Lamb markets: 2023 begins with higher prices

Live lamb prices began to increase late in 2022 providing some optimism for 2023. Ample total supplies are available in the retail market to begin the year, and they should build seasonally.

There are some big factors to watch this year, which will impact markets.

Lamb markets and prices

Live lamb prices began to increase slowly in the last quarter of 2022. Slaughter weight lambs in the 110- to 130-pound category increased from a weekly average of $97 per hundredweight (cwt) to $140 per cwt by the year’s end. 

While they have increased, prices are still below the $230 per cwt at this time last year, and they remain below the five-year average. The average of traditional feeder lamb prices increased as well from about $130 to $235 cwt during the last four months of 2022.

Traditional versus non-traditional markets are often discussed, and the prices are relative to each other. It’s important to remember they both market lambs even though they might be going through different channels. The prices for lambs going through these market channels move together.

The non-traditional market – as measured by prices in New Holland, Penn. – declined in 2022 like traditional market lambs, but the level of prices was higher. By the end of 2022, the average of feeder lamb prices was higher than New Holland prices. The lines between these two markets will continue to blur in the future.

While live animal prices were building higher in the lamb meat area, prices for major cuts continued to slide through the end of the year. 

Given evidence of struggling demand, which has caused sharply lower live prices and lower wholesale prices, evidence in retail prices remains high. Lower prices will have to translate to retail markets to rebuild demand.

Retail pork and chicken prices are beginning to decline. Retail beef prices have been declining for months and are now lower than they were last year. So, competing meat prices in the meat case might argue for some lower lamb prices.

Supply and demand

In the fourth quarter of 2022, production was below 2021 numbers. While lamb and yearling slaughter was increasing seasonally late in the year, it was less than in 2021.

Dressed weights corrected lower and fell back below the five-year average and back to last year’s level. Weights – on average – aren’t suggesting burdensome supplies this spring. Combined with reduced slaughter, domestic supplies should support prices.

The struggles of lamb demand and consumption has led to the building of cold storage stocks. 

Cold storage supplies hit almost 30 million pounds in November, according to the latest available report. This is equal to the five-year average and more than the 23.4 million pounds in November 2021. It will be important to see stocks drawn down by the spring holiday demand.

Imports have remained large. The seasonal decline in imports from March to September was muted. Imports in November hit almost 25 million pounds. Imports combined with cold storage stocks will offset any moderation in domestic production.

One area of interest for future domestic production is mature sheep slaughter. 

Throughout 2022, weekly slaughter was about equal to the 2016-20 average. Slaughter in 2021 was elevated and contributed to a smaller ewe flock. Restrained slaughter in 2022 suggests any change in the ewe flock in the U.S. Department of Agriculture’s inventory might be small.

Wool and lamb trade

The industry is highly dependent on trade. Rarely would talk about markets not include some discussion of imports and exports or action in the Australian wool market, which determines prices worldwide. 

Often these discussions would mention exchange rates. A stronger U.S. dollar versus Australian and New Zealand currencies leads to more meat imports. Changing exchange rates leads to changing relative prices in each country.

In general, the U.S. dollar has strengthened against most major trading partners’ currencies this year. Higher U.S. interest rates have boosted the dollar, and differing prospects for economic growth around the world have similarly helped the dollar.

Using monthly average exchange rate data, the U.S. dollar versus the Australian dollar was 1.48 in December compared to 1.4 in December 2021 – about a six percent appreciation. 

The U.S. dollar appreciated about seven percent compared to the New Zealand dollar in December. 

This rate of appreciation was similar to the Euro. Compared to the British pound, the dollar was about nine percent larger in value.

While the dollar has gained in value year-over-year, the appreciation has moderated in recent months. 

For example, in October 2022, the U.S. to Australian dollar rate was 1.57 compared to 1.35 in October 2021.

This exchange rate had declined to 1.48 in December 2022. But, both remain higher than the 1.39 in January. This general increase in value of the dollar through much of 2022 and some moderation in November and December holds for most major currencies.

It’s likely the U.S. dollar remains relatively stronger than our trading partners’ currencies compared to the prior year in coming months. This will act to keep meat imports large. It will affect relative prices in the wool market. 

Summary

There is some reason for optimism for lamb prices in the new year, but a lot depends on demand recovery.

Higher seasonal live lamb prices should be expeted as we move closer to the spring holidays. Imports and stocks will most likely restrain price growth.

Dr. David Anderson is a professor and Extension economist for livestock and food product marketing at Texas A&M AgriLife Extension Service. ASI originally published this article in Sheep Industry News. To read the current edition, visit sheepusa.org/magazines/february-2023.