It may be a few years before forward contracts are a regular part of lamb sales in Western Canada.
Unlike the grain and cattle markets, there are no commodity exchanges predicting sheep prices months in the future, said Tony Stolz, manager of the Alberta Sheep and Wool Commission.
“We don’t have that luxury with sheep.”
Stolz is looking at developing value chains as a way to help move uniformly raised sheep from farms to grocery stores.
Forward contracts would be part of the value chain. Producers would guarantee to deliver a specific quality and size of lamb at a specific date in the future.
Read Also
Alberta crop diversification centres receive funding
$5.2 million of provincial funding pumped into crop diversity research centres
One of the biggest difficulties with the Canadian sheep industry is its inability to maintain a steady supply of quality lamb year round.
Unlike major sheep producing countries such as Australia and New Zealand with millions of sheep, the Canadian flock is made up of a large number of breeds and many small flocks with a myriad of management systems.
As of Jan. 1, 2001, Statistics Canada’s official count of ewes in Canada was 543,600, up 17 percent from the year before. In Western Canada there were 242,700 ewes, up a dramatic 31 percent over the previous year.
While the national flock is increasing, the potluck production causes problems for buyers wanting a guaranteed and consistent supply of lambs.
Bob Pettie, livestock procurement manager with Canada West Foods in Innisfail, Alta., said he would be interested in increasing the number of lambs he buys from producers on contract.
Depending on the time of year, he contracts 30 to 70 percent of the roughly 50,000 lambs a year processed at the central Alberta slaughtering facility.
Pettie said when he worked as a cattle buyer for Canada Packers, a lot of his business was done with forward contracts, but it’s not the same with lambs.
In Western Canada most lambs are born in the spring and sold in the fall. Few lambs are kept on a maintenance ration over the winter to hit a specific winter sale date.
“A lot of producers don’t like feeding over the winter,” said Pettie. “It’s a certain amount of work.”
Most producers are reluctant to lock in a price weeks or months into the future, said Stolz. Because the industry is so small, with prices that fluctuate, producers are uncertain if they should lock in a price or wait for a spot price.
Pettie said it is a guess what markets will be in the future, but believes there is a slight premium for contracts over cash prices.
Roy Leitch of Brandon, the largest lamb feedlot operator in Canada, said he’s not interested in forward contracts.
The 50,000-head lamb feedlot operator said order buyers pick up lambs from auction markets and farmers across Western Canada to finish at his lamb feedlots in Brandon and Craven, Sask.
Most of the people he sells lambs to aren’t interested in contracts.
Almost all lamb sales in Canada go into ethnic food markets in Vancouver, Toronto and Montreal. The profile of a typical lamb consumer is “money and ethnic,” said Stolz.
Leitch said his buyers would be reluctant to sign a contract because they’d worry the lamb would cost more money.
He believes the price of lambs is set to drop because of the increased supply.
“There’s no end of supply,” said Leitch of the production from increased sheep numbers.
The price paid to farmers will likely be lower because of increased costs to truck the lambs from Western Canada to markets. He estimates the cost to sell a lamb will increase $2 each because of higher fuel costs.
“The cost is unbelievable and it’s rising all the time. Somebody’s got to absorb the cost and it’s usually the farmer.”
