Record Low Lamb Numbers Force
Packer To Fill In With Imports

JUNCTION — The lamb industry has long been associated with peaks and valleys, and this year was certainly one for the record books.

The industry experienced record level lamb prices while the weekly kill rate this summer reached an all-time low, dropping from a fairly consistent average of 80,000 head per week down to 57,000 but averaging in the mid 60,000. That left lamb packers across the country scrambling for supplies to fill contract obligations with its customers.

No doubt high lamb prices are good for the producer, but some in the industry believe taking drastic jumps — from 70 to 90 cents live or $1.65 to $2 carcass price — without a stairstep in between caused more damage than good.

Today the weekly kill is back up in the 80,000 range, but because of shortage problems experienced this summer retailers are more reluctant to place lamb orders and the pipeline has become clogged.

Teddie Crippen, director of marketing for Superior Farms, speaking at the recent Texas Sheep and Goat Raisers meeting here, discussed problems her company experienced during the supply shortage and the way they chose to overcome them.

Crippen told listeners that getting the kill back to appropriate levels would require a price adjustment.

"In my eight years at Superior I’ve seen lamb prices go from 45 cents to $1.15 this year," she said. "There has to be some number where all of us can stay in this business and be profitable. I know that’s not easy, but lambs at $1.15 are only going to decrease consumer consumption.

"Once you lose a customer," Crippen continued, "it’s 10 times harder to get him back than it is to go out and get a new customer."

Superior, Crippen told listeners, has predicated their marketing program around delivering quality fresh product week in and week out, 52 weeks out of the year. That motto, however, is becoming more difficult to maintain as lamb numbers continue to dwindle.

"It was embarrassing to say we were a 52-week supplier, because after what happened this summer we were really only a 32-week supplier."

Summer months, Crippen said, are traditionally the shortest months in terms of weekly kill rates, but this summer Superior experienced the shortest supplies ever.

"Several years ago the shortage would start in June and we’d be short for maybe a month, but not short enough that we couldn’t scramble and cover all our bases," Crippen said. "This year the shortage started in early June and lasted until August. We laid people off, cut lamb production and cut back on the number of cuts produced."

Crippen told listeners that Superior’s fill rate on customer orders went from a yearly average of 97 percent to 75 percent at best during the summer months.

"This definitely created problems with our customers. Some changed their lamb merchandising concept. We lost space in the display counter, and it’s very hard to get that space back, especially at a time when prices are high."

She also noted that retailers weren’t as likely or willing to promote lamb because of the high price point. "Retailers want ads that will generate volume or at least profit dollars. At a high price point, you’re not going to accomplish either one of those."

Competing meats, she noted, and in particular record low beef prices over the past year, have also posed problems for the lamb industry.

Lean ground beef, Crippen said, sold for as little as 69 cents a pound on the West Coast this summer, while lamb shoulder was advertised at $3.49 a pound and loin chops for $9 to $10 a pound.

"That really slows business," she said. "When the market stops dropping, the retailer isn’t as quick to reflect a decline as he is an increase."

Superior Farms is the second largest lamb packer in the country, slaughtering about one third of the domestic lamb production. Superior started out as a privately owned company in Ellensburg, Washington, in 1968. In 1992 Superior became an employee-owned company. Employees have a vested interest in staying in business and being profitable, Crippen noted.

Since opening its doors, Superior’s weekly kill has grown from 3000 to 16,000, and they’ve expanded their kill and fabricating operations to include a plant at Dixon, California, and most recently one in Denver. Superior has expanded sales all over the West Coast and in recent years has expanded their lamb buying capability in other parts of the country as well.

Currently Superior buys approximately 100,000 Texas lambs a year for slaughter. Their main source of supply comes from the Imperial Valley and the Western Slope lambs out of Colorado for their Denver facility.

San Angelo-based Superior lamb buyer Brian Phelan told the crowd that the biggest problem with Texas lambs was body size and fat covering.
"A Texas lamb grown out to 120 pounds will most likely be too fat," Phelan said. "A lot of Texas lambs need to die at 105 pounds."

The decline in domestic production has led Superior to identify alternative sources for lambs to maintain service to customers on a year-round basis.

After several years of research, the West Coast-based lamb packer identified a comparable genetic source and feed management program they believed would provide their customers with the same quality they get from American lamb. Superior Farms teamed up with Evergreen Sales Northwest to produce an Australian lamb product known as Evergreen Lamb.

A Superior lamb buyer based in Australia hand selects the lambs. Ideally, Superior targets both domestic and foreign lambs that would hang up as YG 2’s with a carcass weight of 55 to 65 pounds. Superior has several branded lamb programs which are written on exact weight and yield grade specifications. Most now are also quarter-inch trim programs.

Lambs for Superior’s imported program are custom slaughtered in Australia. The whole carcasses, rolled "Australian lamb," are air freighted to Vancouver, Canada, where they clear customs. From there they are inspected by USDA and processed at Superior’s Ellensburg plant. Lambs are fabricated according to U.S. cutting specifications similar to U.S. boxed lamb. Evergreen lamb is not sold in a Superior box, but rather is sold in an Evergreen box.

Superior also controls distribution of the foreign supply in the U.S. markets.

"Superior did not want to sell this lamb to just any customer," Crippen remarked. "We searched out customers who were currently buying imported product and targeted them first. Next we looked at those customers who one week buy American lamb and the next week might buy imported lamb based on price or availability.

"This allows us to protect the good accounts, the Safeways and the Krogers, the very devoted loyal American lamb customers," Crippen said, "and still keep lamb out in front of the consumer year-round."

Crippen told the crowd that Superior does not sell the imported product to accounts known to mix imported with domestic lamb.

"We are trying to preserve our strong domestic accounts," Crippen reiterated. "There are major retailers that supply certain cuts of their lamb business by bringing in imported lamb and mixing it in the counter with Fresh American Lamb."

She did concede, however, that once the retailer takes the fat cover off the lamb carcass, all identity is lost. Currently, Evergreen lamb sales contribute approximately five percent, 150 to 250 carcasses per week, to Superior’s total lamb production. She added that she doesn’t foresee that percentage increasing much beyond the five percent level, primarily because the number of "right kind" of lambs are limited in Australia.

However, Crippen said, sheep numbers in Australia are expected to grow from 120 million this year to 146 million by the year 2000. Lamb prices are expected to drop from the current $1.83 per kilogram to $1.53 to accommodate the increase. More important than the increase is the fact that Australia has on several occasions announced their intentions to specifically target the U.S. market.

Quoting the Australian Meat Export newsletter, Crippen told listeners that Australians are working harder to take advantage of declining numbers in the U.S. The only constraint is Australia’s ability to produce a consistent supply of lean heavy lambs.

"Their intention is quite clear," she said. "Their domestic consumption has fallen like ours due to lower supply and drouth, and retail prices are at all-time highs. Exports to the U.S. remain their best margin sale. They can sell their product even after freight costs, and recoup more dollars than they can by selling it at home, and they’ve made a decision to let their own domestic market suffer to promote lamb in the U.S."

She pointed out that five years ago importers sold their product $4 to $5 lower than the U.S. market. Today that price spread is only $1 to $2 below the U.S. market.

"They’ve realized that with the high U.S. market they don’t have to give away that much of their profit. They can be a dollar or two lower than us and still be attractively priced," Crippen said.

Superior, Crippen insisted, has not created a price war between the domestic product and their imported product. When asked what the pricing difference between their foreign product and the domestic product, Crippen told listeners there was a 10 to 20 cents selling price differential, but she did not specify what Superior’s actual margins are on the imported or domestic product.

"We’re certainly not trying to price our product at the level that some of these other importers are," Crippen insisted. "We know the quality of our product, and it’s sold on that basis."

Crippen said Superior has not earmarked any advertising dollars for their imported lamb program. Any promotional dollars spent are targeted for domestic lamb, she insisted. When asked how many promotional dollars Superior Farms spends on an annual basis on domestic lamb promotion, Crippen offered only a "ballpark" figure of half a million. She told listeners that Superior was totally dependent on ASI’s lamb council for any national lamb promotion, but added that Superior does contribute additional promotional dollars to "heavy-up" on ASI’s seasonal lamb campaigns. Superior experienced a 63 percent increase in lamb sales by "heavying-up" on the fall campaign.

"It does work," she insisted.

She told listeners that as an individual packer, Superior did not have the funds to promote lamb on a national basis.

"If the referendum fails, our promotions would become smaller and more account-oriented instead of targeting consumers, which is really necessary if we’re going to grow consumption. It will be very difficult to expand promotion much beyond the West Coast.

"The only other opportunity is for major packers to work together to promote lamb, but I think that’s even more unrealistic than producers, feeders, processors and packers working together to solve the problems," Crippen remarked. "It will likely come back to state organizations working with packers to promote lamb in their area."

In closing, Crippen insisted that Superior’s focus had not changed.

"We’re still an American packer. We have no intention of becoming an imported packer. Our goal is to maintain our kill levels and grow our business while still trying to grow the rate of American lamb consumption. The decision to incorporate an imported product was simply a business decision, and one that is helping us stay profitable and stay in business until U.S. live numbers increase.

"We’re not giving up on the domestic lamb industry," she continued. "We’re staying in for the long haul. We are the lean lamb producer. Seventy percent of our cooler hangs up better than any other packer in the industry."