Extracts from the Hidenet World Report July 2016

Australia

Slaughter numbers are down, causing a dearth in the supply of heavy hides. Still, prices are steady and demand is unchanged. Cattle Buyers Weekly noted recently that drought shrinks cattle herds but it also produces record high prices later on. That’s what US producers of all classes of cattle experienced in 2014, and now Australian producers are enjoying record high prices as well. In fact, the prices are now higher than those in the US and Brazil, according to an analysis by Australia’s Beef Central.

“Australia’s largest selling centre, the Roma sale yards in Queensland, saw records fall recently amid fierce competition from cattle buyers,” said ABC Rural. Roma saw 372,648 cattle sold through its yards in the 2014–15 financial year. A consignment of 500 Angus-cross steers sold at a high of A$4.08/kg.

“The market is on fire and is very strong,” said Roma-based livestock agent Brad Nevenult. “Four years of drought and a major sell-off of cattle has done this. It’s created a critical shortage of suitable cattle. It’s a restockers nightmare, as there are very limited numbers of young breeder-type animals being sold,” he added. “Processors are also feeling the pinch, with the high Australian dollar [about $0.76 to the US at the time of press] adding to further cost pressures in an industry that is predominately export-focused,” added ABC Rural.

Beef Central compared Australia’s EYCI with equivalent US cattle prices and Brazil’s grass-fed steer prices.

“The last time Australia led the world league table was a brief period in early 2011 when Australian prices sky-rocketed on the back of record floods,” said Condon. “Australian prices lagged a distant third from 2013 to 2015 due to oversupply caused by herd liquidation due to drought. The sharp climb began in May last year. Current circumstances prevailing, the price advantage enjoyed by Australian producers over their equivalents in the US and Brazil does not look like changing any time soon,” he added.

Brazil

In Brazil, the market continues to be quiet. The strong dollar is wiping out any gains on the raw material side and prices will have to decrease further for any movement. At this level, tanners are losing an average of $0.10 per square foot on each grade they are producing, and no one can support this in the long term. Prices have been in the R2.65– 2.75 range, again depending upon the origin. Brazilian TR1 is currently selling at about $1.20, and talk of a few cents less. TR2 is at $1.10 and TR3 at $1.00.

Brazilian agricultural exports rose 4% in the first half of the year, according to a report from the Ministry of Agriculture. In total, Brazil’s agricultural exports topped $45 billion in the first six months of 2016, the third-best year since the data was first collected in 1997. Soybeans continue to lead Brazilian agriculture exports with $17.23 billion followed by meat at $6.98 billion, and forestry products at $5.00 billion. China remains Brazil’s number one export destination ($13.56 billion), while exports in the first half rose the most to Japan, South Korea, Pakistan, Iran and India.

Canada

The Canadian beef industry has been producing more beef in 2016 than in 2015, with a combination of more cattle slaughtered and much heavier carcases, on average. Meat & Livestock Australia reports that so far in 2016, Canadian cattle slaughter is up 2% on the same time last year, with a significant rise in average carcass weights increasing the total volume of beef produced, which is up 8% for the year to date.

EU

In cows, categories under 30kg continued to go for footwear and leather goods but demand remained soft. A recovery could take the form of lower prices by the end of August for deliveries in October. Weekly average values remain stable, but some small sizes can still get discounts of €0.10/kg. Stability is from here to the end of the July – unless there are sensational changes – but traditionally it is not a month of change. That usually comes in August.

Leather goods are in demand, but there are not enough calves to satisfy this. In a normal purchasing period, this could suggest what might happen if the market could really restart, because the best French calves remain well above €7/kg. Prices for black/white calves in central France remain unchanged, while some movement is coming from the Netherlands in larger sizes, which recovered €0.10, as well from northern Italy. It is true that if the price of calves gets too high, buyers prefer to move on small cows and sheep, changing models and collections because lambskin does not usually work for rigid handbags, and is meant for sacks and soft handbags. But it is equally true that, considering the poor slaughter numbers, prices are destined to increase. If you can, stock up now.

If values are stable, bulls are very well sold. The actual situation is similar to that of calves: demand exceeds supply, which is typical of price increase scenarios. But, if sellers raise prices, the market crashes because balance was based on the rigidity of demand. For sellers, the consolation comes in the form of safe payments and the comfort of interacting with a few well-structured groups that are strong enough to dictate price. The market is, and should remain, in balance. Also, current values for bulls, when compared with those of cows, are not low. Production should increase later in the year.

The lamb and sheep market recently stabilised after downward adjustments were recorded on some origins adapted for garments. Market rumours, however, are predicting a likely increase on lambs that are destined for nappa leather thanks to recent movement, particularly by luxury brands. Meanwhile, demand from European tanneries, especially the Italians, remains oriented toward the best Central African selections (in particular Nigerian offerings) and South African sheep. For footwear, there is good interest for East African sheep. For the UK, we do not foresee special news and therefore expect a confirmation of the weakness that has characterised English sheep over the past year.

Germany

The Cologne Fair enters the world of footwear with a surprise move that disturbs the equilibrium built over the years between the greatest German exhibition centres. The new event will be called the European Shoe show and will be held annually in March and September, with the debut scheduled for 12–13 March 2017. The initiative can be seen as a direct attack on GDS, the ‘historic’ German shoe expo, which has been in sharp decline compared with Micam, Europe’s leading trade fair. This is especially true as the direction of the European Shoe show was entrusted to Frank Hartmann, who served as director of GDS Düsseldorf until 2009. The new event stands as a meeting point between the markets of Germany, Belgium and Luxembourg and has already collected 150 brand commitments. Düsseldorf, the traditional fashion trade fair city, will likely react.

India

India’s factory output moved up by 1.2% in May, as per government data revealed recently. In terms of industries, 14 out of the 22 industry groups (as per NIC-2004) in the manufacturing sector have shown positive growth during the month of May 2016 compared with the corresponding month of the previous year. While 14 of 22 sectors showed positive growth, furniture saw a drop of 8.1% and luggage, handbags, saddlery, harness footwear; and tanning and dressing of leather products showed a decrease of 7.6%.

Italy

Lineapelle will be held in September, but the first ideas for Fashion Week 2017–18 were exclusively presented recently in Milan at Anteprima by Lineapelle, on 6–7 July. We emphasise ‘exclusively’ because the agreement with Première Vision excluded footwear and leather goods collections in Blossom by Première Vision, which was held concurrently with men’s fashion week in Paris.

In return, Lineapelle pledged to cancel the next edition of Anteprima, scheduled for January 2017. UNIC, which organises Anteprima, aims to relaunch it after a difficult period, in part caused by the move of Lineapelle to Milan. This will give a new boost and prestige to the world’s most important trade fair. Anteprima grew a lot in the past, thanks to the anticipated date and its location in Milan. Meanwhile Lineapelle was a ‘prisoner’ in Bologna and although it remained the leading leather fair, it was increasingly losing the interest of big luxury brands.

Now that the world has changed and Lineapelle regained its central role, UNIC established a new strategy of support for Anteprima, based on selecting only fashion-oriented exhibitors and a layout that allows exhibitors to keep down participation costs. There is also the impression that Italian tanners, the real protagonists of innovation in fashion, are defending their exhibition, which benefits from the combination with Prima MU for textiles.

“It’s important and necessary to anticipate trends to give more opportunities to our customers. Combining with First MU can be a strength for both events,” said Graziano Balducci, UNIC’s vice-president. The results? It’s too early to tell because Anteprima is primarily a starting point for style. The feeling is that leather goods are having a slight recovery after a difficult year and that footwear needs further new ideas to be relaunched.

21 Investimenti, founded and led by Alessandro Benetton (a spin-off of Benetton, the clothing family), took over the majority of the Philippe Model footwear brand, based in Vigonovo (Venice), in the footwear district of the Riviera del Brenta. The company produces fashionable, contemporary sneakers for men and women that are 100% made in Italy. Under the guidance of designer Paul Gambato and general manager Roberto Doro, the company achieves a retail turnover of about €100 million, half of which is generated by exports. The plan of 21 Investimenti sets out ambitious international growth supported by the opening of flagship stores in major world capitals and the extension of the new collection in order to make the brand an icon in its segment and an international benchmark. Doro and Gambato retain a minority stake of shares and will remain in the company.

Mexico

At a meeting between Mexican governmental authorities and the country’s tanners, Mexico announced significant resources – 18 million pesos – will be devoted to tannery pit cleaning. The commitment came during the session in Guanajuato, where the parties involved discussed progress on environmental targets for regulating the tanning industry.

Paraguay

With regard to slaughter, Paraguay is recording strong numbers with fresh hides at about $0.70/kg. Wet-blue full substance TR1 was at $1.15-1.20/ft2. Wet-blue splits were steady at $1.00.

Switzerland

Yoox Net-a-Porter Group (Ynap) recently presented its strategic plan to 2020, estimating annual growth of net revenues in the range of 17–20% at constant exchange rates and an increase in adjusted EBITDA in the range of 11–13% by 2020, beginning with 8% in 2015. The subsidiary of the Richmond Group, led by Federico Marchetti, points to international expansion, accelerating growth in the Middle East and in high-potential areas such as Asia-Pacific, and its strengthening position in Europe and the US. The driving force behind the development of the various business channels will be the strong growth of basic high-value customers, increased engagement, and loyalty-drawn customised mobile solutions as well as increased products and international expansion. The group believes that the impact on profitability of a depreciated pound against the euro will be neutral for 2016 and the following years. It also announced the hiring of new staff and expansion of the London headquarters, confirming its commitment to maintaining a presence in the UK. 

UK

With the pound at 0.85 to €1.00 at the time of press, a price decline in euros would be logical, but British sellers will not budge a penny and this firmness does not help negotiations. This implies increasing demand with prices in pounds, but is not being accepted by most British buyers. The result is that the values of 36kg+ vary from a maximum of £1.45 for sales made within the UK to a minimum of £1.28–1.30 for lower selections and high volumes. Export sales, however, may reach a peak of £1.50/kg. For the 31–35kg category, domestic sales were from a minimum of £1.40–1.50/kg, with peaks of £1.55 for small export lots.

The fall in prices seems inevitable, because the English seller has no particular alternative than selling in the UK and in Europe, especially in Italy. China does not buy what it used to and this weighs on the bargaining power of the seller.

Uruguay

Uruguayan slaughter figures decreased 13%. The total recently was 43,697 compared to 50,423 the week before. Raw hide prices are stable at about $0.90/kg.

US

Reported sales of heavy Texas steers, the nation’s largest production, appeared to be considerably below production. On the plus side, producers claimed to be well forward sold enough not to be concerned and said they could wait for buyers to become more active. Traders were active and there were rumours of some accepting sizeable discounts, when interest could be found, in order to effect some sales volume. What few trades reached the surface were between $70 and $72 on 62/64lb.