Supporting American lamb - Woolgrowers gather in Utah, consider future of the industryWritten by Saige Albert
Park City, Utah – Nov. 4-6 saw the influx of sheep producers from Idaho, Nevada, Utah and Wyoming to Park City, Utah for the 2015 West Central States Wool Growers Convention.
With sheep producers from across the region in attendance, speakers highlighted the current market situation, production strategies and policy impacts during the two-day event.
As an area of consistent concern, lamb markets were a topic of conversation during the event.
Kaycee sheep producer and National Lamb Feeder’s Association Treasurer Bob Harlan noted that the economics of the sheep industry have changed in recent years.
“As we go into this fall, the economics of graze-out lambs don’t exist,” he said. “Many of those lambs have gone into the feedlots.”
Because of drought in California and Oregon, pasture isn’t as available for lambs, and lambs in the feedlot are continuing to grow.
The over-fat lambs may create a problem later in 2016, he commented.
While more optimistic than Harlan, Frank Moore, Mountain States Lamb Cooperative (MSLC) president and Douglas producer, acknowledged that an oversupply of heavy lambs after the first of the year may be a problem.
Harlan also noted that without economics to graze lambs, creating a consistent, year-round supply of product is nearly impossible.
“We can make it about 10 months now, with those lambs in the feedlot,” he said.
“Mountain States Rosen and our MSLC members are in good shape right now,” Moore said, “and I think we will keep them in good shape.”
Moore also noted that the sheep industry is in the same situation as it was several years ago.
Consumption and demand
“There isn’t any solution to this situation but to increase demand for lamb,” Moore emphasized. “We are going to see some things happen over the next few months that might be uncomfortable, but in reality, the sooner we can get demand to pick up and the sooner we start moving these lambs, the quicker we will get out of an oversupply, over-fat situation.”
With an understanding that consumers are going to be influential into the future, Harlan, Moore and Superior Farms CEO Rick Stott also noted that increasing demand for lamb continues to be paramount for the industry.
“In the last two years, we have seen an increase in consumption,” Stott commented. “Two years ago we saw an eight percent increase, and this year, we saw a 13 percent increase in lamb alone. This was the first time in 20 years we saw two years of increase in a row.”
This year, consumption increased 11 percent in food service and eight percent in retail, which is also encouraging.
Millennial consumers are the key to increasing that demand, Stott added.
“Lamb is really hot right now,” he said. “It is showing up in magazines and in front cover articles.”
Stott further noted that lamb is receiving a disproportionately high amount of publicity compared to consumption.
“This is unprecedented in the history of the industry,” he said. “We are excited about the future, and consumers are waking up to the real value of lamb. However, we have some big headwinds.”
Maintaining market share
Of the biggest challenges for lamb, Stott noted that market share of domestic product compared to imported lamb is a delicate balance.
“The average premium we hold over Australian product is about 45 percent,” he explained. “At 45 percent premium, we maintain our market share. At less than 45 percent, we gain market share. Consumers come to us at that point, and price-sensitive consumers are okay with buying U.S. lamb at a 25 percent premium.”
However, if the premium for American lamb surpasses 60 percent, price-sensitive consumers start switching to imported product.
“The price shoppers disappear,” he said.
In fall 2014, when the exchange rate moved 18 percent over three months, that change was reflected in the premium of domestic lamb over the imported product.
“We saw a 10 to 15 percent decline in our customers,” Stott said. “It became clear that, at a 65 percent premium, we lose market share and customers, and we have been in that position throughout the year.”
“The strength of the dollar does impact us,” Moore emphasized. “It’s important in our industry.”
Stott further noted that today, American lamb is at a 100 percent premium – and has been for the last two months.
“The exchange rate moved from 18 to 33 percent from a year and a half ago,” he said, noting that trends are very similar to the situation prior to the crash of 2012-13.
The sheep producers at the convention recognized that they must take action to avoid an industry crash.
Harlan said the industry will attempt to sell their current supply at Thanksgiving, Christmas and New Year’s.
“It probably won’t happen,” he commented, “and the backup will start.”
On top of lambs in the feedlot, Harlan noted that the strength of the American dollar continues to prove challenging.
“The dollar is so high that the only way we can compete is to lower the market,” Harlan said. “The market will go lower.”
Moore added, “It’s better to kill those lambs for a little less money today than for a lot less money in two months after we’ve also put a lot of feed into them.”
Further, Harlan predicted that feedlot supply will continue into May and June, when the industry will still be working to get rid of older fat lambs.
“We’ll kill what graze-out lambs there are in June, July and August, but by that time, they won’t be in good quality either,” Harlan said. “I think we are in the perfect storm right now, but I don’t know how we get out of that.”
While things look dire right now, Harlan also added, “As negative as things might sound, we added 25 percent to our breeding herd, and we think there is a future for the sheep industry.”
Stott also remained optimistic for the industry, commenting, “This is about inspiring shared visions and where we can take this industry. There are exciting possibilities for where we can go.”
Look for an update on the wool market in next week’s Roundup.