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In the United States, lamb and mutton production correlates highly 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 the 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, 16x16 - PDF a four-year assistance package to help producers compete with foreign competitors in the U.S. market. Included in this package were direct payments for ewe lamb purchased or retained for breeding purposes. A separate Ewe Lamb Replacement and Retention Program was instituted in 2004. This program aimed 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 because of low prices and other market conditions.
In 2002, the Farm Security and Rural Investment Act of 2002 reinstituted Federal support for wool and mohair, making marketing assistance loans and loan deficiency payments available to wool and mohair producers. The Food, Conservation, and Energy Act of 2008 continues these programs for crop years 2008-2012. The 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 2008 Act, are $1.00 per pound for graded wool in crop years 2008-2009, increasing to $1.15 per pound for crop years 2010-2012. (The crop year for wool and mohair is the calendar year in which the commodity is produced.) Nongraded wool remains at $0.40 per pound and mohair at $4.20 per pound for crop years 2008-2012. For further information, see the Marketing Assistance Loans and Loan Deficiency Payments page in the Farm and Commodity Policy topic.