October 17, 2002

Market Advisor: Lamb Prices Rebound From Last Year

By Tim Petry, Livestock Economist
NDSU Extension Service

Slaughter lamb prices in the Northern Plains were significantly higher in mid-October, 2002, than in 2001.

USDA choice, wooled slaughter lambs were averaging $76 to $80 per hundredweight compared to $46 to $50 last year -- a $30 per hundredweight increase.  Medium and large frame No. 1 and No. 2, 70 to 90 pound, feeder lambs were about $78 to $83 per hundredweight this year compared to $58 to $63 last year -- a $20 per hundredweight advance.

Two obvious questions arise from these prices.  First, why are lamb prices sharply higher than last year?  Second, why have feeder lamb prices not increased as much relative to slaughter lamb prices?

Slaughter lamb prices are not high by historic standards.  In fact, prices now are close to the previous five-year average.  It’s just that slaughter lamb prices were abnormally low in the fall of 2001, due to several factors that affected agricultural commodity prices in general and lamb prices specifically.

In May, 2001, the World Trade Organization’s (WTO) Appellate Body overturned a 1999 decision by the U.S. International Trade Commission (ITC) that imposed a tariff-rate quota on lamb shipped to the United States from Australia and New Zealand.  The ruling eliminating tariffs that caused the imported product to be less expensive compared to domestic lamb.  By midyear, a slowdown in the U.S. economy was evident.  Since lamb is the highest-priced meat compared to beef, pork, and chicken; it is the most impacted by poor economic times.

Consumers tend to substitute lower priced goods for higher priced goods during recessions so lamb demand apparently suffered.

Everyone is still keenly aware of the terrorist acts of Sept. 11, 2001.  Lamb is typically served in the higher-priced , white table cloth restaurants that depend on customers who are celebrating important events, entertaining friends or relatives, and/or traveling.  The high-class restaurant business was severely impacted after Sept. 11.  Furthermore, the U.S. East Coast is a primary lamb-consuming area.

Each of these factors caused decreased demand for domestic lamb and declining prices.  Lamb prices declined from the mid $80s per hundredweight in May to the mid $40s by October.

Whenever agricultural commodity prices fall dramatically, there is a tendency by producers to hold market-ready commodities for higher prices.  This happened with cattle feedlots after Sept. 11, 2001, and the higher carcass weights for fed steers and heifers have plagued the industry ever since.  The same thing occurred in the lamb feeding sector, but the problem of over-finished (excessively fat) and record heavy slaughter lambs began well before Sept. 11.  In fact, slaughter-ready lambs that should have been sold in the spring of 2001 were still in feedlots during the summer months, bolstering tonnage and lowering carcass quality characteristics.

By October, lamb carcass weights were still averaging five pounds heavier than in previous years. In November, about 18 percent of lambs were yield grade 4 and 5 compared to an average of about 10 percent.  The extra lamb meat production due to excessive carcass weight adversely impacted prices.

Unlike the beef industry, the lamb industry reduced slaughter weights dramatically in 2002 to near the previous five-year average.  Two factors have reduced weights.  First, slaughter-ready lambs have not been backed-up. Second, drought has caused producers in some regions to sell lambs early.

Live weights of slaughter lambs in mid-October, 2002, were averaging 131 pounds compared to 139 pounds the same time one year ago.  So, even when lamb slaughter has been above a year ago, lamb meat production has been down. It also appears that the white tablecloth restaurant business has returned to more normal conditions and slaughter lamb prices are back to historic levels.  Imports of lamb and mutton began to post much smaller year-to-year increases beginning this past summer.  Finally, the year-to-year increase in slaughter lamb prices has been supported by stronger pelt values.

There are several reasons why feeder lamb prices are lagging behind the slaughter lamb price recovery.  Lamb feeders suffered huge losses last year so they are reluctant to pay higher prices for feeder lambs.  Severe drought in much of the western lamb producing area has caused high hay prices and earlier-than-normal movement of lambs from pastures.  In addition, abnormally dry weather in much of the Corn Belt this summer led to higher corn prices.  Corn prices in some of the Western lamb feeding areas are reported to be 75 cents to $1 per bushel higher than last year.  So higher hay and feed grain prices are affecting what lamb feeders are willing to  pay for feeder lambs.  

Looking to the future, slaughter lambs usually reach a seasonal low in the fall when many lambs are sold.  The seasonal price pattern then increases into March, suffers a slight setback in April, and increases again and reaches a peak in the summer months before declining into fall.  Barring unforeseen circumstances like those that occurred in 2001, prices will likely follow normal seasonal patterns and range from the mid $70s to the mid $80s per hundredweight in the next few months.  

Imports from Australia and New Zealand and keeping carcass weights under control will be keys to slaughter lamb prices in 2003.  Feeder lamb prices will likely strengthen in 2003 if the slaughter lamb market remains strong and if corn prices do not surge. 

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Source:  Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu
Editor:  Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu