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Exchange rates and their effect on U.S. sheep industry

BROOKINGS, S.D. - While New Zealand sheep producers reduce numbers due to drought, U.S. sheep producers are waiting to see if the decrease in worldwide supply impacts prices locally.

"The U.S. imports more than 90 percent of the lamb and mutton consumed from New Zealand and Australia," said Dave Ollila, SDSU Extension Sheep Field Specialist. "Imports of lamb have offset the decline in domestic production in recent years. Although the recent drought in New Zealand has not impacted prices at home as of yet, we expect it to."

Nearly 32 percent of lamb and mutton imported by the U.S. comes from New Zealand. Another almost 70 percent comes from Australia. "For so long our strong dollar made lamb and mutton from other countries so cheap - nearly 50 cents on the dollar less than U.S. lamb," Ollila explained.

The supply of lamb in New Zealand is expected to decline again this spring and drop by 2.9 percent.

Slaughter rates in New Zealand have hit a record low in August. During this time less than 560,000 lambs were processed, a 34 percent decline from the same time last year.

As of yet, U.S. lamb producers are learning that lower world supply has not necessarily translated into higher domestic prices for lamb, explained Shannon Sand, SDSU Extension Livestock Business Management Field Specialist.

"In the U.S., domestic sheep production is expected to increase from 150 million pounds of production in 2015 to 153 million," Sand said.

This is a 1 percent increase for 2016.

"This indicates an expansion in the U.S. flock," Sand said. "Market lamb prices have gone from a high of $158.60 in 2014 to $144 in 2015 and are expected to be somewhere between $134-137 for 2016 domestic prices."

Currently the New Zealand dollar is strengthening against the U.S. dollar, trading at 72.92 cents - up from 67 cents this time last year. 

"With the recent news from New Zealand of a drought and the decrease in supplies available to import, as well as the strengthening of the New Zealand 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," Sand said.