Don Ohsman’s view from the US

31 May 2018

US hide prices continued to decline since our last report. Butt-branded steers that were at $62.50–63.50 at the time sold at $55 in mid-April. Branded/ Colorado steers went down from $49–50 to $47 as we go to press. Heavy Texas dropped from $52 to $54 in mid-March to $47–$48 during the third week of April. The steer selection that fared best was heavy native steers. Prices fell between March and late April from $64–65 to $53.50 and $54.

In the cow sector, sales seemed to slow after generating good volume leading up to and during APLF in Hong Kong, as buyers trying to move prices still lower met, in many cases, with seller resistance. What sales did take place, depending on origin and average, ranged from $18 up to $24. This was generally in line with mid-March. Dairy cows significantly declined. Prices paid in late April were typically between $33 and $37, again, depending on origin. Slaughter began its seasonal increase towards the end of April. This was due to warmer weather permeating much of North America. Federally inspected slaughter for the week ending 21 April was 624,000 head. The previous week, the kill was 605,000 head and for the same period last year, it was 601,000. For the year to date, FIS is up 2.3% at 9.38 million. This compares to 9.60 million last year, or 218,000 more hides on the market as of mid-April.

And there are more cattle coming. Cattle and calves on feed for the slaughter market in the US, for feedlots with capacity of 1,000 or more head, totaled 11.7 million head on 1 April. The inventory was 7% above the same time in 2017. This is the second-highest 1 April inventory since the series began in 1996. The inventory included 7.54 million steers and steer calves, up 4% from the previous year. This group accounted for 64% of the total inventory. Heifers and heifer calves accounted for 4.19 million head, up 14% from 2017. Placements in feedlots during March totaled 1.92 million head, 9% below 2017. Net placements were 1.85 million head.

Beef packing record

National Beef Packing made a record $407.3 million in income before taxes in 2017, 24% more than the $329 million it reported in 2016. This represented a huge two-year recovery for National, which had a $124 million pre-tax loss in 2015. As previously reported, National had a record $512 million in EBITDA last year. This exceeded its 2016 record by 17%. National ended last year strongly, with income before tax in the fourth quarter of $97.3 million, although this was down from 2016’s $136.5 million.

National’s revenues in 2017 totaled $7.359 billion, up 4.7% on 2016’s $7.027 billion. These numbers come from a securities filing by Leucadia National Corporation, which owns 79% of National. Leucadia received $338 million from National in 2017, it says. National’s revenues in 2017 increased 5% in comparison with 2016, primarily due to an increase in the number of cattle processed, says Leucadia. Its cost of sales increased 4% in 2017 compared with 2016. The increase was also due to an increase in the number of cattle processed. The combined effects of increased margin per head, and an increase in volume, led to higher profitability in 2017 compared with 2016. The net book value of Leucadia’s investment in National Beef was $517.1 million at 31 December 2017. National exports products to more than 20 countries and export sales in 2017 represented approximately 11.2% of revenues, it says.

Leucadia also noted that in 2017, National purchased 24.2% of the total cattle it processed from US Premium Beef members, pursuant to a cattle supply agreement with USPB (which owns 15.1% of National). National has agreed to purchase 735,385 head of cattle a year (subject to adjustment) through USPB, says Leucadia.

The purchases are based on pricing grids furnished by National to USPB. National believes the pricing grids are based on terms that could be obtained from an unaffiliated party, says Leucadia. National also purchased additional cattle from certain USPB members outside of the cattle supply agreement, as well as from hundreds of other cattle suppliers.

War of words

PETA never rests, but the US Hide,Skin and Leather Association (USHSLA) fought back against the animal welfare organisation’s attempt to change the definition of leather to vegan leather. Stephen Sothmann, president of USHSLA, wrote a letter to the publishers of the Merriam-Webster Dictionary on behalf of the hide, skin and leather industry, and consumers of leather products, urging the publishers to reject PETA’s request.

“The definition of the word ‘leather’ is widely recognised and well understood to mean a material made by tanning the hide or skin of an animal,” he wrote. “Your publication correctly defines the term as ‘animal skin dressed for use’. Products made from materials that are not the tanned hide or skin of an animal are not leather, they are something else.” Mike Redwood, from Leather Naturally, sent a similar letter to the dictionary companies pointing out that in many countries such as Germany, France and Brazil, consumer law has a precise definition for leather, and in recent years, advertising bodies and consumer courts in other countries like the US and UK have in every instance ruled in favour of a precise definition of leather to avoid consumers being misled.

Foot race

With all of the talk about trade wars, Footwear News reported that the shoe industry breathed a sigh of relief after the Trump administration released its new tariff target list — focused on imports from China — which doesn’t include footwear.

“I’m so proud of the effort that footwear companies, executives, employees and staff put forward to help keep footwear off President Trump’s new tariff target list,” said Matt Priest, president and CEO of the Footwear Distributors & Retailers of America, which spearheaded the shoe industry’s efforts to combat additional tariffs. “Including footwear on the list was a very real and substantial threat to footwear workers and consumers across the country; we are very pleased that we can take a deep sigh of relief.”

The USDA published January and February export data this week. Monthly export data for US hides and skins for the period January – February 2018 is now available.

  • Cured cattle hide exports were down 16% in volume, but up slightly in volume compared with the same period in 2017. China was the largest buyer by value at $126.5 million.
  • Wet-blue shipments were down 27% in volume and 21% in value. Italy continues to be the largest buyer by value at $23.7 million. China is a close second at $22.3 million.
  • Pigskin exports declined 4% in value and 33% in volume compared with the same period in 2017.

Looking ahead, gloom and doom seems to be permeating the trade from just about all origins. Hides are still moving and prices, and while drifting lower, haven’t plunged.

There are still plenty of hides being tanned into shoe leathers and leather shoes are still being made and sold; luxury leather goods are selling well; and upholstery business is quite decent. However, when talking to industry members around the world, the consensus seems to be that ‘the sky is falling’. In the months following last year’s ACLE in Shanghai, prices came down, but again, they didn't plunge. In fact, they eventually recovered. Heavy Texas steers fell to $49 but, by November and December, bounced back up to $55 and $56. Butts, post-Shanghai, went down to $55–$56 and by year end were at $62–$62.50.

Tanners admit that, at current price levels, especially against their recent shoe upper leather sales, hides prices are profitable. Leather buyers, who play their traditional role of always trying to buy cheaper, are not focusing on price as an excuse, just a lack of shoe orders.

The issue is and has been, especially since late 2017, a reduction in demand for footwear leather. Footwear sells very well, but the overwhelming majority is coming from shoes made from synthetics.

Sooner or later, prices will improve and likely within the next six months or less. As can be seen on the Hidenet website under charts and graphs, it is not unusual for prices to fall at this time of year. However, even if one cheers up, in the current environment, it looks like things will get worse.

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