Lamb markets show optimism
Jackson – “Things have been crazy in the last six to eight weeks,” commented Randy Hammerstrom of USDA Market News.
Hammerstrom emphasized that lamb markets have seen gains and wool markets are positive in his presentation at the 2013 Tri-State Wool Growers Convention, held Nov. 7-9 in Jackson.
The rally in lamb prices has been positive for the industry but warrants some thought, he noted.
Reasons for rally
The true reason for the rally can only be speculated, but Hammerstrom marked correction in corn and hay markets as being positive.
“When we go back to mid-summer, we started to see big acreages put into corn,” he explained. “There was talk of correction in corn markets, and hay prices began to correct with rain in Colorado. This all leads to cheaper cost of meat.”
Firmness in the fat market began in late June and July when prices jumped to $1.10 to $1.12, and stability emerged toward the end of the summer, with prices of $1.14 to $1.16.
“More Idaho lambs were killed off grass this year, which was good at the time,” Hammerstrom said. “Some anticipated short supply was coming, and that is what spurred this off.”
However, while some in the industry could see the change coming, Hammerstrom commented, “A good portion of the industry had blinders on because they saw old crop sheep in the feedyards until Aug. 15. They ran out of supply the first of September, and panic mode set in.”
Hammerstrom noted that supply in feedlots have dropped.
“For the first quarter of 2013, we were 14 percent of the five-year average, and in July and August, we were 17 percent below the five-year average,” he said of feedlot supply. “From September until the present, we have been averaging 29 percent below average.”
“We are seeing 11 percent fewer lambs in the feedlot than last month, and we have 17 percent fewer on feed than last year,” he added. “We are also 22 percent below the five year average on inventory numbers.”
Federally inspected kill numbers are also up this year.
“For the first three-quarters of 2013, we were up 90,600 head year-on-year from 2012-13 – basically six percent,” Hammerstrom noted. “Last year, we were up just a tick from 2011.”
Average weekly kills in 2012 were at 38,500, but in 2013, Hammerstrom said that USDA facilities were harvesting 1,800 more lambs per week than last year in the same timeframe.
“We are back over 40,000 head average weekly kill for the first time in three years for feeder lambs,” he said.
This year, feeder lambs from Sept. 1 to present brought $1.50 to $1.90, with some lambs bringing over two dollars.
“We have seen an $80 jump in eight weeks,” Hammerstrom said. “We have seen a rally from late August to present time.”
In late August, prices locked in at $1.10, and lambs were sold just above $1.14.
“By late September, we were going $1.25 to $1.50, and by early October, we had a $35 to $50 jump,” Hammerstrom continued. “By late October, we saw another $10 to $15 jump. Currently, trading in any volume has been in the $1.70 to $1.85 range, with a few sales up to $1.90.”
Cost of gain
Cost of gain currently ranges around the one-dollar mark, and Hammerstrom said that value has been realized in the last several weeks.
Corn prices are dropping with USDA’s Crop Progress report, and Hammerstrom noted that if forecasts come to fruition, the crop exceeds last year by 30 percent at 14 billion bushels.
“If this production cycle is realized, it will be the highest corn production on record,” he explained. “A lot of things can happen in the next 60 days, and that can change things.”
“The corn board closed at $4.26, and we are seeing a 20-cent basis over the board. That makes corn roughly $4.50 delivered to the feedyard,” Hammerstrom said. “Three months ago, we were seeing $6.50 to seven dollar corn.”
At the same time, hay prices have corrected from the last several years.
“Hay prices are still higher than the industry would like, but in six months, we will probably see a $30 to $50 correction,” he added. “Depending on the quality of feed, we could see prices at $1.80 to two dollars.”
In terms of supply, hay is still tight, Hammerstrom said, adding that most of Colorado’s hay, for example, has seen rain at some time.
“The supply is starting to go back up,” he said. “It is just going slowly.”
After USDA decided to purchase $5 million worth of lamb, Hammerstrom said that the question of whether the purchase occurred at the right time was asked.
“We were starting to deliver in September through the end of January,” he said. “The cooler inventories are higher than average, but they are at manageable levels.”
Despite above-average cold storage inventories, Hammerstrom noted that tight supplies in the feedyards and the USDA’s product purchase means those levels won’t last long.
“A lot of things are working in our favor at this point,” Hammerstrom said.
While lamb prices are beginning to correct, and positivity is present in the industry, Hammerstrom said, “The pendulum seems to swing from 2010 to present, and it can’t seem to find its equilibrium. We can’t seem to find the settle point.”
Wool improves with lamb market prices
Jackson – With the increase in the lamb markets, Randy Hammerstrom of USDA Market News says wool buyers are willing to buy.
“Based on annual averages for 2012-13, we can see that we are down a little bit, but we are still 25 percent above 2010 averages,” Hammerstrom noted. “Even though the last couple of years we have seen declines, it is still very good.”
He added that wool still has a market.
“If there was wool on the pipeline, they would be interested,” he continued. “I think we could trade wool in the 80 percent Australia range.”
Hammerstrom addressed attendees of the 2013 Tri-State Wool Growers Convention, held in Jackson on Nov. 7-9.
Wool trade, he said, has been dramatically impacted by currency.
“If we go back to the first part of the year, Australia was four to five percent stronger than the U.S. dollar,” Hammerstrom continued. “Then, the dollar strengthened and was 10 percent higher than Australia.”
He added that the U.S. dollar has bounced between 94 and 105 percent of Australia’s dollar.
Australia’s wool market, however, has seen a similar lack of trend.
“Early on, Australia was having a hard time figuring out where to trade wool out, because currency could adjust two to three percent in just a couple of weeks,” he noted.
The lack of a trend in the market increases difficulty in trading.