As we approach Easter, we return to the still-hot lamb market. What are the trends in demand? What do supplies look like? What can we say about the outlook for sustained premiums in this growing market?
Dates & Deadlines
4/12/2022 – Ector County Input Cost Management Conference, Digital/Midland
4/12/2022 – Spring Dairy DOPA Program, Stephenville
4/20/2022 – Direct Beef Sales Webinar National Ag Law Center , Digital
4/22/2022 – Cattle on Feed Report
4/26-27/2022 – Hemphill County Beef Conference, Candian
6/17/2022 – Direct to Consumer Beef Sales Workshop, Amarillo
What We’re Reading
Food prices soar to record levels on Ukraine war disruptions – Morning Ag Clips
Recession Risk Is Rising, Economists Say – Wall Street Journal
Forage or silage, small grains offer options – Nebraska Farmer
The right to repair just got easier – Farm Progress
Wildfire recovery, restoration funds available to Texas landowners – Southwest Farm Press
Tips to maximize every input dollar – Morning Ag Clips
West Region fertilizer cost webinar set April 14 – AgriLife Today
Sheep Market Update
For the last few years we’ve used one blog date around Easter, a relatively popular holiday for lamb consumption, to examine the sheep and goat markets. Lamb and ewe prices are suffering through a slump at present, but remain historically high. We’ve seen an uptick in requests for sheep and goat information in the Texas High Plains and Rolling Plains regions, with more producers interested in the profits currently available in the sheep market.
What is driving the profitability in the sheep and goat market? To answer that we return to the fundamentals of supply and demand. Demand tends to be more difficult to estimate than supply, but I thought I would share a unique view of demand this week that characterizes just how much consumers are turning to lamb as a protein source in recent years. The first chart below is a representation of the growth in searches for how to cook lamb. As you can see, internet traffic on this topic has steadily increased since the 2001, with seasonal peaks and declines. But in general, searches for instructions on how to cook lamb have risen steadily, with sharp growth occurring since the pandemic.
Index of Google Searches for “How to Cook Lamb”, 2004-2022
Why the growth post-pandemic? We can speculate, but the research hasn’t been developed for a surefire answer. Lamb was already growing in popularity, as evidenced by the search history in the chart above. Generational changes in tastes and preferences, as well as diversifying demographics led to sustained, though small growth in lamb consumption through the mid-2000’s and into the mid-2010s. Restaurants like Zoe’s Kitchen that offer Mediterranean cuisine and other restaurants like Arby’s began to increase lamb offerings on menus. But the real jump in consumption came during the pandemic, when the price of other protein products skyrocketed and those products became harder to find due to supply chain issues. Though lamb remains a relatively expensive protein product, the increase in the price of beef, pork, and chicken shifted lamb to become relatively more accessible, and with more time and home consumers seemed willing to try cooking a diverse set of meals, including lamb.
Index of Google Searches for “How to Cook Lamb” 2017-2022
The next chart (above) is intended to display the significance of seasonal holiday demand in the lamb market. This chart is a snippet of the longer time period represented in the first chart. The left-hand line represents search traffic for how to cook lamb around Christmas in 2019, and the right-hand line represents search traffic for how to cook lamb around Easter in 2020. You can see the trend remains each year, with search traffic spiking around Christmas and a set of spring holidays which include Easter, Passover, and Ramadan. The spring period is an incredibly important season for lamb demand, which is why we focus on it around this time each year.
All else equal, the increase in demand for lamb would drive prices higher. However as we know all else is rarely equal. In fact, simultaneous to the increase in demand for lamb we’ve seen a steady loss in the quantity of sheep in the national flock. At its peak, the U.S. sheep flock reached just over 55 million head. By January 2022 there were only 5 million head in the national flock. In fact, the total sheep and lamb population declined over 2.5% from 2021 to 2022, largely due to drought. For more on how the drought is impacting farming and ranching you can visit last week’s post on Dusting off Drought Management Plans.
Total Sheep & Lamb Population
Data Source: USDA-NASS, Compiled by LMIC
We historically do not produce much of the lamb and mutton we consume in the United States, instead importing much of it from Australia and New Zealand. In fact, of the approximately 362 million pounds of lamb consumed in the U.S. each year, over 300 million pounds were imported. Countries like New Zealand and Australia have a comparative (and potentially absolute) advantage in producing lamb, i.e. the opportunity costs to producers in those countries is lower. Could we produce more lamb in the U.S.? Yes, and in fact I believe that we will start seeing that trend when the influence of drought begins to lessen. However historically other uses of our land have been more valuable, and so we’ve imported frozen lamb long distances.
U.S. Lamb & Mutton Imports
Data Source: USDA-ERS & USDA-FAS, Compiled by LMIC
What does all of this mean for lamb prices? Even after almost two years since the initial price shock, we are still seeing the highest reported lamb values in history. The weighted average value of all slaughter lambs in San Angelo remains well above $3.00 per pound.
Weighted Average Monthly Lamb Prices, San Angelo, Texas
The drop in prices since January is raising some eyebrows, though I believe those losses can be attributed to an early manifestation of normal seasonal patterns. As you can see from the 5-year trend (in green) and last years prices (in blue), the price for lambs tends to fall through the spring. As I mentioned earlier, peak demand for lamb products occurs around April, so slaughter lamb demand, and therefore prices, peak earlier in the year to provide time for any necessary finishing and then slaughter and delivery. Drought across the west and existing high prices in January likely pulled a lot of relatively younger and lighter weight lambs being pulled off pasture relatively early this year. Once demand for those lambs was met, buyers no longer had an incentive to continue purchasing, and we are now seeing the prices fall as they normally would, just a little earlier.
Despite the value losses over the last few months, lambs remain incredibly attractive as an alternative income source for anyone with pasture to spare. Consider that a single animal unit represents six Dorpers, while the same animal unit represents only one 1,000-pound cow and her unweaned calf, depending on size. If you sell that single calf at 500 pounds at a price of $1.60 per pound, a reasonable estimate, that animal unit will gross $800. If you sell approximately 1.25, 60 pound lambs per Dorper ewe (accounting for the expected number of twins, withheld replacements, and death loss) at a price of even $3.00 per pound that animal unit will gross $1,350, a 68% growth in revenue over the cow animal unit.
I am not advocating to transition out of cattle production and into lamb production. Changing businesses always comes with costs, and there are additional concerns with lamb production. Predator induced losses, the cost of predator control, relatively expensive replacement costs and other budget changes all represent barriers to switching to lamb production. However, there are good mixed systems for ruminants, and the revenue makes lamb production worth consideration. If you’re interested in this market, feel free to reach out to myself or Pancho Abello for more information.