Your point about people eating lower on the hog during an economic downturn is pretty much on point. I recently attended the Howard Wyman Sheep Industry Leadership School, and we met with two different breakers who sell case-ready and boxed lamb into the Eastern US supermarket and foodservice industries. Both said that demand for all (animal, I assumed) proteins are off, but minor products like lamb and veal have taken a harder hit than the big three: chicken, beef, and pork.
Both breakers have started to import lamb from Australia in order to retain customers. American lamb middle meat cuts have become too expensive, they say. The retail price of a cap-off Frenched American rack is over $20/lb now, while the Australian cut would be in the low teens. While some still prefer the higher prices for the perceived better quality of American lamb (generally a larger loin eye and more marbling), they needed to be able to offer the lower price point of the Australian lamb.
Tony Catelli, president of Catelli Bros., told us that he thinks the sustainable price for a lamb carcass, FOB the plant in the western US, is around $2.65/lb. I'm not sure quite how to figure that back to a liveweight price at the sale barn, but my best estimate is that it's around $1.20; maybe a little less depending on freight, pelt value, etc. This would be for a 65 to 70 pound carcass.
"The Bottom" is probably well below that point, given the way that markets tend to work -- swinging wide on either side of their target.