Factors affecting lamb markets
by Sally Colby
The factors that affect lamb markets and prices extend beyond what lambs are bringing at local auctions. Jim Robb, senior agricultural economist, Livestock Marketing Information Center, explained that weather conditions, forage availability, the national corn crop and the number of ewes across the nation all contribute to prices.
“This is a difficult economic environment,” said Robb, who’s been working on sheep and lamb market outlooks since 1991. “This is one of the most challenging periods we’ve had. There are a lot of moving parts.”
Robb explained that volatility is inherent in this market, from the consumer side, restaurant purchases and what’s happening at the packer level. “It’s a hand-to-mouth market,” he said. “People don’t tend to buy ahead and we have prices running up and down on a short-term basis rather quickly. In the auction barn, we may have buyers show up one week and not the next week.” He added that disruptions in lamb packing plants are similar to those occurring with poultry, beef and pork.
With animals bunched up in the marketplace, careful management of forage is essential. Drought conditions in certain areas have cut the forage supply. Robb said with pasture conditions precarious in much of the country, producers should re-evaluate on-farm production, especially when animals have to be held.
Robb urged producers to watch conditions beyond their own area, and to look at regional and national weather conditions because changing conditions can result in numerous animals coming to market quickly, which in turn can dramatically impact prices.
Robb said COVID-19 has become a story of both demand and supply. “The supply side is producing and processing lamb, and the demand side is customers – both restaurant and retail,” he said. “Those customers do not care about your cost of production. They’re looking for quality characteristics, something they find value in and are willing to pay for. We have to charge quite a bit more because of the cost of production is much higher than for pork, chicken or turkey.”
The coronavirus resulted in a double whammy – demand issues continuing due to the economic recession and the lag in the restaurant sector. “Then we had a supply situation with not enough supply a little while ago,” said Robb. “The lamb industry actually benefited from that. In the marketplace, when there was not enough beef and pork on grocery shelves, lamb lucked out. We were surprised because we’re very dependent on the restaurant side in the lamb industry, so we were able to get quite a bit more product in grocery stores. Now we’re on the flip side of that where the supply is increasing dramatically.”
Despite being in a significant economic slowdown, consumer sentiment is good, which Robb said is a good sign. “Consumers are starting to feel better, and they feel better than from 2008 through 2011,” he said. “That’s a hopeful sign, even though we have a lot working against us.”
Competing meats impact the lamb industry. “There’s much more impact on the lamb industry from the pork industry than most people would guess,” said Robb. “That’s largely because of competition at Thanksgiving, Christmas and Easter.” The pork and beef sectors have also suffered and made adjustments. “We were expecting total red meat and poultry supplies to set a record large level in 2020 and again in 2021,” he said. “That may not happen now, especially in 2021. The economics are poor enough that the beef industry quit growing as of January 1, 2020, the hog industry has slowed their rate of growth, chicken is also slowing their rate of growth and turkey is declining. The big picture of competing meat is a little less daunting than it was – competing sectors are adjusting very quickly in the face of the economic environment.”
Feeds and forages are critical factors in the ruminant market. Robb said the 2020 corn crop in the Midwest is doing well, which will affect the feeder lamb sector. “We could have a record large corn crop in 2020 and not a lot of demand,” he said. “The ethanol industry is still weak, and we have some pullback in the livestock sector.”
At this point, U.S. hay stocks are in good shape, with a year-over-year increase in the national hay stock of 37%. Robb advised producers to pay attention to the hay crop and what’s happening in their own region because it can benefit them as they plan feeding programs.
For lamb markets and price outlook, prices are similar to those of this time last year – some below the five-year average. “The feeder lamb compared to slaughter lamb is being buffered by lower feedstuff costs and pretty good forage conditions,” said Robb. “We expect prices to gravitate a bit higher seasonally if we don’t have another major COVID outbreak where we lose labor and the ability to process animals.”
A look at the national ewe flock, including breeding ewes one year and older as reported by USDA, shows the industry is stable. Robb said there’s a lot of enthusiasm for producers to expand the national flock, but not a lot of economic pressure yet because of the abrupt decline in the U.S. flock. “We’re marking time,” he said. “We’re waiting for the economic environment to be less uncertain and for the production environment to be less uncertain. This is a good picture considering the picture we had where industry economics (in the early 2000s) caused huge decline due to lack of profitability. It’s not very profitable, but it’s a stable production environment.”