Extracts from the Hidenet World Reports2 September 2016
Hidenet reports on leather markets across the globe.
The market was quiet recently, driven in particular by the European summer holiday season. Rawhide prices were flat, with wet-salted hides selling at about $0.95/kg. Slaughter was down 4% from May, with June’s total at 970,000. This is also below June 2015 by 12%. For the first six months of the year, the number of processed animals decreased 7% against the same period in 2015.
Argentina’s livestock faces the challenge of expanding global activity. For that reason, an increase in production is needed to meet domestic demand and improve international supply.
In this situation, INTA, together with the Ministry of Livestock, Ministry of Agro Industry of the Nation, presented a proposal to modify the system for cattle and meat, during the 9th Day Update in Bovine Genetics in the rural exhibition at Palermo.
The meat business favours younger animals as a result of a grading system for cows that depends on the degree of fatness, animal category, linked with age and weight – and conformation.
Hannibal Pordomingo, coordinator of the National Program of Animal Production of INTA, said, “We are selecting very young animals but, in turn, very low weight and trying to sell quality through a very young category.”
According to Pordomingo, these parameters are contextualised “in a pastoral system where energy is conditioned by the quality of the grass”. In contrast, the proposals that are currently expanding, “with increased use of grain and further intensification”, these correlations are not necessarily real, he said.
“We can possibly produce 30 or 40% more meat in the country with a system that does not punish heavier animals in all kilogram categories,” he said.
Brazilian slaughter levels continued at their current low ebb. However, finding difficulty in generating new business for their wet-blue and crust, tanners were able to drive a hard bargain for fresh/green hides as they had no shortage of raw material to work on. Brazilian TR1 wet-blue full-substance eased further, trading at $1.20–1.25 as supply is exceeding demand.
Also, Brazil will overtake the US as the world’s largest beef producer during the next five years, according to a new report from the National Confederation of Agriculture & Livestock (CNA) published in Notícias Agrícolas.
Currently, the Brazil beef industry produces 9.5 million tons of beef annually, of which, 7.6 million tons are sold domestically and 1.8 million tons are shipped abroad to more than 140 countries. Brazil’s beef production chain moves around $51.5 billion worth of produce a year.
Brazil currently has over 212 million head of cattle with the highest concentrations being in the states of Mato Grosso (28 million head), Minas Gerais (23 million), Goiás (21 million), Mato Grosso do Sul (21 million) and Pará (19 million).
In Brazil, even with the reduction on raw prices in net real prices, when we convert it to US dollars, the variation in the past two to three weeks is practically irrelevant. It’s clear that pressure remains for more reductions in raw prices as this should be the most effective and fastest way to make Brazilian wet-blue and crust prices competitive again on international markets during this period of lower demand.
With domestic consumption of beef lagging for economic reasons, Brazil is increasingly looking to the export market. Recently, the US and Brazil signed a deal that will allow Brazil to export up to 64,000t of fresh and frozen beef a year to the US. The agreement comes after 17 years of negotiations to conclude the right sanitary and various protocols. Brazil expects to export $300 million worth of meat to the US in 2017.
Brazil’s wet-blue and crust market is still flat, without demand, and slaughter rates are at a low level, so the market is balanced between demand and the raw material offered. This creates stable prices and the offer price for wet-blue full-substance, 22kg average, from a first line slaughterhouse is still at the level of $1.20/ft2.
If some trades are being done at prices below the guideline we publish, we may call the attention of our readers to the exact description and quality of hides being offered.
Considering the price of $0.88/kg on raw hides, adding inland transportation and tanning cost considering chemicals, labour costs and fixed costs – and on top of all this add the export tax of 9% for wet-blue – we come to a level of $1.20 for a table-run grade. Thus, any price that is below this level represents a net loss per square foot invoiced. Some variation, of course, is always considered but today’s realistic prices for TR1 is, as above, $1.20/ft2.
Wet-blue, whole-hides, machine-flayed, full-substance, average 48/52ft2, average 23kg saw TR1 selection at around $1.20/ft2 CFR and TR2 selection at around $1.10/ft2 CFR.
The automotive upholstery leather, in substances 1.1/1.3 to 1.2/1.4mm, stucco and buffed, was at $1.40/ft2 CFR for selection TR (in which real selection is setting the tone of the final price, and this depends on the customer’s acceptance and/or real requirement).
Chinese beef producer Fortune Ng Fung Food Co said it is planning to buy another two farms in Australia to expand its cattle farming and processing capacity. The Glenbrae and Leumeah farms, both about 400km south-west of Brisbane and close to Fortune’s existing Woodlands farm, cover a combined area of 4,908ha. Fortune Ng Fung will inject $5.37 million to its wholly owned unit, Fucheng Australia, to fund the acquisitions. The unit has invested $32.91 million in the Woodlands farm that owns a stock of 9,309 Angus and Wagyu cattle.
The national government and representatives of the transport sector reached an agreement recently to end the truckers’ strike that, for 45 days, blocked several roads in Colombia, created shortages, and left one dead and several wounded. The transportation strike was called for by the National Camionera over issues related to fuel costs, tolls and freight.
The strike had affected the leather industry by hampering the movement of raw materials and shipping of production orders. Colombia’s leather industry saw a drop of 23% in revenues in the first four months of 2016.
European cow prices are unchanged, more because of inertia rather than real negotiations. Some small increases were made on the best Italian selections, French cows are stable and little is being requested from Tuscan tanneries, which are handling their last orders with the hides they have in warehouses. In Germany, demand is for heavy selections that are used for footwear, and that can also be used for furniture and cars. In contrast to bulls, these hides (especially 40kg+) are available in the market. Among the lighter weights, Dutch origins lost €0.05.
For September, we expect little work for footwear and a little extra for vegetable-leather goods, but this will result in limited benefits to the best French origins. In furnishings, the situation should not change significantly. The market will remain active for larger sizes and weak for small ones.
The weekly demand for vealskins and calves has also slowed. The decline in production, according to a statement from tanneries, is not worrying and may depend more on the need to avoid burdening warehouses than on a real review of programmes. The reference customer is always the same – luxury. Prices remain unchanged and will remain flat through September.
Footwear and leather goods are still a high-end, protected niche and therefore should not suffer the consequences of current international tensions. The situation is extremely dynamic, because luxury companies are changing designers and managers to innovatively respond to current difficulties. The stability of skin prices is guaranteed because raw material is unavailable.
In another area, bull market stability promotes programmes that are excellent for the coming months and will guarantee tanneries something that has become increasingly rare in other areas: programming. The challenge is in the purchasing process, because quantities are limited. Prices remain at levels of €1.80 for northern German and €2.20–2.22 for the best southern German bulls. Those who buy in France must pay more, while in Italy you can find a good adult male hide at around €1.70/kg.
Automotive market forecasts are positive and manufacturers are pushing to insert leather into interiors, giving competitive prices to customers who purchase the option. It is an optimum situation for all. Who would have any interest in rocking the boat?
The sheepskin situation shows there are no negotiations in progress and tanneries remains focused on the latest deliveries, operating at an already slowed pace.
European buyers do not expect significant changes for materials that are of interest to them, which are of higher quality than those purchased by the Chinese. The political uncertainty linked to Turkey is worsening the prospects for wooled skins.
The positive trend of the last fairs, especially Lineapelle, brings a bit of trust among tanners in Solofra, the leading European district for sheep and goatskins. In the first seven months of the year, things have been rough, bound on one side by the garment crisis and on the other by the drop in leather-goods skins. Leather goods are the specialisation that has allowed tanneries to offset the garment collapse. In the Irpinia tanning area, there are about 220 companies including tanneries, with a total workforce of 2,200 employees.
Recently in Solofra, a major and symbolic operation was concluded – the acquisition of the former Albatros facility by DMD Solofra. It is important because it meant an investment of €2 million for DMD, but also symbolic because Albatros, until the crisis and the subsequent 2008 bankruptcy, was the most important Solofra company and the world leader in shearling. By acquiring the plant, DMD reinforces its current leadership, evidenced by its €40-million 2015 sales. It is also preparing to build a second factory, in addition to the old set in the Asi area, which will be totally dedicated to the transformation of high-end footwear leather.
Raffaele Guarino, president of Conceria Guarino, another big name in the Solofra district, says he is convinced that footwear must remain the reference target for the area and he expects stable production in September. Guarino’s target market is Europe, with Germany, Italy and France as the main destinations. He buys mostly Nigerian kips and Iranian moutons, observing a general decline in prices.
“In the short term, I do not expect rebounds. The increases, if there are any, will begin next year,” he said.
Certainly, the decline of origins on which the Solofra’s production is based is very little, compared with collapses recorded in the UK, linked to the Chinese market and the sale of hairy skins. Solofra worked with 70% of Middle Eastern origin, especially Iran, and 30% of top quality skins found in Europe (Spain, France, Greece) and South/Central Africa (South Africa, Nigeria, Ethiopia), of which the prices fell no more than 10–15% from the highs of two years ago.
Wet-salted Kenya hides average 13/15kg a hide 80/20% I/II $0.95/kg.
Wet-blue Hides, unsplit whole hides, 18kg+/ft2 average 24/28ft2 20/40/40% I/II/III $0.60/ft2 C&F.
Wet-blue goatskins average 60/65ft2 a dozen selection 20/40/40% TR/IV/V $35/dozen C&F.
Dry-salted Madagascar hides 9/11kg a hide 70/30% I/II $0.90/kg C&F.
Wet-salted Madagascar hides 14/16kg a hide 70/20/10% I/II/III $0.65/kg C&F.
In May, we reported that Paraguay can now process over 2.5 million hides a year but slaughter for 2015 was only 2.2 million head. With domestic consumption growing – for 2016 it is forecast at 187,000t – there will be more hides for tanners to process. Fresh hides are selling at around at $0.60/kg.
Recent wet-blue prices were firm in Paraguay, with TR1 selling at $1.30, TR2 at $1.20 and TR3 at $1.10. Lower selections have buyers but at much lower prices.
The market is also unchanged in Paraguay with Frigorificos fresh hides still at $0.90/kg. It is also worth mentioning that cattle prices have increased about $0.20 recently, and a vaccination campaign was announced that can bring reduced slaughter in August.
Dry-salted goatskins average 1.00/1.50kg 4.0/7.0ft2 about 5.0/5.5ft2 selection 80/20% I/II $1.90/skin C&F.
Dry-salted sheepskins average 2.00/2.50kg 4.5/8.0ft2 about 6.0/6.5ft2 selection 80/20% I/II $3.00/skin C&F.
Wet-salted Senegal hides 13/15kg a hide 70/20/10% I/II/III $0.50/kg C&F.
Dry-salted Somali hides 7/9kg a hide 70/30% I/II $0.75/kg C&F.
Dry-salted camel hides 9/11kg three pieces (two sides and one neck) short shanks 70/30% I/II $0.60/kg C&F.
Dry-salted Sudan hides 7/9kg a hide 80/20% I/II $0.85/kg C&F.
The devaluation of the pound, which has not stopped at the time of press, is creating considerable problems for UK sellers. From around the world, and not only in the hide market, they receive requests to adapt because, while the UK side wants discounts on import, the other does not understand that you do not want to grant them for export. For the category most in demand in Europe, 36kg+ values, prices are stable and in line with the euro, and €1.90/kg in pounds is about £1.60/kg. Sales were very small and the sellers are starting to accumulate stocks.
Everyone is waiting for a price reduction in September. The probability of this happening is high, but it also depends upon the actual availability of northern European heavy bovine hides. If supply changes, it may be possible for UK sellers to maintain their prices. In this case, the negative consequences will fall on UK tanneries, which will have to buy with a devalued pound and consequently look for alternatives elsewhere.
Uruguay Agribusiness News reports that total cattle slaughter was 43,264 animals recently, which was 8% below the previous week but 10% more than the same week last year. Steers accounted for 20,732 head or 48% of the total, while heifers accounted for 21,817 head or 50% of the total. The steer and heifer numbers were 0.3% and 22.0% higher than the same week last year.
Uruguay’s Weekly Cattle Report says that supply lines at most meat packers nationwide are lasting only four to five days on average with a maximum of ten days.
“Transport will be a challenge because of the heavy rains. The animals already in transit could have an additional premium given the demand situation the industry is facing given the diminished supply,” said cattle broker Gustavo Basso in a radio interview this week with FarmsUY co-founder Eduardo Blasina.
Slaughter activity by plant was once again led by Frigorifico Tacuarembó with 3,396 head followed by PUL (3,301), Carrasco (3,101), Breeders & Packers Uruguay (3,079), Canelones (2,645), San Jacinto-Nirea (2,430), Las Piedras (2,325), Ontilcor (2,084) and Establecimientos Colonia (1,927). Tacuarembó was the plant processing the most steers (2,054), while Carrasco processed the most heifers (1,613).
Lastly, according to a report by the UK Agriculture and Horticulture Development Board (AHDB), it is forecasting that, “Uruguay beef production will reach 600,000t this year, the highest level seen since 2006.”
Crust for upholstery, substance 0.9/1.1 mm, stucco and buffed, selection TR2 at $1.65/ft2 CFR..