Lamb industry - Hammerstrom sees positives for woolgrowersWritten by Saige Albert
Park City, Utah – Sheep producers from Idaho, Nevada, Utah and Wyoming gathered in Park City, Utah at the 2014 West Central States Wool Growers Convention to discuss the challenges facing wool growers today.
Randy Hammerstrom of USDA Market News kicked off the final day of the convention with a summary of current lamb market statistics.
Lambs on feed
“We look at the feedlot inventory as of Nov. 1, and we had about 235,000 lambs on feed in Colorado,” Hammerstrom commented. “A year ago, we had 214,000 on feed. We had about a 10 percent increase.”
He further noted that a current count of the total head of lambs is still unavailable, as shearing is finishing currently.
Hammerstrom also cited that the Imperial Valley in California has seen decreases in lambs in the feedlot this year.
“I think there are roughly 15,000 fewer lambs than a year ago,” he said. “Last year we had around 100,000 lambs, and I think there are roughly 85,000 to 90,000 lambs in the Imperial today.”
Cost of gain
Costs of gain are also favorable in Colorado and the Midwest, facilitating feed to growth.
“Total cost of gain in Colorado is 85 to 90 cents, and there is potential that it could get cheaper – down to the mid-80s,” he added. “Hay delivered to Colorado today is $120 to $130 a ton into the feedyard. A year ago, that would have been more than $200.”
Feed prices delivered into the feedyard have dropped significantly in the past year, facilitating a cheaper cost of gain for lambs, Hammerstrom continued.
“Corn prices year-round are at $3.40 to four dollars,” he said. “A year ago, cost of gain would have been $1.40.”
In the Imperial Valley of California, he said some producers are opting to take extra cuttings in their hay or they are taking cropland out of production. The result is higher cost of gain, with numbers likely reaching 90 cents to one dollar.
“Talking to some of the experts, in memorable history, this is the first time we have seen cheaper cost of gain in Colorado than in the Imperial Valley,” Hammerstrom said.
However, costs of gain could reach as low as 50 cents in the Midwest, where feed is in closer proximity.
“The guys in the Midwest have been super aggressive early in the fall,” Hammerstrom explained.
When corn prices increased dramatically, he noted that the number of producers feeding livestock dropped because corn could be sold for much higher values – between six and eight dollars a bushel.
“These folks have now opted to get back in because corn is less than three dollars a bushel, depending on the basis,” he said. “The Midwest has cheaper costs of gain than Colorado, and there are indications they can feed as cheap as 50 cents.”
Feeders in the Midwest can buy lambs, ship them and feed them, with intentions to ship the lambs back to Colorado for harvest cheaper than feeding lambs in Colorado.
“The Midwest guys had very favorable contracts earlier this year, which put some dollars in their pocket, and they felt like coming back into the market,” Hammerstrom explained.
In looking at slaughter data, Hammerstrom pointed to a decrease of three percent in federally-inspected slaughter numbers over the last 10 years.
“In the first three quarters, slaughter was up about 3,500 head,” he said. “We are about on par with normal.”
In 2004, 2.6 million lambs were slaughtered, and last year only 2.1 million were slaughtered. In 2004, an average of 51,000 lambs were killed each week, and in 2013, 40,559 were processed.
“So far, we are on par this year with 40,532 lambs a week on average,” he said.
After analyzing data from over the past year, Hammerstrom mentioned that the sheep industry has been successful.
“In the last year, the industry has done a good job of managing supply and demand,” he said.
Looking into the past, on a live basis, lambs hit $94.82. That rose to $198 by July 1, 2011 – an all-time record high.
“It is my opinion at that point, the market signaled that it wasn’t willing to participate beyond that level,” Hammerstrom explained. “However, it carried on for another 50 bucks before the subsequent crash.”
The crash was followed by a 16-month correction, bringing the market to $110.
“I think we had demand show interest in the $140 to $150 range, but in the interest of buying demand back, the market continued to fall,” he continued. “Now we are into the demand buy-back period.”
Hammerstrom continued, “We started to see demand pick up from September of last year to the first part of this year.”
When demand showed indications of backing off, the sheep industry accommodated to avoid another market crash situation.
“The industry immediately pulled back the reins when demand slowed,” he said. “The industry didn’t back off or correct the market, but it pulled in the reins.”
“Now, from July 2014 to present, we have seen an increase in the market,” Hammerstrom continued. “In the last five years, the industry has not followed typical historical trends, and we are at $165 and change right now.”
Hammerstrom also noted that the market environment seen over the last year is one that is sustainable.
Hammerstrom mentioned that imports have been a hot-button topic for the sheep industry.
“Imports were on a correction for a while, and from 2007-12, we had a 25 percent correction,” he explained.
For 2013, imports were up 12 percent from 2012 and, in the first three quarters of 2014, the majority of imports have been seen from Australia.
“Imports from Australia were up 14 percent, and imports from New Zealand are down about 12 percent,” Hammerstrom noted. “All together, we are up about seven percent on imports.”
A look forward
In looking at the future of the lamb market, Hammerstrom said the market is current, with the last of the old crop being processed in mid-July of 2014.
This year’s carcass averages also reached above the five-year averages, hitting $295 this year to date.
“Today, we have about 235,000 lambs in the feedlot in Colorado,” he said, “and in my opinion, the sheep industry is very current.”
While cold storage is sometimes used as a market indicator, USDA Market News’ Randy Hammerstrom remarked that the method of collecting cold storage data may not be reflective of the actual data.
In determining cold storage data, the National Agricultural Statistics Service reaches out to their contacts for data. From month to month, the same number of contacts and the same contacts may not return the data that is factored into the equation.
“There is also no way to break out what part of that is domestic and imports or lamb and mutton,” he said.
“There is roughly 40 million pounds of product in cold storage,” he said, “but I think there are other things that better show the market trends.”
For example, Hammerstrom noted that domestically, a 26 percent increase has been seen in product value on shoulders in 2014 as compared to 2014. Imports have also seen a 16 percent increase of value.
Randy Hammerstrom of USDA Market News noted that high prices in other protein markets are helpful for lamb.
“Beef just set their all-time record value three weeks ago at $170 live value on fat cattle,” he said. “Feeder cattle have been through the roof.”
In charting the prices seen in the feeder cattle industry over the last two years, the trend line nearly mirrors the prices seen in the first 18 months of 2010-11 for the sheep industry.
“I think there is a correction coming in the cattle industry,” he commented. “They are starting to see some pushback.”
However, he also noted that some argue tight supplies in the cattle industry will keep prices high.
“Will they see as big a correction as the sheep industry saw? Probably not,” Hammerstrom said, “but time will tell.”
Look for more in-depth information about lamb and wool markets in an upcoming edition of the Roundup.