12.4%

Australian lamb imports in 2014 were up 20% to 121.3 mill. lbs.; NZ lamb imports were down 6% to 41.8 mill. lbs.

Australian Lamb Imports Up Sharply in 2014

Imported lamb value was $559,275 in 2014, up 6%

Mutton Imports Higher: Up 16% to 30.3 mill. lbs.

–AUS up 31% to 25.9 mill. lbs.; NZ down 35% to 3.8 mill. lbs.

Total Lamb & Mutton Exports were 6.7 mill lbs. in 2014, down 7% -- Lamb imports were up 79% to 1.3 mill. lbs.

and mutton exports were down 17% to 5.4 mill. lbs.

Total Live Sheep Exports up in 2014

Total live exports up 39% to 75,693 head,

Live exports to Mexico up 10% to 35,634 head,

Exports up to Canada by 78% to 38,916 head,

And “other” exports up 1261% to 1,143 head: nearly 1,000 head to Russia, the rest to Guyana

2014 Cull Ewe Prices 46% Higher to $60.91 per cwt.

X. 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.

2014 New Holland 90-110 lb. Slaughter Lambs Higher--Nontraditional price averaged $180/cwt., 36% higher year-on-year.

XI. Total Lamb and Mutton Availability

Total Lamb Supplies in 2014 Up for Third Consecutive Year at Over 300 Million Lbs.

U.S. Share in Total Lamb Availability 50% in 2013 and

47% in 2014

XII. Imported Product Price Comparisons

U.S. Competitiveness Against the AUS Shortloin Gained in 2014 as the AUS Price Weakened

--U.S. Loin gained 9% to $502/cwt. in 2014; AUS shortloin gained 8% to $571/cwt.

Spread Between U.S. and AUS Rack More than Doubled in 2014

In 2014 the U.S. rack, roast-ready, frenched, special (cap-off) averaged $1,905/cwt, up 45%;

AUS rack, cap-off, 28 oz. and up averaged $909/cwt., up 2%.

*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. Shoulder Lost Competitiveness in Late 2014 Against AUS Shoulder --U.S. shoulder averaged 24% higher at $301/cwt.; AUS shoulder gained 28% to $271/cwt.

XIII. Exchange Rates

Stronger U.S. Dollar Boosts Import Competiveness--AUS dollar weakened by 7% to 1 AUD = 90 cents USD$--NZ gained 1% to 83 cents per US$ 

XIV. Price Projections and Outlook

2015 Pasture & Range Conditions Improved, Except for CA

2015 spring/summer pasture and range conditions started off very well with the exception of CA, and to some extent OR and NV (LMIC, 5/11/15).

Topsoil and subsoil moisture conditions are poor throughout CA, with 85% of cropland acreage rated as very short and short for topsoil moisture conditions, and 90% of cropland acres rated very short and short on subsoil moisture conditions (LMIC 5/11/15).

Drought Could Play Role in Availability of Western Feed Supplies in 2015

The U.S. Dollar will Likely Remain Strong – Attracting Lamb Imports

The U.S. dollar is strong, in part, because the U.S. economy is growing, compared to lower growth rates in Europe, Japan and China.

LMIC reported in mid-May: “Differences in economic growth rates, fiscal policy, and other factors have caused the value of the U.S. dollar to surge, impacting relative price levels,” (5/11/15).

U.S. meat imported tonnage from Australia surged 96% in 2014 (20% for lamb) compared to a year ago (LMIC, 5/11/15).

Meat Demand Very Strong; Can Support Lamb Demand in 2015 All Fresh Beef demand index for the first quarter of

2015 rose by 16% and pork’s demand rose by 17% (LMIC 5/11/15).

For both beef and pork, prices were higher year-on-year

and imports helped offset domestic production

shortfalls.

Higher income will also help support lamb demand in 2015: In the 12 months to March 2015, average per capita disposable income rose 2.4% to over $38,000 (Federal Reserve Bank, St. Louis).

LMIC Forecasted 2015 Industry Contraction: Lower Total Supply and Disappearance, yet Domestic Production Expected to Remain Steady

In early May, LMIC forecasted per capita lamb supplies could be down in 2015

Tighter supplies could put pressure on prices.

For 2015, slaughter lamb prices on a carcass basis could range from $309 to $315 per cwt., up 5% year-on-year (5/8/15).

Sixty- to 90-lb. feeders could range from $210 to $219 per cwt., up 4% year-on-year.