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Lamb industry loses Livestock Risk Protection program

The lamb market is doing well but a lack of market data has forced USDA's Risk Management Agency to cancel the program. A replacement may be two years away.

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Market ready lambs at a custom finishing barn at Gary, South Dakota. Agweek file photo
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A tool to help livestock producers manage swings in the market is no longer available to the lamb industry, with a replacement program likely a couple years away.

A lack of market data led the U.S. Department of Agriculture's Risk Management Agency to cancel the Livestock Risk Protection program for lambs. It was canceled at the RMA's Aug. 31 meeting and announced in September.

Livestock Risk Protection remains in place for feeder cattle and hogs but the loss is especially impactful for the lamb industry that does not have a futures market to help producers hedge against big price swings.

"It was pretty popular program, particularly with lamb feeders," said Peter Orwick, executive director American Sheep Industry Association.

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American Sheep Industry Association Executive Director Peter Orwick. (Agweek file photo)

The program relied on mandatory price reporting within the industry. But the USDA has to maintain confidentiality in its price reporting and, with consolidation in the lamb industry, it became harder to provide market data without identifying the meat packers or others involved, said Tim Petry, livestock economist with North Dakota State University.

The ability to provide market data took a big hit when Mountain States Rosen, the second-largest sheep processing facility in the U.S., filed for bankruptcy in June 2020. Brazil-based JBS, one of the “big four” meat packing companies, purchased the Greeley, Colorado, plant, but is using it to process beef, not lamb.

"Every time there is consolidation, it harms mandatory price reporting," Orwick said.

LRP functions similar to futures market put options, Petry explains, except that the insurance contract is purchased from an approved livestock insurance agent instead of a futures market broker.

Not only was the Livestock Risk Protection program valuable to producers, it was valuable to lenders who wanted some kind of base price to work from when penciling out profit and loss potential for lamb producers, Orwick said.

On the bright side for the lamb industry, the lamb market is "on fire," Orwick said, with demand rising during the COVID-19 pandemic.

"People are going further and further into the meat case," Orwick said, with people giving lamb a try for the first time. "Those folks that tried it have been coming back."

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That has led to strong prices for breeding ewes and rams. But higher prices also bring the potential for a bigger downside.

"If you're buying lambs to finish or process . . . you are putting out more money than any time in history," Orwick said.

In response, the sheep industry, which helped build the LRP for its producers, is working with private insurers to get a replacement program in place.

That process will likely take a couple of years and market data will still be needed, which requires Congress to renew the Livestock Mandatory Reporting Act .

"We still want to get mandatory price reporting restored," Orwick said.

Reach Jeff Beach at jbeach@agweek.com or call 701-451-5651 (work) or 859-420-1177.
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