The good news was that as production in Vietnam and China began to ramp up again, hides destined for footwear started to regain their popularity among customers. Trading in heavy Texas steers had dropped from a high of $56.50 down to $32.00. While it seemed prices might sink further, the uptick in interest levelled the price at $32.00. Colorado steers fell along a similar trajectory but also seemed to be bottoming out at $29.00, while brand steers had managed a $32.00 price level. Automotive and upholstery hides were down but not by quite so much, even though auto leather demand was projected to remain weak through to the end of the year.
The US cow market also declined, but again less dramatically than the steer sector, mainly because upholstery was still rather active. Although cow prices fell back from their highs, demand was still decent and price levels relatively steady.
Ups and downs
Weekly export sales picked up in late October as sellers managed to conclude good volumes with customers. In September, weekly raw hide sales averaged 374,375. This is up 27% from the August average and just 1% lower than September 2020. For the third quarter, average weekly sales were 332,015, down 16% from the second quarter and 21% lower than the same quarter in 2020. It was also the lowest third quarter average since at least 2013.
Wet-blue sales picked up as footwear brands shifted production and then as Vietnam opened its factories. September sales averaged 161,075 weekly, up by 37% from the August average and just 1.5% below the same month in 2020. In the third quarter, weekly sales averaged 143,938, 16% higher than the second quarter average and 1.5% higher than the same quarter in 2020.
Combined shipments fluctuated but only exceeded slaughter a couple of times. Looking at raw hides, September shipments averaged 369,725, down by 12% from the August average and 18% lower than September 2020. For the third quarter of 2021, average shipments were 383,500, down just 1% from August and 15% lower than the same quarter in 2020. This was the lowest quarterly average since 2014.
Wet-blue shipments in September were 154,950, up by 9% from the August average and the highest monthly average for the year to date. It was, however, 15% lower than last September. The third quarter average was 143,831, up by 6% from the second quarter and by 16% compared with the same quarter in 2020.
Cattle and calves on feed for the slaughter market in the US for feedlots with capacity of 1,000 or more head totalled 11.6 million head on 1 October 2021. The inventory was 1% below October 1, 2020. This is the second-highest 1 October inventory since the series began in 1996. The inventory included 7.07 million steers and steer calves, down 3% from the previous year. This group accounted for 61% of the total inventory. Heifers and heifer calves accounted for 4.49 million head, up 2% from 2020. Placements in feedlots during September totalled 2.16 million head, 3% below 2020. Net placements were 2.11 million head. Marketings of fed cattle during September totalled 1.79 million head, 3% below 2020. Other disappearance totalled 58,000 head during September, unchanged from 2020.
Break in the chain
The drop in US hide prices was not really a surprise given all the complications in the greater scenario of global commerce. With Vietnam’s factories out of commission for about 12 weeks, China’s continuing Covid issues and its shortages of coal as colder weather set in, leather production and footwear manufacturing took a hit.
Throughout the period, consumer demand has been strong but stymied by supply chain issues, from ocean freight all the way down to truck chassis. There is no better example of this than the automotive leather sector. Car dealers cannot meet consumer demand because of production that has been slashed due to shortages of computer chips as well as other materials and parts.
Some analysts have upped their estimates of the 2021 losses to car manufacturers by almost double to 7.7 million vehicles and $210bn in lost revenue. It took a while, but eventually the production slowdowns hit the auto leather segment a little harder. For most of the autumn, the level of business a particular company had was partly the luck of the draw: it depended on what car models the company supplies and what models a manufacturer decides to keep producing. As production shutdowns were extended, however, the situation got a little tougher across the board. For example, Mexican auto leather producers were said to be working at 50% capacity – at best.
Sources in the auto leather sector said that they would stop buying hides in November, at an earlier date than usual. This accounts for the automakers’ holiday shutdowns, which are expected to start earlier and last longer this year. In addition, some customers were not taking any more deliveries because stocks were plentiful and warehouse space tight.
The funny thing about prices in the hide market: on the way up, sellers can hardly wait to report how much they got on a sale, but on the way down? Not so much. Before prices looked to be hitting steadier levels, reports of trading were few and far between: sellers are never eager to disclose the discounted prices that allow them to improve positions.
What the future holds
Finally, around the end of October, there was hopeful talk about prices nearing a bottom where they could level out and remain mostly steady until global commerce starts to run more smoothly. That said, for a short time steer prices were all over the place. As is usually the case when the market is declining, there was a story to go with every sale.
Aside from the supply chain risks, the other wild card was consumer demand: although it was robust most of the year, the spectre of rising inflation could put a damper on spending as more of household budgets are eaten up by necessities. Already, footwear prices were reported to be skyrocketing at the fastest inflation rate in 20 years, according to industry magazine Footwear News.
Oddly, looking back at the autumn months last year, the US hide market was aiming for a plateau, also hoping that prices would remain steady for a while. The difference is that in 2020 it was in the middle of a push upward from record lows, but in 2021 sellers wanted to stop the bleeding, which seemed to be happening.
At the start of November, opinions varied about whether the market had actually found a floor. Some said it bottomed out while others felt this was neither the case for everyone nor for all hide selections. Regardless, most sellers were pleased with the improved interest and good sales. For the most part, prices were steady and in a few cases a touch better, putting some credence to the opinion that the market found a floor. The strong increase in interest should also signal that there is demand, along with the fact that prices are at a level attractive enough to bring buyers back into the market.
As the market entered the last two months of the year, there were still more questions than answers about the future state of the hide market. Last year, 2020 ended with a good deal of hope and expectation. While that may be the case in 2021 as well, hide sellers will move into another year again a little wiser thanks to having dealt with the added trials this year brought.
