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Drake's Market News

September 2015

By J. Richard Drake, Drake Livestock Company

Is the industry setting up to be like 2014? I hope not! Many lamb feeders lost a lot of money and the industry produced bad product. Last week the lamb market had the “Northern Livestock Video Auction” (Montana). They offered about 12,000 lambs. Did this market represent a true market? In the strict definition of a market, the answer is yes. I could not believe the prices paid for lambs, so I tried to find out who purchased these lambs. The majority of lambs purchased were purchased by individuals who are not in the business weekly. Some lambs go to Ethnic buyers and others to buyers that do not know where the lambs will be harvested. This makes for an unhealthy industry. As seen this week, Auction markets were $22-$24.00/cwt. lower than the video, which is an indication of a market that was not true. It is hard for a producer to understand this kind of fluctuation.

Grains are going to be inexpensive. This will be especially true in areas that will have negative basis. Harvest has started in some areas of the country. Yields vary, but are about average with the 5 year average in the early harvest areas. In areas that feed lambs during the winter, harvest will be excellent and basis will be negative for many farmers. The “Funds” at present are out of the commodities markets.

To date there have not been a lot of feeder lambs come to town as range conditions have been excellent throughout much of the west. Conditions were and are similar to last year. Lambs on feed in Northern Colorado are about 7% higher than last year, but about 25% below the 5 year average. By the first of December, the Northern Colorado feeding will have about 300,000 hd. on feed. The eastern and mountain areas produced many over finished lambs. I believe there are no economics in making lambs heavier to have lower costs. In the long run the industry is losing the consumer with these over finished carcasses. Indexes of Consumer Sentiment/Confidence always run about a month behind this report. The Conference Board’s monthly index survey is done mid-month. This is quite important this month as the August 13 cutoff was before the huge drop in world equity markets commenced on August 20. It will be interesting to see how the Board’s survey responds to the volatility we have seen over the past two weeks. Our lamb consumer could have been hit hard during this downturn. In the beef industry finished cattle have moved down rapidly especially for cattle that are over finished. Some of these cattle are trading in the $130.00/$135.00/cwt. range. Does this remind you of the over finished days? Consumers still feel very good about their personal finances with 45% reporting improvement in August. Over one-third reported recent income gains and half expect higher incomes in the next year. Three-fourths expect constant or declining unemployment.

By the end of the 3rd Q, the industry will harvest about 1.486 million sheep under FIS or down 5.8%. The industry will finish harvesting 2014 lamb during September. I was expecting a total harvest for this year of 2.17 million head. The FIS slaughter for 2014 was 2.095 million HD. If this happens (which I doubt), harvest in the 4th Q would have to come in at about 684,000 HD. The actual harvest for the 4th Q will be about 520,000 hd. or similar to last year. This will give the industry extra carryover into next year.
of consumers expecting business conditions to improve fell by nearly 2% while about the same percentage now expect them to worsen. Should the $0.87 per gallon price decline seen since June last an entire year, it would free up roughly $113 billion dollars for US consumers. It is noted by economists that the renewed confidence consumers have expressed must be nurtured, not again held hostage to partisan differences in government.

Total red meat supplies in freezers were down 1% from the previous month, but up 21% from last year. Total pounds of beef in freezers were down 4% from the previous month, but up 24% from last year. Frozen pork supplies were up slightly from the previous month and up 19% from last year. Total chicken inventories at 767.9 million pounds were 22.1% higher than a year ago and 15.9% higher than the 5 year average. Overall chicken supplies remain burdensome, especially the large supply of chicken breast meat in storage. Breast meat stocks at the end of July were 138.9 million pounds, 27.5% higher than a year ago. Lamb and Mutton in the freezer are very high. At the end of July 2014, there was 33,968,000 lb of lamb and mutton in the freezer. In 2015 there is 39,064,000 lbs. in the freezer or an increase of 13.05%. No matter what inventories say, the consumer will have ample protein.

The pelt market does exist, but is very depressed. It takes an above excellent pelt to have value ($3.00/hd). Russia’s economy is negative, Europe is very slow, and China (well it has been in the news) is slowing. The currency in these markets has not bottomed yet. This will make the drop for a lamb negative. In rough terms this means that if you are feeding within 500 miles of a slaughter plant and the carcass market is about $320.00/cwt. on a 70 lb. carcass, your return at the feedlot will be about $135.00/cwt. You have to ask yourself how these $185.00/cwt. feeders fit your operation. Also, remember your freight costs. These costs could add $10/$11.00/cwt. to the costs of your lambs.