Market Advisor: US Sheep Flock Declines, Prices Strengthen
The inventory of sheep and lambs in the United States on Jan. 1, 2004, totaled 6.1 million head, according to the USDA National Agricultural Statistics Service’s Sheep and Goats Report released on Jan. 30. Sheep and lamb numbers were down three percent from 2003 and nine percent from 2002.
Sheep numbers have generally been declining since 1942 when numbers peaked at 56.2 million head, but the decline in the last several years has been due to drought conditions in many sheep producing states. The lack of forage caused higher than average culling of breeding animals and hindered keeping replacement ewe lambs. The number of breeding ewes one year and older totaled 3.6 million head, 4.5 percent lower than 2003 and 9.5 percent below 2002. The number of replacement ewe lambs on Jan. 1 was 691,000 head, down about 4000 head from last year.
Annual average market lamb prices increased about 25 percent in 2003 over previous years. U.S. prices averaged in the low $90s per hundredweight in 2003 compared to prices in the low $70s per hundredweight in 2002 and 2001. Higher prices were a result of lower domestic supplies, a lesser rate of increase in lamb meat imports and a stable domestic demand for lamb.
Declining US sheep numbers and lamb meat production has led to increased imports of lamb for US consumption. Imports amounted to less than 20 percent of consumption in 1995, but amounted to over 40 percent in 2003. Imports will likely be lower in 2004 because drought conditions in Australia the last two years have caused flock liquidation there. Imports from Australia were lower in 2003, but New Zealand more than made up the difference.
Australia typically provides about 70 percent of US lamb and mutton imports, with New Zealand providing about 29 percent, and Canada and several other countries sending the remaining one percent. Strengthening currencies in these countries relative to the U.S. dollar may also help to limit product that the U.S. receives from them.
The U.S. receives virtually all live sheep and lamb imports from Canada, but those numbers will be low again in 2004. The U.S. received 139,161 head, mainly market lambs, from Canada in 2002. That number declined to 67,766 in 2003 because the U.S. border was closed to live sheep, mutton and lamb meat on May 20. The discovery of BSE in a Canadian cow caused the border closure.
On Aug. 8, the border was re-opened only to boned, muscle cuts from lambs under one year of age. USDA is currently considering a proposal to allow live lambs less than one year of age, and bone-in meat from lambs less than one year of age to once again enter the U.S. That proposal will likely not be approved until mid-year and may not occur until sometime in the fourth quarter.
The discovery of BSE in a cow in the US caused Mexico to officially close their border to live sheep, lambs and mutton and lamb meat on Dec. 24, 2003. However, some loads of sheep that had received import permits prior to border closure are still being exported, but the volume is about one-half the level of last year. Mexico is the major export market for U.S. ewes, mutton and lower-value lamb products. Negotiations are currently underway to re-open some of that market.
USDA announced in January that it would extend the ewe retention program for one more year. The previous program provided incentive payments for producers who purchased or retained ewe lambs between Aug. 2001 and July 2003 to expand their flocks. The program was not effective in increasing ewe numbers because of extremely dry conditions in much of the Western sheep-producing region. Somewhat improving moisture conditions, favorable prices for lambs and a new wool support program may stimulate flock rebuilding this year.
For 2004, declining domestic production and moderating imports will support lamb prices. Lamb prices should follow normal seasonal patterns and average near last year’s levels. The demand for feeder lambs should remain high, but prices will be affected by Corn Belt weather and the resulting corn prices. Parts of the Corn Belt are experiencing dry conditions, so spring and summer rainfall will be important for a good corn crop to occur.