View from the US5 April 2022
After a bottoming out in early November, the US hide market took advantage of its stability to start the year by pushing for higher levels. A number of selections were able to log some increases but by the latter part of the first quarter, customers were balking at paying more.
While hides for footwear improved price levels, their capacity for increases was capped by China’s domestic footwear market, which was still doing poorly. On the other hand, sales for export production were still good thanks to the international brands. Heavy Texas steers fluctuated a bit; however, they managed to maintain steady levels through the start of March, selling at $32.00–33.00 for seasonal weights. Colorados were stuck at around $30.00 to $31.00 while branded steers had eased a bit since our last report, selling for $30.00– 31.00. Automotive hides increased prices through the first two months of 2022. Natives were up to $41.00 and auto leather buyers expected demand to remain solid.
The US cow market ended the year being a bright spot in the market. By February, seller positions might have been the same but interest had cooled. Although it was possible to move hides at steady prices on a weekly basis, it was not possible to get increases because steer prices were so low.
US hide sellers were pleased to see good sales in January. In fact, average rawhide sales for January were 405,975. This is up 12% over the December 2021 average and the highest January average since 2015.
Wet-blue sales did not fare as well, with weekly sales averaging 144,350 in January. This was down 20% from December, but up 2% over the same month in 2021.
With all the supply chain problems, it’s no wonder that weekly combined shipments fluctuated but generally remained below slaughter. For raw hides, January shipments averaged 337,150, which is 14% lower than the December average and 12% lower than in January 2021. In contrast, wet-blue shipments averaged 171,000 in January, 50% higher than the December average. Compared with January 2021, the figure is 20% higher.
Cattle and calves on feed for the slaughter market in the US for feedlots with capacity of 1,000 or more head totalled 12.2 million head on 1 February 2022. The inventory was 1% above 1 February 2021. This is the highest 1 February inventory since the series began in 1996.
Placements in feedlots during January totalled 2.0 million head, 1% below 2021. Net placements were 1.94 million head. During January, placements of cattle and calves weighing less than 600lb were 420,000 head, 600–699lb were 445,000 head, 700–799lb were 545,000 head, 800–899lb were 414,000 head, 900–999lb were 105,000 head, and 1,000lb and greater were 70,000 head. Marketings of fed cattle during January totalled 1.77 million head, 3% below 2021. Other disappearance totalled 64,000 head during January, 14% above 2021.
The USDA issued its annual cattle report, which showed that the US cattle herd shrank by 2% in 2021 to 30.1 million. The total number of cattle and calves on farms and in feedlots was estimated at 91.9 million head. Heifers intended for replacement fell about 3% for both dairy and beef.
The total number of cattle on feed was 14.7 million head, up slightly from 2021. The total inventory and the beef cow numbers were both lower than what industry analysts had expected. The cattle on feed number was higher than the trade expected.
All cows and heifers that have calved, at 39.5 million head, were 2% below the 40.3 million head on 1 January 2021. The 2021 US calf crop was estimated at 35.1 million head, down 1% from the previous year’s calf crop.
Among the key findings:
- of the 91.9 million head inventory, all cows and heifers that have calved totalled 39.5 million
- there are 30.1 million beef cows in the US as of 1 January 2022, down 2% from last year
- the number of milk cows in the US decreased to 9.38 million
- US calf crop was estimated at 35.1 million head, down 1% from 2020
- all cattle on feed were at 14.7 million head, up slightly from 2021
At the same time, the US government was continuing its efforts to increase meat processing competition, which it believes is lacking. The Biden administration announced a series of initiatives and is dedicating $1bn in American Rescue Plan funds to expand independent processing capacity. The four large meatpacking companies control 85% of the beef market, the top four poultry-processing companies control 54% of that market, and the four biggest pork-processing firms control 70% of their market.
The administration says that reliance on a small number of processing companies also makes the supply chain more susceptible to shocks from disasters such as the Covid-19 pandemic, fires or cyberattacks, it said.
The hide market started 2022 beset by the same problems of the previous year:
- Prices were only slightly better than they were a year ago.
- The shipping situation was still dire. All sellers had plenty of inventory – much of it sold, stacked up and awaiting an opportunity to set sail.
- Hides for the footwear sector were under a lot of pressure due to China’s domestic leather footwear market situation.
- While optimism was plentiful about the revival of the automotive sector, improvement won’t be significantly reflected in the hide market until at least the second quarter of 2022.
- The formerly robust upholstery sector saw a bit of a slowdown.
As usual, the hide market was subdued for a time in February because of the Lunar New Year holiday. This year it was a little longer for many tanners given their lack of business. As has been the case, the situation with China was more complicated again in 2022. More than once, the old saying “when China sneezes the world catches a cold” was used. While this old phrase has taken on a new meaning these days, it also holds true in the old context.
Originating in the Napoleonic era, the phrase was actually “when Paris sneezes, Europe catches a cold”. Economists and politicians changed it to fit China’s influence on the world. One of the sectors that is particularly susceptible to changes in China is, obviously, hides. Many factors inside China are currently affecting the US hide market:
- China’s domestic economy is sluggish: the country’s zero-Covid policy, with its lockdowns and travel restrictions, is taking a toll on consumer spending. The domestic shoe market is very slow and it shows in the poor sales of branded materials for footwear.
- Upholstery demand is OK: the one sector that has been in relatively good shape has helped support cow hide prices.
- Shipping disruptions are growing: the zero- Covid policy affected an increasing number of ports experiencing major back-ups. By the same token, manufacturing was also being affected. All this is making for a bumpy start to the year.
When it comes to hide market direction, we usually find that most sources are generally on the same page, but that has not been the case recently.
At one end, the bullish opinion is that the market has started its upswing. Some producers say they are turning away interest, not solely based on price but also because they don’t have the hides to sell – that they’re parsing out loads instead of filling volume bids.
Those who feel bullish say that even China’s domestic footwear is a bit more stable and that prices are low enough to entice buyers even if their orders are so-so. Even more, rising prices are being bolstered by tight supplies in virtually all global regions.
On the flip side, there are those who feel the market is simply stable. That’s all. There’s not enough demand to drive prices higher and they call producer claims wishful thinking.
Since the first tariffs were posted in the trade war with China a few years ago, circumstances beyond the industry’s control have complicated the hide market. Covid-related issues in Asia remain a factor as do the problems with global shipping. Now, the world waits to see what the situation in Ukraine will mean for global economies and industries, including hides and leather.