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In the United States, lamb and mutton production is highly correlated with
wool returns. Because meat and wool are joint products, producers keep lambs
longer when wool prices are high. Producers, in anticipation of continued high
wool prices, tend to rebuild their herds. As a result of the herd rebuilding
process,
fewer animals are sent to slaughter, causing lamb and mutton production to
fall. On the other hand, low wool prices tend to cause producers to liquidate
their
flocks, which often increases the supply of lamb and mutton to the market.
Historically, wool receipts have been about one-quarter of income
from sheep production activities. A large portion of the receipts
from wool were derived from the National Wool Act of 1954, which
instituted a price support program for wool and mohair to sustain
domestic production. Support was provided through incentive payments
that provided higher benefits to farmers who had more production
and/or obtained high market prices. Having a price support program
in place likely slowed the sheep industry's rate of decline.
In 1993, Congress enacted legislation that phased
out the wool program in 1995, ending 42 years of Federal support. Wool production
declined markedly after incentive payments were terminated in 1995. In January
2000, USDA instituted the Lamb Meat Adjustment Assistance Program, a 4-year
assistance package to help producers compete with foreign competitors in the
U.S. market. In addition, a Ewe
Lamb Replacement and Retention Program was instituted.
The aim of this program was to assist producers of sheep and promote the replacement
and retention of ewe-lamb breeding stock by providing payment to producers
who had to reduce production and flock size due to low prices and other market
conditions.
In 2002, the Farm Security and Rural
Investment Act of 2002 re-instituted Federal support for
wool and mohair, making marketing assistance loans and loan deficiency payments available
to wool and mohair producers for crop years 2002-07. These commodity
loan programs allow producers to receive a loan from the
government at a commodity-specific loan rate per unit of production
by pledging
production as loan collateral. The loan rates, which are specified
in the 2002 Act, are $1.00 per pound for graded wool, $0.40 per
pound for nongraded wool, and $4.20 per pound for mohair.
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