Risk Management
As I am writing this article, the world seems to be in complete disarray. The news from Ukraine is absolutely heartbreaking. Inflation and fuel prices are out of control. And the drought across the sheep and goat region of Texas is worsening by the day.
On the bright side, the sheep and goat market has remained strong through all this turmoil. While we hope that this market is the new normal, it is prudent we recognize the possibility of a down turn. Trying to predict the market is risky business but it is the reality for industries that are price takers.
I keep thinking back to 2012, when the market collapsed. Two years prior, I had just taken my first academic position at North Dakota State University. The ethnic market had established itself as a major part of the US lamb industry, a historic drought in Texas was greatly impacting supply of lamb, and US dollar had weakened which reduced import pressure. As a result, lamb and goat prices hit all-time highs. All we could talk about at industry meetings was “This market is here to stay, and we need to capitalize on it!”
As with most commodities, the high prices started to reduce demand and harvest volumes slowed. Lambs in the feedlots got heavier and heavier. The US dollar started to gain strength which further enticed the oceanic countries to ramp up imports into America. And as quickly as our domestic market climbed; it came crashing down. The traditional lamb industry was hit the hardest, the non-traditional lamb industry to a lesser degree, and the meat goat trade came out mostly unscathed.
I am not necessarily predicting a major market crash in the near future. Factors are very different, and potentially more favorable in 2021 compared to 2011. For me the real question is “How high can the market climb without negatively impacting consumer demand?” Based on presentation at the ASI convention in San Diego, restaurant and retail markets are reducing orders and/or switching to cheaper import product. The ethnic market for lamb and goat tend to not compete with imported product. But a rising tide lifts all boats; therefore, it isn’t fully immune to it either. And the same principles of supply and demand for both consumer and producer apply.
It is also prudent that we consider the seasonal market flux here in Texas. The yearly market data we collect and publish on our website indicates strong markets in the winter markets and weaker markets in the summer. As we transition to spring, the volume of animals sold at auction will go up with the natural production cycle and it will likely have a negative impact. In addition, the ethnic holiday seasons are now earlier in the spring and early summer.
For me, the greatest risk for the sheep and goat industry in today’s market is buying high priced breeding animals. As long as someone is making this purchase with a long-term approach, they should be fine. But new or expanding producers that are relying on high priced lambs or goats in the short term might find themselves a tough situation, if a market correction occurs in the near future.
While, I tend to be an optimist and look at the glass half full, I also feel obligated to share my experience from being too optimistic in the past. In full transparency, I was concerned last year that the market was going to see a correction and it didn’t.
As an industry, we must be able to weather the highs and lows of the market, along with drought, parasites, predators, just to name a few. Hence the reason that raising livestock takes a special breed of people. Time and time again history has showed us that business’ that manage their assets and expenditures to be robust against price crashes are able to persist long-term.
Time will tell what our future holds. Hopefully, that includes a stable and sustainable market for all segments of the industry. Just as importantly, I pray spring rains are right around the corner to quench the thirst of this droughty landscape.
To provide feedback on this article or request topics for future articles, contact me at reid.redden@ag.tamu.edu or 325-657-7324. For general questions about sheep and goats, contact your local Texas A&M AgriLife Extension Service county office. If they can’t answer your question, they have access to someone who can.