Don Ohsman’s view from the US26 September 2017
After dropping by as much as 10% – as noted in Leather International’s August issue – US steer prices tried to bottom out.
Benchmark Texas more or less settled at $50–51 on 60/64lb, but sales volume was generally below production. Even more detrimental to the market for all steer selections and, to some extent, the cow sector, there were many delays in letters of credit for previous booked sales. The result was that export sales of hides were at a record high at press time.
At the end of August, 4.190 million raw and wet-blue hides had been sold, but were still awaiting shipment. Using an average slaughter of 625,000 head meant that that over six weeks’ slaughter had been sold and was awaiting shipment.
Wet-salted hides sold in August averaged 437,100 pieces a week. This compared with 408,435 for the second quarter, and 390,438 for the year to date (to 31 August).
Export shipments for August, meanwhile, were 415,050 and 391,856 for the second quarter; compared with a year-to-date average of 379,730.
The average wet-blue sales for each week in August were 192,475, and 157,542 for the second quarter. The yearto- date figure was 140,497.
Wet-blue shipments averaged 145,400 a week in August, and 148,900 for the second quarter. The year-to-date average was 134600.
Combined raw and wet-blue outstanding sales for August averaged 4,248,600 (3.428 million for the second quarter, and 3.691 million for the year to date).
US travellers visiting Asian tanners prior to ACLE reported that tanners continued to complain of a lack of leather orders, and morethan- adequate stocks in warehouses, creating a surplus of hides, which helps to explain current prices.
There have also been signs that the steer market was losing more ground as slaughter continued to exceed sales and shipments. Many hope that a seasonal increase in leather orders will increase tanner demand, but no significant increase can be expected for at least a month. This will increase downward pressure on markets.
Meanwhile, US producers came to Shanghai hoping that business would pick up, but this did not prove to be the case. The result was that most packers and processor returned home from ACLE with most of their hides unsold.
A highlight of the fair was the Hidenet/ APLF conference. ‘Mapping a course for leather in China’, which featured speakers on a number of issues important to the future of the industry in China, starting with the US and European perspectives on hide supply. Stephen Sothmann of the USHSLA discussed the reasons for the growing herd in the US, noting that expansion would continue, but at a slower rate, in 2018. For Europe, Gustavo Gonzalez-Quijano, secretary general of Cotance, addressed the increasing supply from Europe and the trends in tanning for the various EU countries. After a year of decline in 2016, the first half of 2017 has registered an improvement.
Attendees heard about the challenges facing shoe demand, as well as some of the bright spots, such as an increase for US brands that focused on women’s leather footwear. With regard to the automotive sector, Giulia Spinetta from Italy’s Dani presented information on the company’s tanning process and the move to sustainability in auto leather. She explained how the Arzignano-based company had begun to skip salting and was goring from fresh hides straight to the tanning process. The tannery is producing a natural wet-white that is made with special temperature-controlled polypropylene drums.
Conference sponsor Smit & zoon’s CEO Hans van Haarst described the company’s ‘Product Passport’, which lays bare the contents of products and compares them, helping customers to make better decisions. Some were worried that this might lead to trade secrets being exposed, but it is a brave move in a landscape in which sustainability is being demanded by customers.
Last, but certainly not least, Chen Zhanguang, CLIA’s secretary general, discussed the latest import and export numbers for China’s leather goods production, as well as the overall footwear numbers. All of China’s leather sectors maintained steady growth in the first half of 2017. A few of the highlights included:
- sales revenue of companies in this industry that have annual sales revenue of not less than 20.0 million yuan achieved an increase of 6.6% to 692.4 billion yuan.
- exports in the first half of the year were 38.4 billion, with a year-on-year decrease of 8.2%
- exports of finished leather saw an increase of 17.8% in volume and 4.1% in value
- China produced 2.27 billion pairs of leather shoes in its medium and largesized manufacturers, which represented an increase of 3.2%
- exports of shoes were 4.94 billion pairs, with a value of $22.5 billion, up by 6.3% in volume and 6.4% in value.
Chen went on to discuss the recent environmental checks and laws that required pollutant permits to be issued. He also noted that, in many areas, this would lead to the consolidation of the tanning industry, leading to the elimination of those operations that were unable to meet current environmental standards.
National Beef in 2017 had income before taxes of $78.4 million in Q2 of this year, an increase of 24.8% over the previous quarter. The six-month income was $135.5 million, which was up 60.8% on last year. In 2016, National reported its best ever pre-tax income of $329.1 million. Its previous best was in 2011, when it reported a net income of $259.0 million. National’s sales in 2017’s second quarter were $1.876 billion, compared with $1.799 billion in 2016. Sales for six months were $3.437 billion versus $3.433 billion the previous year.
Cargill is investing in its beef supply-chain – minus the cows. The agricultural conglomerate has taken a stake in Memphis Meats, a start-up developing laboratory-grown meat. The investment is a sign that the world’s biggest food producers are taking ‘clean’ meat seriously, with companies racing to perfect chicken strips and burgers made from plants, or in Memphis Meats’ case, cell-cultures from living animal tissue. Clean meat would reduce major financial and environmental costs to food production, while cultivating new demand from consumers who disapproved of industry practices ranging from livestock treatment to water use. The technology won’t become a supermarket staple overnight, however. Memphis Meats says it can produce 1lb of meat for under $2,400, though that price has fallen sharply in the past year.
CBW reports that larger supplies of slaughter cattle have meant a big increase in Saturday kills so far this year. Slaughter levels averaged 36,630 head a week the first 29 weeks of 2017, versus 24,953 in 2016. This 46.8% increase is an even more dramatic when compared with figures from years ago, when Saturday kills averaged 10,000 head or fewer.
The larger Saturday kills have had two main effects. They have allowed cattle feeders to stay current in their marketing, despite having greater numbers to sell. Second, they have improved packers’ operating margins by raising their capacity use levels. This has been seen in the strong quarterly beef earnings reported by Tyson Foods, JBS USA Beef and National Beef Packing since last year’s third quarter.
Cattle slaughter is up by just under 6.0%. This follows a 6.4% rise in 2016. However, steer slaughter (which makes up more than half of cattle slaughter) is growing more slowly. The year-to-date increase is declining as weekly steer slaughter has increased by an average of just 1.1% since late April. Steer slaughter peaked seasonally in June and will trend lower for the rest of the year. Total annual steer slaughter in 2017 may be limited to a year-over-year increase of less than 2%.
Heifer slaughter is up 10.5% in 2017. This compares with a 4.7% increase in 2016. The heifer-on-feed inventory was 10.6% higher than last year. Slaughter is likely to remain elevated for the rest of 2017. Increased slaughter and heifer-on-feed inventories probably indicate a slower pace of retention in 2017. However, average steer-to-heifer slaughter ratios are still very large compared with historical averages. It will be some months before heifer slaughter increases to typical levels when compared with steers. Seasonally, heifer slaughter decreases from a spring peak to lower summer levels before increasing slightly through the third quarter.
Beef cow slaughter is 10.4% above 2016 levels. This follows a 13.7% increase on 2016 figures. Although increased cow slaughter is consistent with slower herd growth, it does not indicate herd liquidation, or even zero growth. If beef cow slaughter continues at its current pace (as projected), by the end of the year, net culling for the herd will still be around 9% and under the long-term average.
By 2018, herd culling rates may return to typical levels. Beef cow slaughter typically increases sharply in the fourth quarter, but is projected to maintain its current levels for the remainder of the year. Dairy cow slaughter has increased, recently bringing the current year-to-date level up by 3% when compared with last year.
Total cattle slaughter in 2017 is projected to increase by 4.5–5.0%. Cattle slaughter will probably increase by another 3.5–4.0% in 2018 with larger feeder supplies, with decreased heifer retention and increased cow culling pushing slaughter upwards.