Editorial
Is Sheep Industry Vertically
Integrating Or Simply Dying?

By Joe McClure

You can’t tell the players without a program these days. Here we have a privately owned lamb packing plant, with lamb growers owning most of the stock, that sells a large share of its product to another packer who also owns stock in that same "private" plant.

That packer owns a breaking plant on the East Coast, is heavily involved in importing carcass lamb, and is getting deeper involved.

The way I calculate it, lamb growers are involved in importing lamb in direct competition with their own lambs, as well as setting the price on both their lambs and the imported lamb carcasses.

And it is possible that the imported lamb will come out of the plant with a USDA grade roll on it.

There is also lamb a feeder who has interest in a breaking facility.

It seems everyone is reaching out to own a little more of the pie, trying to make ends meet, or controlling more of the industry.

Most of the fed lambs in this country are on contract with packing plants that price the lambs on what the carcass is bringing (no guesswork), and most of the remaining lambs in feedlots are "sold" on the same carcass price strategy (no guesswork, no dickering).

With slaughter running around 60,000 per week, I doubt if there are 6000 lambs sold on the open or competitive market each week.

With the packer not having to risk losses or risk killing air, there is no need for any further integration. If they want to increase their kill, it looks like they will have to get more involved in the production end. They have the capability of doubling their kill without increasing their facilities, but where can they get more lambs?

The chicken industry has been in vertical integration for a number of years. The only thing the "producer" does is build a poultry feeder to the packer’s specifications and feed packer-supplied chicks with packer-supplied feed. The "feeder" gets paid in regard to the amount of gain, less dead birds and disease control costs.

The packer owns everything from the egg to the shelf-ready fryer and tells the feeder how many to feed, when they go on and when they come off.

All the profit margins are in the packer’s corner. Feeders can "earn" about $5000 per year for each 30,000 head broiler house they operate. The houses can be used three time per year, and need extensive cleaning between each use to help reduce disease problems.

Integration may not be too bad for the lamb industry if it is controlled by the producer, but being controlled by any other part of the industry has its drawbacks. It has producer drawbacks, also. Growers would have to be satisfied with a more stable market, less seasonal highs, and would have to produce what the market demands, not necessarily what works best for their situation.

U.S. sheep numbers have fallen from more than 40 million to fewer than 10 million head in about 40 years and are still not showing signs of a turnaround. With all segments of the industry at odds with one another, the prospects for that turnaround are not too good.