U.S. lamb producers and feeders are digesting the results of an investigation by the USDA Grain Inspection, Packers and Stockyard Administration, which found no packer wrongdoing in live lamb prices, which plummeted in July 2011.
Extremes in prices – historical highs that turned right around and bottomed out – caused the initial questioning of packer price manipulation, which led to the GIPSA investigation, said Richard Kosesan, executive director of National Lamb Feeders Association and Oregon Sheep Growers Association.
The industry is just starting to review the report, Kosesan said, adding that he hasn’t heard much comment on the findings.
In the report, released Dec. 20, GIPSA examined the huge price swings that occurred from 2010 through 2012 and did not find that packers manipulated prices but that a number of factors led to the volatility.
The run-up in prices was extreme and the market correction was more than producers expected, said Peter Orwick, executive director of American Sheep Industry Association, which didn’t take a formal position on the requested investigation.
Prices on feeder lambs plummeted to 80 cents to 85 cents a pound, down from as much as $2.35 a pound. Producers had expected a correction more in the neighborhood of $1.20 to $1.40 a pound, he said.
The limited response he’s gotten on GIPSA’s report is that producers were disappointed but not surprised, Orwick said.
Frank Moore, chairman of Mountain States Lamb Cooperative and a Douglas, Wyo., sheep and cattle rancher and lamb feeder, said he can’t speak for all lamb producers but he’s “reasonably satisfied” with the report.
“There were an awful lot of factors that led to that situation,” he said.
Weather issues in Oceania, a short supply and high imported lamb prices created the run up in prices. High wholesale and retail prices reduced demand and led to a back-up of overweight lambs in the U.S., resulting in a supply that was greater than demand, he said.
Lamb producers knew there would be a price correction, but some didn’t think it would be as significant as it was. It was more severe than producers wanted, he said.
Things could and should have been done differently to prevent such a big downturn, but that’s all hindsight now. But he doesn’t think packers were manipulating markets, he said.
Packers had some high-priced supply and maybe kept the market high longer than they should have, which reduced demand. But they were trying to work that supply through the system and salvage what they could, he said.
The investigation into price manipulation was sought by four state sheep associations, Orwick said.
GIPSA launched the investigation following a joint request from eight U.S. senators and a separate request from one U.S. House member in October 2012.
California sheep industry folks are happy GIPSA’s report was finally submitted and made public, said Lesa Eidman, executive director of the California Wool Growers Association.
Producers in California have a pretty good relationship with packers and didn’t necessarily think something was going on. The state association was not one of the state organizations calling for an investigation, she said.
It was in the back of everyone’s mind that the high prices were not sustainable, but the speed and extent to which prices fell was surprising and concerning. When they did fall, it was to levels not sustainable for producers, she said.
During the three-year period, lamb prices to lamb producers rose substantially and then collapsed, leading many to suspect packers had manipulated prices and caused the downturn, the report stated.
Instead, GIPSA found that several market factors combined to cause the sharp increase and subsequent decrease in lamb prices.
An international shortage of lamb and the rising price of imported lamb was the primary factor contributing to the increase in U.S. lamb prices. Factors contributing to the subsequent decrease included U.S. drought (which sent more lambs to feedlots), seasonality in the lamb market, a decrease in consumer demand due to high prices, and the resulting overweight lambs that resulted in a less-desirable product.
From Jan. 1, 2010, to July 9, 2011, the weekly average dressed weight price for lamb more than doubled, reaching a peak of $392.35 per hundredweight. After July 9, 2011, prices for fed lambs started a long decline that continued throughout 2012. For the last week of 2012, the weighted average dressed formula price for fed lambs was $220.02 per hundredweight, down 44 percent from the peak price.
Addressing other concerns, GIPSA also concluded: packers did not process their own lambs while delaying purchases from other feeders; Livestock Risk Protection insurance was not a likely source of price manipulation; Superior Farms’ 2011 closure of its 2010- purchased Iowa Lamb plant was because it couldn’t purchase sufficient numbers of lambs; and packers access to rivals’ information did not lead to price manipulation.
To view the report: