The NLFA Board feels an educational letter needs to be put out to the sheep industry that, in their opinion, will explain what has happened to our industry, marketwise, in the last couple of years.
In 2011 there was a world shortage of sheep meat – Therefore, a shortage of wool, sheepskins and meat. This shortage was partially caused by a rebuilding of the Australian flock and a terrible storm that killed upwards of a million lambs in New Zealand.
The US numbers had also been reduced which exacerbated the lambs available for harvest. We saw record wool prices, sheepskin prices and lamb meat and sheep meat prices.
As we moved into 2012, we saw major drought from California through the mountain states into the corn belt creating shortages of pasture, corn, hay and soybeans. Therefore, record high prices. In June, corn went from $5.50/bu to almost $8.00/bu. in 30 days. We also saw record fuel, fertilizer and food prices.
A downturn in the European economy and slow recovery of the US economy, affected the demand for high end pelts for fashion garments, worldwide. The major world tanners were choking on a very expensive skin inventory. In June, the Chinese pulled out of the Australian skin market. The US skin market collapsed from a $30 + skin to a minus $12 skin.
We all know that lambs in 2011 lambs were bringing anywhere from $1.50 -$2.30, and today from $.70 – $1.10.
Many producers are asking WHY?
Most lamb feeders know why and definitely lamb processors know why.
The facts are, that lamb feeders and processors took tremendous losses on livestock inventories as well as cold storage inventories. The livestock losses have been as high as $200/hd for lambs. The cold storage inventory, depending on accounting procedures has either been written down and the losses taken, or the losses are yet to be recognized in the future.
Why were the losses so high?
1. Most of the plants could not get the lambs harvested fast enough, because they were trying to recapture the record high cost of goods and tried to pass the cost on to their customers.
2. Because the cost of gain was higher than the live market.
3. The pelt market fell apart.
Why did the processor hold the market so long at the level they did?
Because they could. Remember, there are only five major plants in the US and really only two that sell carcass lamb. The buyers of carcass lamb must be careful when supply is short, or they may not receive what they need. Therefore, it is necessary to pay the price the packer demands, in order to supply the market.
Also, the processor was trying to recapture losses due to paying too much for the livestock.
During 2011, we had record live prices, due to lack of adequate supply and the processor trying to meet volume demands and customer needs.
The result being sales fell away and most consumers could not afford the lamb meat. Sale volumes at wholesale, dropped about 20%. Average lamb carcass weights went to record highs.
We are slowly coming out of this terrible situation. The industry is at a new price level. Carcass weights are coming down and the volume of sales is increasing.
We hope that the sales people and CEO’s at the plant level have learned a real lesson. You can price lamb and lamb cuts too high.
We also know that lamb feeders can pay too much for feeder lambs and that will affect how and if they are in the market the year after a wreck like we had in 2012.
Let’s look at what the industry has done for itself since the last major wreck in 2006 as well as the previous wreck in 2001.
There has been a crop insurance program put into place, LRP Lamb, thanks to years of work by the ASI. LRP Lamb has put tens of millions of dollars back into the industry. A grower or feeder is able to help manage risk through this program.
The Wool Superwash system is up and running, creating the availability of a washable wool product here in the US. The makers of garments do not have to source this product in Europe, but instead can find it here. Our American Military will use this wool in clothing for its practicality and safety.
Electronic grading is sitting on the shelf – ready to go. We feel if it had been in place a year ago, it could have potentially helped avoid the disaster we have all faced. Electronic grading evaluates carcasses in real time. It can also provide the retail value of each carcass. This technology can be used to improve the efficiency of our industry by recognizing cutability and yield to retail sales. Electronic grading is being used in Europe and in the beef and pork industries here in the US. Why not lamb?
Certification of Ultrasound Technicians developed with the help of Iowa State and North Dakota State. These certification schools prepare technicians to be able to determine backfat and rib eye area in the live animal with great accuracy
The American Lamb Board has done a remarkable job given available resources and record meat prices in keeping American lamb in the news and in front of the American consumer.
We must recognize the USDA for their purchases of American Lamb over the last several years. This has helped to alleviate hunger in the US, but also creates additional demand for our product.
The lamb processor since 2006, has been discounting heavy and over fat carcasses. There has been a price spread between these light and heavy carcasses. They have continued to invest heavily in plant and equipment improvements to stay up with the demands of their customers and government agencies.
“2012 was not done on purpose. It has been a real learning experience for everyone in our industry”
What can we do as an industry, to make a difference?
The NLFA Board understands that a New Study has been approved. We wish the participants a positive result in discovering how the industry can improve itself.
Producers can become more efficient – through increased lamb percentages, (2+2+2) is still an excellent program – through genetics, by selecting terminal sire rams with EPD’s or at least known rib eye measurements.
The American Lamb Board could co-op with processors to bring electronic grading into practice.
Feeders could develop a strong relationship with a processor, rather than harpooning him when he is short of supply – and, vice a versa – the processor harpooning the feeder when he is long on supply.
Our industry is very small and fragile. All segments need to be profitable for the sheep industry to be sustainable. These are the thoughts and ideas of the NLFA Board for your consideration.
Thank you for your time.