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Exchange Rates and Their Effect on U.S. Sheep Industry

September 13, 2016

Per capita lamb and mutton consumption is fairly stable in the U.S. Imports of lamb have offset the decline in domestic production in recent years. Lamb and mutton imports, currently account for nearly half of U.S. consumption, are mainly from Australia (about 68-70 percent) and New Zealand (about 30-32 percent).

Global Drought Conditions & Lamb Supply
Drought conditions throughout much of the world during 2015-2016 (particularly in New Zealand) caused many of these producers to decrease their flock size, thus decreasing available world supply of lamb. The supply of lamb in New Zealand (NZ) dropped last year as producers were looking to deal with drought. The supply of lamb in NZ is expected to decline again this spring and drop by 2.9 percent. Slaughter rates in NZ have hit a record low in August. During this time less than 560,000 lambs were processed, a 34% decline from the same time last year. Hoping to cash in on higher prices U.S. lamb producers are learning that lower world supply has not necessarily translated into higher domestic prices for lamb.

2016 Outlook
In the U.S. domestic sheep production is expected to increase from 150 million pounds of production in 2015 to 153 million (a 1% increase) for 2016 indicating an expansion in the U.S. flock. Market lamb prices have gone from a high of $158.6i in 2014 to $144 in 2015 and are expected to be somewhere between $134-137 for 2016 domestic prices. This is in part due to a strong U.S. dollar making it cost prohibitive for producers wishing to increase their share of the world export market.

However, recently the NZ dollar has been strengthening against the U.S. dollar trading at 72.92 cents, this is up from 67 cents this time last year. With the recent news from NZ of a drought and the decrease in supplies available to import, as well as the strengthening of the NZ dollar against the US dollar, the hope for U.S. producers is that there will be less imports, thus taking the pressure off domestic supply.

Source: Shannon Sand, South Dakota State University