View from the US31 January 2022
The US hide market finally found a bottom in early November 2021. The stabilisation comes after several months of struggling, thanks to Covid-19-related production problems in Vietnam and horribly disrupted supply chains. The first weeks of the following December saw firmer prices; however, interest had already started to wane as it typically does at year’s end.
Amid all the disruption, the positive point was that the steer market was seeing an uptick in interest for hides for footwear. Where China was concerned, however, the business was footwear for export because the domestic shoe leather market was reported to be experiencing some difficulties. Heavy Texas steers, which had seen a sizeable drop, levelled off to sell at $32.00–33.00. Colorado steers improved a bit in November to settle at $30.00–31.00, while branded steers increased by a dollar or two to $33.00–34.50. Automotive hides were steady, even though auto leather demand was projected to remain weak through the end of the year. That said, some tanneries in Mexico were already beginning to ramp up production and expected to be functioning at 80% in January 2022.
The US cow market was the bright spot in November. Sellers were well positioned on most cow selections; prices were steady and interest was good.
After weeks of good sales at steady prices, volumes started to slip around the end of November with the Thanksgiving holiday. In November, weekly raw hide sales averaged 480,260. This is 13% higher than the October average and the second-highest for the year after June. It’s also 36% higher than November 2020.
Wet-blue sales had improved as Vietnam opened its factories but they started to decline again. For November, weekly sales averaged 137,360. This is 4% lower than the October average.
Combined shipments fluctuated but were generally under slaughter totals. Looking at raw hides, November shipments averaged 373,140, down by 8% from the October average. Average wet-blue shipments in November were 116,540, which is 25% lower than the October average. This is also the second-lowest monthly average in 2021.
Cattle and calves on feed for the slaughter market in the US for feedlots with capacity of 1,000 or more head totalled 11.9 million head on 1 November 2021. The inventory was slightly below 1 November 2020.
Placements in feedlots during October totalled 2.25 million head, 2% above 2020. Net placements were 2.19 million head. During October, placements of cattle and calves weighing less than 600lb were 575,000 head, 600–699lb were 500,000 head, 700– 799lb were 470,000 head, 800–899lb were 425,000 head, 900–999lb were 190,000 head, and 1,000lb and greater were 85,000 head.
Marketings of fed cattle during October totalled 1.79 million head, 5% below 2020. Other disappearance totalled 59,000 head during October, 6% below 2020.
The USDA’s World Agricultural Supply and Demand Estimates revised its protein forecasts. Total red meat and poultry production for 2021 was reduced from the previous month’s outlook as lower broiler and turkey production more than offsets higher beef and pork production. The beef production forecast was raised on higher fed cattle slaughter and heavier carcass weights.
For 2022, total red meat and poultry production was raised from the past month. Beef production was unchanged from the previous month while pork production is raised on heavier carcass weights.
Beef import forecasts were raised for 2021 and 2022 but no change was made to the export forecasts. The cattle price forecasts for 2021 and 2022 were raised on current price strength and expectations of continued demand strength into next year. Dairy cow numbers are expected to be lower.
Throughout November, the US market was giving out mixed messages as to whether prices were stabilising when it came to steers. In a reversal of what had been the norm for an extended period, steers were having difficulties while cows remained steady and well sold. There were as many different market assessments as sources of information, but by the start of December, market stabilisation had generally taken shape.
While the hide industry was relieved that the steer market had halted its slide downward, on the other hand, there was no momentum to push it forward. Weak background demand – whatever the various reasons – kept any market potential in check.
As already noted, a plus was that sales were robust in the early weeks of November. In fact, October/ November sales had averaged about 620,000 in sales and shipments over 525,000, despite the logistical challenges. The big question regarding the hefty sales numbers was how many were actually average downs and resales of older, more expensive contracts?
Nothing improved for US hide sellers when it comes to logistical challenges. A number of measures were being taken to mitigate the congestion at the ports. First, the west coast terminals at LA and Long Beach moved to 24/7 operation – but there were few if any takers. Next, the ports were set to institute fees on containers left to sit more than nine days. Finally in early December, the US House of Representatives voted to pass the Ocean Shipping Reform Act of 2021. The legislation aims to reform policies that have caused delays in product delivery and severe backlogs at key ports. The bill has yet to pass the Senate.
In short supply
In mid to late November, at first glance it might have appeared that port congestion eased, but that was just an illusion. On 15 November, the Marine Exchange of Southern California issued a new queueing system. This allows ships to secure a spot to pull into berth before entering the 40-mile zone traditionally used for ships to line up and get a spot on a first come-first served basis. Now, ships are being asked to wait 150 miles from the port. So, while there looks to be less of a line-up, the congestion is actually worse. On 5 December, 96 ships were awaiting port entry, with 56 outside the 40-mile zone. Some 31 were already in port and unloading, bringing the total to 127.
One of the industries hardest hit by global supply chain problems is the automotive sector, which has seen its production shrink dramatically due to the shortage of computer chips, as well as other components. During this slump, car manufacturers have had a glut of partially finished vehicles, all lacking some component – most often chips. These unfinished inventories have been clearing recently, evidence of the slowly easing chip shortage.
Automakers have had higher projections for some time now, but they have also been continually adjusting them. The end result was that automotive leather producers over-ordered and many were left with too much inventory on hand. Consequently, even though the situation may be improving, new procurement in this last quarter of the year has indeed been low.
The good news is that the auto leather sector expects a better first quarter in 2022. In fact, the first half of the year is expected to be a recovery phase, however, the pace of that recovery will be constricted by transportation and all its components. Sources have said it will be a hectic but positive period. This time will also provide enough data to more accurately forecast the third quarter of 2022. Already, in early December, some auto leather customers in Mexico were increasing production and some tanners expected to be operating at 80–90% in January.
Another element of uncertainty for automotive leather is Brazilian production. If automotive production recovers a lot faster than slaughter in that country, then prices will rise. Of course, there’s also a chance of the opposite happening. What happens in Brazil will also obviously have an effect on the US market for automotive leather.
In general, the price and sales of hides for automotive use can only improve because volumes have been so low.