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Sheep industry seeks to recuperate from 'perfect storm' in 2012

Published on January 12, 2013 3:01AM

Last changed on February 9, 2013 7:30AM


Capital Press

A short global supply of lamb in 2011 resulted in a run-up in prices during the latter part of the year that ended up turning consumers away from the meat and knocking the bottom out of lamb markets.

It was a "perfect storm," said Richard Kosesan, executive director of the National Lamb Feeders Association and the Oregon Sheep Growers Association.

"Prices escalated pretty dramatically and pretty rapidly. Overall, the market place went up too high, too fast and dampened demand," he said.

That opened the door to competition from other protein sources and foreign competitors. For the past 12 months, producers have been getting only about half the price for their lambs that they did a year earlier, he said.

Feeder lambs brought $150 to $230 per hundredweight in 2011. Today, that price is $70 to $110 per hundredweight, according to the National Lamb Feeders Association.

Considering the price drop and record-high feed costs, some producers have lost as much as $200 per head, and the processing sector probably had its worst year in the industry, said Tom Watson, National Lamb Feeders board member and a Hermiston, Ore., seed stock producer.

"The world had a shortage of sheep meat. Prices went up and up and up until world consumers walked away," he said.

The U.S. supply and demand had been on an even keel until the two largest exporters to the U.S. -- Australia and New Zealand -- suffered their own lack of supply, due to drought and rebuilding herds in Australia and a freak storm in New Zealand, said Reed Anderson, a board member for the American Lamb Board and a Brownsville, Ore., sheep producer.

The lack of imports caused prices to shoot up. Then, as demand outstripped supply and prices kept rising, many consumers were no longer able or willing to buy lamb, he said.

In 2012, production numbers recovered in Australia and New Zealand and exports to the U.S. came back even stronger because U.S. markets were more stable than European markets, he said.

"There was a helluva a glut. Prices went way down. We're still working through the glut," he said.

The U.S. sheep industry is so small that it doesn't take much of a change to have huge swings in prices, he said.

The combination of market resistance and higher production costs contributed to mismanagement of live slaughter supplies in late 2011, according to a current analysis by Livestock Marketing Information Center.

By spring, there was a back-up of slaughter lamb supplies and by summer, the industry was in a situation of excessively over-finished lambs and off-type product, which damaged customer demand, LMIC said.

Slaughter lamb carcasses started 2012 near $329 per hundredweight. By October, that price had fallen more than $100 per hundredweight. Prices have stabilized since October, averaging $220 to $223 per hundredweight, LMIC said.

The slaughter lamb situation combined with higher feed costs also added to a collapse in feeder lamb prices, which were down 30 percent or nearly $65 per hundredweight in 2012, compared with 2011, LMIC said.

Things are looking better today, with the industry having worked its way through overweight and overfat lambs and prices improving on fat lambs and feeder lambs, Watson said.

Things are improving, but it has taken a wringing out of processors and producers, he said

And there is still uncertainty on the feeder side over the cost of feedstuffs and whether they can get lambs slaughtered in a timely manner, he said.

There is also concern over demand. If consumer demand has not been severely damaged, tighter beef supplies and higher prices should provide support for lamb, LMIC said.

Nonetheless, the sluggish U.S. economy will also impact demand, and LMIC is forecasting lamb slaughter to decline about 4 percent in 2013. Slaughter lamb prices are expected to average slightly above those in 2012, with the highest year-over-year increases in the second half of the year.

Feeder lamb prices are also likely to rebound in the second half of 2013 if near-normal pasture and crop conditions materialize, LMIC said.



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