The reasons behind the lamb market collapse

“What’s going on with the lamb prices?” This is a very common question as of late.

Slaughter lamb prices were very high last year, which translates into high lamb prices in stores. This normally creates consumer resistance and consumption declines. A moderation in prices would be required once again to increase consumption. This is the cycle.

To add to this, the high cost of feed grains would make feeding lambs less attractive and the price gap between slaughter and feeder lambs would narrow. The numbers indicated no reason for a significant price decrease; prices and demand should be good. The numbers:

  • Stocks of frozen and chilled lamb and mutton down four per cent over the same period last year.
  •   Meat imports down 19.4 per cent over the same period last year.
  •   Consumption, seeing a slight decrease in 2011 to 0.9 kg per person down from 1.07 kg per person in 2010, suggests in most part due to higher price of lamb in stores.
  •   Modest increase in the Canadian flock comparing inventories from January 1, 2011 to January 1, 2012. Ewe numbers were up 0.6 per cent, replacement ewe lambs up 4.1 per cent, market lamb numbers up 4.9 per cent. Nothing substantial and there was a shortage of lambs.

So what’s happening?

There are a number of factors, in my opinion, putting downward pressure on lamb prices:

There is a backlog of heavy lambs created by a lack of demand. Consumption is way down due to the extremely hot weather in Canada’s largest lamb-eating market. Who wants hot food when it’s that hot?

The prices paid for lambs last year were not supported by product marketing. Consumers will pay more when there is perceived value for cost. We asked them to pay more, but did consumers perceive more value for the extra cost?

Once burned

Lamb prices were driven up to a level which was not good for the industry. Under the current marketing structure, producers did very well. However, buyers and processors did not. This year buyers and processors are being very cautious.

There is a worldwide price correction happening. The price of lamb is down in many countries, not just in Canada.

Lamb slaughter plants are in control and there’s currently a backlog of lambs. It’s simply a supply-and-demand issue.

Auction mart numbers to date are up, created in part by producer panic rather than an actual increase in overall supply. Adding to the panic are weather-related issues. Very dry, hot conditions in the East and through much of the U.S. are creating feed shortages and high feed costs.

Heat is also reducing consumption. The markets in the U.S. have collapsed, making it very attractive for processors to bring up American lambs and they are coming up by the truckload.

Lamb buyers are very cautious because of the degree and speed of the collapse in prices. I’ve talked to many buyers who bought lambs they thought were at fair prices, but by the time they got possession of the lambs or sold them the price at the plants had dropped to levels to where buyers were losing money. In one case, the price dropped $40 cwt in one week.

High feed costs such as $8.85-a-bushel corn and $5.75-a-bushel barley, the heat and the price decline makes feeding lambs extremely risky.

Risky

You put it all together and the results are what we are seeing. So when will the price rebound?

Going back to the numbers, I have some thoughts. Once we get through this backlog of heavy lambs and the weather starts to cool down in fall, consumers will again start eating lamb. We will eat our way through this.

We are not in an oversupply situation in Canada. Consumers ate lambs last year at very high prices. With prices moderating consumption it should go up again. I encourage producers to hang in there. We are coming off an extremely good year last year which makes this hurt even more.

Long term, I feel we need to make some fundamental changes to the way we market Canadian lambs. To keep producers in the industry and attract new entrants, producers need to be paid fairly and be profitable. What’s happened recently in the lamb industry will set the industry back once again.

This frustrates me as I’ve seen this cycle over and over again in the years I’ve been in the industry. We’ve all heard the saying, “the definition of insanity is doing the same thing over and over again and expecting different results.” The history of the lamb industry for the most part is this; it gets rid of its lambs; it does not market them.

Co-operative approach

What’s happening to producers right now is exactly why the Canadian Lamb Producers Co-operative is being developed. We’ve travelled across this country talking to producers about their interest and the feasibility of a producer-owned marketing organization.

Many of you were excited about the opportunity and encouraged us to continue the development process; others of you say it will never work. I would ask this; is the current marketing structure for Canadian lamb working?

Many retailers long for access to Canadian product. There is no Canadian marketing organization; there is no Canadian brand, very limited value adding. Consumers are looking for Canadian product. The words “Canadian lamb” alone bring with it perceived value. Consumers will pay for value. How are we currently marketing the value of Canadian product?

The Canadian Lamb Producers Co-operative could help address many of the current marketing issues in the Canadian lamb industry. There are some things we can’t change but there are things we can. How we market our Canadian lamb is one of them.

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