Record-breaking sheep prices bring cautious optimisum
“It’s an interesting time in the sheep business, and these prices are pretty much unprecedented. The people that stuck with it for all those bad years are finally being rewarded for their perseverance, and that’s good,” comments Brad Boner of the Mountain States Lamb Cooperative on the 2010 markets. “In the last two weeks lamb prices have gone from crazy to insane.”
“There are a combination of factors that are contributing to the high prices, but it all goes back to the fact that the numbers aren’t there,” adds Gillette-area sheep producer Bob Innes.
Boner agrees the reasons behind the high prices this year include a worldwide shortage of supply and the low value of the U.S. dollar.
“Imports are down about nine percent year-to-date, and domestic supply is down about seven percent year-to-date. When those two numbers are combined, that’s a pretty huge drop in supply in one year.
“Imports are down because our dollar value is fairly low and there are better opportunities elsewhere in the world to import lamb and because of the overall worldwide shortage. Lamb is a worldwide market,” notes Boner.
Wyoming Wool Growers Executive Vice President Bryce Reece adds that while the high prices are great, there is the possibility it could all turn around tomorrow.
“These high prices will have to sustain themselves more than just this year and into next year for people to become optimistic again. That’s the thing, we’re pretty worried about maintaining because we’ve seen it happen many times – a bubble of good prices, then you pay for it the next two or three years,” notes Innes.
“We’re starting to see a lot of push back from retailers on price. People are watching for the market to change. An economic event like the stock market crashing, or if a major retailer decides to opt out of lamb – which is a risk with lamb because it’s such a small part of the retailers’ overall business – they can just decide they don’t want to see us anymore.
“Barring any of those events, I don’t know if we can sustain current prices for long. The packers are seeing negative margins and they’ll only do that for so long. But, with that said, and if an unexpected event or change in the elevation of our currency doesn’t occur, I do think we can sustain the late spring and early summer prices for a while because there is such a shortage of supply,” says Boner.
Replacement ewes, ewe lambs and bucks are also at a premium this year, which indicates there is a demand to increase numbers.
“I’ve been hearing about yearling ewes selling for over $225 in Newell in recent weeks. The whiteface portion of our ram sale was also up between $40 and $50 per head. I think people are breeding white-faced bucks stronger again because they’re breeding replacement ewes to build numbers. I hope this means we’re seeing a reinvigoration of the industry,” comments Reece.
“We are seeing people in the business retaining more ewe lambs and replacement sheep and it sounds like they’re going to increase numbers over the next several years,” notes Boner. “With the increase in demand for replacement type yearling ewes and ewe lambs, the price is high. At this moment in time, if you wanted to buy 500 ewes, I’m not sure you could. That’s another barrier if you’re outside wanting back in – the high cost of breeding stock.”
Innes notes that additional factors, including the recent drought in part of the state and some industry-related issues, may limit the amount of supply increase.
“There is a dwindling number of producers, and more are getting out while prices are high due to predators or public lands issues. Those are the two big things I keep hearing.
“There is nothing more demoralizing than going out and finding lambs you’re about to market lying there with their throats cut. You just think about that whole year’s production, and there it lies with zero value, and there is no solution to the predator issue. If we could see an answer and get it under control we might believe in it. But it just keeps going backward and coyote numbers keep increasing and they keep getting sharper. It’s the number one dilemma and it feels like our hands are perpetually tied.”
“People are battling public lands issues everywhere – producers are losing their public lands in Idaho to the bighorn sheep, there are wolf impacts to consider, endangered species and a constant increase in regulations. Pretty soon it all gets to be such a burden that it’s not worth it anymore. Especially not to the younger generations who have witnessed what their parents and grandparents have gone through – they’re choosing a different alternative,” says Innes of why people may choose to not get into the industry, or why they may take advantage of this high market to get out.
“The tax structure is even favorable to selling sheep this year, ironically. With these prices, we could see a lot of ewes changing hands, maybe more than we even realize,” he adds.
“Predator issues are definitely a barrier of entry back into the business,” adds Boner. “But there has been some state money put into the predator program and we do have a pretty efficient program right now. But that could always go away in any legislative session.”
“We continue to live in the strongest economy in the world. I think the economics of the industry are good. Some other factors that are concerning include predators and the wolf on a more localized level. I just think it looks good for the foreseeable future,” comments Reece.
“You just hope, every time you read a sale report or load a truck, that those guys can make money too because that’s the only way we will see prices stay where they are. If these people that are spending money on replacement ewes right now aren’t able to make their payments and can’t make it work that’s a pretty strong lesson. It will be a long time before you will get them to spend that kind of money on sheep again,” adds Innes.
For today Boner comments that the unprecedented lamb market is a good thing for producers.
“I’m taking advantage of it but very cautious. I’m not counting on it being the same next year,” adds Innes.