1. 2016 Sheep Industry Review Prepared by the
American Sheep Industry Association
for the American Lamb Board
March 2017

2. Contents Executive Summary Inventory
Feeder and Slaughter Lamb Market Trends
Carcass and Boxed Lamb Market Trends
Lamb at Retail
Price Spreads
Pelts
Replacement Sheep
Domestic Production and Trade
Nontraditional Market
Total Lamb and Mutton Availability
Price Comparison to Imported Product
Exchange Rates
Price Projections and Outlook

3. Executive Summary
The U.S. sheep and lamb industry had a lackluster year in Retail prices were down annually, which prompted weaker wholesale, slaughter and feeder lamb prices. Imports were up, but also cold storage stocks were down sharply, two factors that could have had had a price-depressing effect. The lack of price reporting could also likely have played a hand in lower prices overall.
In 2016, sheep inventory contractions reflected multiple concerns among producers including regulatory changes such as higher sheepherder wages and overall lower lamb prices over the past couple years. Breeding ewes totaled million in 2016, down 2% annually. Texas, the state with the highest inventory of breeding ewes, saw a 2% decline in inventory.
Many lamb markets saw their third straight year of lower prices. Sixty- to 90-lbs. feeders at auction averaged $ per cwt. in 2016, down 4% year-on-year. Live, negotiated slaughter lamb prices averaged $ per cwt. in 2016, down 0.3% annually.
The net carcass value (wholesale composite less processing and packaging) averaged $ per cwt. in 2016, down 4% year-on-year. Yield Grades 4s and 5s were marginally lower in 2016 at about 24% of the total graded harvest.

4. Executive Summary, page 2
Federally-inspected lamb and mutton harvest was up 5% in 2016 to 2.04 million head. Estimated lamb production in 2016 was million lbs., up 4% year-on-year.
Perhaps one of the biggest stories out of 2016 was that carcass-based slaughter lamb prices on formula/grid ceased to be published after January 2016 due to AMS’s concern over packer confidentiality.
Reduced price reporting in the lamb industry creates a knowledge gap in the industry, which is not conducive to long-term growth. Lack of price reporting compromises the industry’s ability to offer price insurance and puts into question industry efficiency and fair trade practices. The 1921 Packers and Stockyards Act promotes “fair business practices and competitive environments to market livestock, meat, and poultry,” (USDA website, accessed 3/8/17).
In 2016, price reports were lacking for 40% of the slaughter lamb market. Twenty percent of harvest was lambs on formula/grids and another 20% was packer-owned. Twelve percent was live, negotiated trades and the remaining 43% was lambs sold at auctions. In an industry that sometimes struggle with quality, the lack of price reporting doesn’t allow price signals from consumers to be transmitted back to producers thereby creating inefficiencies. Furthermore, it is possible that the lambs traded with price reporting could be of lower average quality, bringing down average lamb prices across all markets.

5. Executive Summary, page Another headline affecting lamb markets was that in late January 2016, USDA/AMS adopted new classes for pelt reporting, to better identify prices for like quality pieces. Prices now reflect producer compensation for pelts, rather than what packers received for pelts Outlook In early March, the Livestock Market Information Center (LMIC) forecasted a sharp contraction in lamb and mutton supplies for the U.S. in Both U.S. lamb and mutton production and imports could be down this year, by 4% and 5%, respectively. Total available supplies could be down 15% to million lbs. For 2017, LMIC forecasted slaughter lamb prices on a carcass basis could see $281 to $287 per cwt., up 0.9 percent from Feeder lamb prices could average $182 to $190 per cwt., steady with 2016.

6. I. Inventory

7. Breeding ewes totaled million in 2016, down 2% annually --Sheep & lambs inventory was 5.2 million, down 2%

8. The Northeast, Mid-Atlantic, Great Lakes, and Midwest gained while some western states lost inventory
Breeding Ewes (1 Year & Older) by ASI Regions
2015 number of head
2016 number of head
% Change
Region 1 -- Northeast
107,000
109,000
1.87%
Region 2 -- Mid-Atlantic
100,000
104,000
4.00%
Region 3 -- Great Lakes
112,000
114,000
1.79%
Region 4 -- Midwest
178,000
180,000
1.12%
Region 5 -- Texas
435,000
455,000
4.60%
Region 6 -- Colorado & Desert States
480,000
474,000
-1.25%
Region 7 -- Northern Rockies
513,000
520,000
1.36%
Region 8 -- West
416,000
403,000
-3.13%
Source: USDA/NASS, ASI

9. Year-to-year Percent Change
Texas, the state with the highest inventory of breeding ewes, saw a 2% decline in inventory in 2016
Top 10 Largest Sheep States, 2017 Growth Rates, No. of Head
Rank
State
2016
2017
Year-to-year Percent Change 1
TEXAS
445,000
435,000
-2.2% 2
CALIFORNIA
265,000
270,000
1.9% 3
WYOMING
215,000
225,000
4.7% 4
UTAH
205,000
-4.7% 5
COLORADO
184,000
160,000
-13.0% 6
MONTANA
159,000
0.0% 7
SOUTH DAKOTA
161,000
155,000
-3.7% 8
IDAHO
146,000
138,000
-5.5% 9
OREGON
101,000 10
IOWA
100,000
95,000
-5.0%
Source: USDA/NASS, ASI

10. II. Feeder and Slaughter Lamb Market Trends

11. 60-90 lbs. feeders at auction averaged $184. 99 per cwt
60-90 lbs. feeders at auction averaged $ per cwt. in 2016, down 4% year-on-year
San Angelo feeders averaged $ per cwt., down 5%
Ft. Collins feeders saw $ per cwt., down 4%
Sioux Falls feeders averaged $ per cwt., down 3%

12. Auction Feeders Lower Annually

13. Feeder lambs in direct trade averaged $158. 19 per cwt
Feeder lambs in direct trade averaged $ per cwt. in 2016, down 2% annually % higher than its 5-year average

14. Feeders in Direct Trade
Totaled 85,850 head, down 2% Annually
--44% lower than its 5-year average

15. Live, negotiated slaughter lamb prices averaged $145. 24 per cwt
Live, negotiated slaughter lamb prices averaged $ per cwt. in 2016, down 0.3% annually.

16. Live, negotiated slaughter lambs represented about 12% of market in 2016

17. Slaughter lamb prices at auction averaged $143. 16 per cwt
Slaughter lamb prices at auction averaged $ per cwt. in 2016, down 3% year-on-year.

18. Slaughter Lamb Prices at Auction Lower in Volatile Market

19. In February 2016, slaughter lamb prices on a carcass-based formula--or grid—were no longer being reported.
Reports not published due to USDA/AMS concerns about packer confidentiality.
LRP-Lamb insurance program also suspended.
Formula/grid lambs were an estimated 20% of the market in 2016.
Leaves a knowledge gap in the marketplace.

20. Packer-owned & formula sales 40% of the market in 2016

21. III. Carcass and Boxed Lamb Market Trends

22. 2016 Carcass Reporting Limited, Spotty --Prices for some weight classes not published.
65-75 lb. carcasses averaged $ per cwt., 6% lower annually.
75-85 lbs. carcasses averaged $ per cwt., 4% lower.

23. Carcasses Seasonal

24. YG 4s and 5s Marginally Lower in 2016 (24.4% in 2015 to 23.7% in 2016)

25. Federally Inspected Lamb and Mutton Yield Grades Percentages derived from yield grade by lbs. Source: USDA, AMS, Livestock and Seed Division
YG1
YG2
YG3
YG4
YG5
2012
5.0%
28.2%
36.7%
17.6%
12.5%
2013
7.2%
36.4%
35.4%
13.6%
7.5%
2014
5.5%
33.4%
41.2%
14.4%
2015
5.3%
28.9%
41.4%
16.1%
8.3%
2016
6.5%
30.3%
39.5%
16.0%
7.7%

26. Number of Lambs Graded Trending Downward

27. 2016 Net Carcass Value (Composite of wholesale cuts) Lower
The net carcass value (wholesale composite less processing and packaging) averaged $ per cwt. in 2016, down 4% year-on-year.
Leg and loin were stronger in 2016, but the rack and shoulder weakened.

28. 2016 Net Carcass Value saw Mid-Year Dip and then Recovered Marginally

29. Wholesale Primals Mixed in 2016

30. Rack, 8-Rib Medium, Dipped below $7 per lb.
The rack averaged $ per cwt. in 2016, down 8% year-on-year.

31. Loins Gained in 2016
Loins, trimmed 4x4, averaged $ per cwt., up 2% year-on-year.

32. Leg, Trotter-Off, Higher Year-on-Year
The leg averaged $ per cwt. in 2016, up 1% year-on-year.

33. Shoulder Weaker Year-on-Year
The shoulder averaged $ per cwt. in 2016, down 3% annually.

34. Ground Lamb Weaker
Ground lamb averaged $ per cwt., down 6% annually.

35. IV. Lamb at Retail

36. Retail Lamb from Primals all Lower in Rib down 2%, loin down 5%, shoulder down 6%, and leg down 1%

37. V. Price Spreads

38. In 2016 the rack-loin spread narrowed: In 2016 the rack saw an 8% drop and the loin gained 2%
Comparing wholesale cuts:
rack, medium, 8-rib and 4x4 trimmed loins.

39. Understanding Packer Spreads
Packer price spreads do not include any costs of processing.
Packers sell wholesale primals (cuts) which are combined together and called the cutout.
Packers also sell carcasses, to the processing industry and to one another.
The price spreads assume that all that is processed sells and no allowance is made for cold storage tonnage.

40. Packer spreads in the second half of 2016 gained as meat prices held stronger than live lamb prices

41. VI. Pelts

42. New U.S. Pelt Reporting
In late January 2016, USDA/AMS adopted new classes for pelt reporting, to better identify prices for like quality pieces.
Prices now reflect producer compensation for pelts, rather than what packer received for pelts.
Descriptors for Pelt Classes include square footage, discolored fiber, manure/seed free, staple length, micron, and processing defects.

43. Strong USD & Weak International Pelt Demand Depressed US Market
Supreme—highest quality—unshorn pelts brought $7.92 per piece in 2016.
Damaged/puller pelts—the lowest quality—averaged -$1.91 per piece. Packers asked for a disposal fee.

44. Pelts Did See Some Late 2016 Recovery

45. VII. Replacement Sheep

46. Ewe Prices Lower in 2016 --Ram prices not established.
Replacement Sheep Prices, $ per head
Ewe Lambs
Yearling Ewes
Young Ewes, 2-4 years
Middle Aged Ewes, 5-6 years
Aged Ewes
Rams Black Face
Rams White Face
Rams Cross Bred
2010
134
197
159
120 91
551
474
454
2011
196
287
250
194
152
717
1035
768
2012
184
211
153
105
518
627
549
2013
122
170
138 99 71
508
648
470
2014
172
279
238
158
118
650
479
697
2015
237
192
151
109
767
675
662
2016
226
186 96 NA
% change in 2016
-5%
-3% 0%
-12%
Source: USDA/AMS, ASI

47. Ewe Prices Variable, Dependent Upon Age

48. VIII. Domestic Production and Trade

49. Federally-inspected lamb and mutton harvest was up 5% in 2016 to 2
Federally-inspected lamb and mutton harvest was up 5% in 2016 to 2.04 million head

50. Lambs and yearling harvest up 5% in 2016 to 1
Lambs and yearling harvest up 5% in 2016 to 1.9 million head; mutton harvest up 5% to 108,000 head

51. Estimated lamb production in 2016 was 132. 8 million lbs
Estimated lamb production in 2016 was million lbs., up 4% year-on-year

52. Live slaughter weights were 136.79 lbs., down 2% year-on-year

53. Cold storage 2016 monthly average was 37. 9 million lbs
Cold storage 2016 monthly average was 37.9 million lbs. of lamb and mutton, down 15% from 2015’s average We don’t know what portion of this is bone-in, boneless, or domestic versus imported product. --Some of the stored meat will be boneless and imported with lower cut weights.

54. Freezer Inventory Down Sharply

55. Beginning in Sept. 2016 freezer inventories began to come down

56. Lamb imports climb to over half the U.S. market

57. Lamb & Mutton Imports were Up 1%
Year-on-Year to Million Lbs. in 2016

58. Lamb Imports were Up 5% Year-on-Year to 188.1 Million Lbs.

59. Australian Lamb Imports Up 9% Annually
Australian lamb imports were up 9% in o million lbs.
NZ’s lamb imports were down 3% to million lbs.

60. The value of lamb imports held steady in 2016 at $613 million.

61. Total mutton imports were 28 million lbs. in 2016, down 20%
-- Australian mutton imports were down 18% to 21.9 million lbs.;
-- NZ imports were down 27% to 5.9 million lbs.

62. Total lamb & mutton exports were up 23% in 2016 to 5.4 million lbs.

63. Lamb exports were up 96% to 835,000 lbs
Lamb exports were up 96% to 835,000 lbs. and mutton exports were up 15% to 4.6 million lbs.

64. Total live lamb and sheep exports were down 41% in 2016 to 51,638 head --Exports to Mexico were down 21% to 13,366 head; and --Exports to Canada were down 46% to 112 head.

65. Live exports low compared to 2008-2010

66. 2016 Cull Ewe Prices down 13% to $60.26 per cwt.

67. IX. Nontraditional Market

68. Nontraditional Market Significant Segment of U.S. Sheep Industry
The nontraditional market is often characterized by a lighter-weight lamb, around 100 lbs., but very variable depending upon customer.
The nontraditional market is mainly comprised of lambs sold direct to consumers.
Some nontraditional lambs are processed by state inspected plants and even some FI plants.
The largest nontraditional markets are the livestock auctions at New Holland, PA and San Angelo, TX, but nontraditional markets exists across most auctions.

69. Over 700,000 lambs estimated in the nontraditional market, 25% of all 2016 harvested lambs

70. Slaughter lamb prices at New Holland in 2016 were about 9% lower year-on-year --Price trends differed by weight class.

71. X. Total Lamb and Mutton Availability

72. Total lamb supply estimated at 333. 4 million lbs
Total lamb supply estimated at million lbs., up 3% annually --Import share up 3% in 2016 to 56% of market

73. Over past 20 years, imports up, domestic production down, total supplies up in last 5 years

74. XI. Imported Product Price Comparisons

75. In 2016 the US Loin Held a Premium over the AUS Loin

76. U.S. Premium to the AUS Shortloin Positive in 2016

77. Although Racks Weakened in 2016, the U.S. Premium Maintained
*Note weight differences: U.S. rack lbs. and imported rack 28 oz. +, not a perfect comparison, but useful as a snapshot.

78. 2016 U.S. Rack Premium Higher than in 2015

79. U.S. Fabricated Racks Receive Price Premium to Imported Racks
U.S. rack, roast-ready, frenched (204C) averaged $1, per cwt. in 2016, down 9% year-on-year.
U.S. rack, roast-ready, frenched, special (204D) averaged $1, per cwt. in 2016, down 6% year-on-year.
The AUS rack cap-off, 28 oz.+ was $ per cwt., down 2% annually.

80. U. S. rack receives price premium and U. S
U.S. rack receives price premium and U.S. and imported prices tend to move together

81. U.S. and AUS Shoulder Margin Narrowed in Late 2016 as AUS Shoulder Gained

82. US Shoulder Premium Volatile, but Higher than 2015

83. XII. Exchange Rates

84. Australian Dollar Stronger Against
US$ in 2016
-- In the Australian/U.S. rate fell by 1.2% to 0.74.
-- In 2016 the NZ/U.S. rate fell 0.3% to 0.69

85. Stronger U.S. Dollar Boosts Import Competiveness

86. XIII. Price Projections and Outlook

87. Index Lends Predictive Insight
The third quarter is historically the lowest-priced quarter of the year for both feeder and slaughter lambs.
The index shows the average relationship of prices in each month to the average for the year. An index of 105 means prices are 5% above the annual price average.

88. Feeder lamb prices at auction highly seasonal with lowest-priced months in August and September

89. Slaughter lamb prices at auction seasonal with lows in August

90. Livestock Market Information Center (LMIC) 2017 Forecasts:
In early March, LMIC forecasted a sharp contraction in lamb and mutton supplies for the U.S. in 2017.
Both U.S. lamb and mutton production and imports could be down this year, by 4% and 5%, respectively.
Total available supplies could be down 15% to million lbs.
LMIC reported that per capita consumption could fall from lbs. per person to 0.97 lbs.

91. Price Forecasts
The sharp contraction in available lamb and mutton supplies might support lamb prices.
For 2017, LMIC forecasted slaughter lamb prices on a carcass basis could see $281 to $287 per cwt., up 0.9 percent from 2016.
Feeder lamb prices could average $182 to $190 per cwt., steady with 2016.

92. Thank you!