View from the US

As has been the case for many months, trading in heavy Texas steers was limited by supplies, with customers looking for larger volumes that are just not available. All this demand drove the price up by nearly $10.00 since our last report, with seasonal weights as high as $56.00. Branded steers, also known as Colorados, were likewise higher at around $56.00. The firmer tone of the market and lack of available hides drove more interest to butts, which were also higher in price. Demand from the automotive market was OK and heavy native steers went along for the ride upward with other selections; however, they did not increase as dramatically.

The US cow market, which was stuck with mostly steady prices through June, saw interest tick higher thanks to their comparatively low price levels. By mid- July, cow prices rose a few dollars and branded cows enjoyed good interest, while demand fell back a bit on dairy cows.

For some time now, sellers have considered the weekly export report a bit suspect because of wild swings in sales levels that did not match up to market activity. Although one week’s total in June was over one million in sales, it was not considered to be an indication of great business, just a good deal of late reporting by sellers. That said, sales numbers have seen improvement.

By the numbers

Rawhide sales for the month of June averaged 497,750, which is up 34% from the May average. In fact, average monthly sales have been on an increasing trend since April, up 70% from the April average. For the second quarter of 2021, weekly rawhide sales averaged 393,469, down incrementally from the first quarter and the lowest Q2 average since 2013. For the first half of 2021, weekly sales averaged 394,592.

Average weekly wet-blue sales in June were 126,650, up 3% from the May average and 104% higher than June 2020. For Q2, wet-blue sales averaged 123,892 weekly, down 6% from the first quarter but up a whopping 205% over the second-quarter 2020 average.

When it comes to shipments, challenges still overshadowed all parts of the supply chain. In fact, average rawhide shipments have been slowly declining since April, having dropped 10%. In June, weekly rawhide shipments averaged 359,250, down 7% from the May average and the lowest June average since at least 2013. In the second quarter, rawhide shipments averaged 378,093, up just 1% from Q1 and down 8% for the second quarter of 2020. It is also the lowest Q2 average since 2016.

Conversely, monthly wet-blue shipments have been on the rise since April, growing by 14%. For the month of June, average weekly wet-blue shipments were 148,375, up 6% from May. In Q2, weekly wet-blue shipments averaged 135,779, up 11% from Q1 and 87% higher than the same quarter in 2020.

The USDA’s monthly Cattle on Feed (COF) report for 1 June showed that for US feedlots 1,000 head or larger, the COF total was 11.7 million head. The inventory was slightly above 1 June 2020. This is the second-highest 1 June inventory since the series began in 1996. Placements in feedlots during May totalled 1.91 million head, 7% below 2020. Net placements were 1.84 million head. Marketings of fed cattle during May totalled 1.87 million head, 23% above 2020. Other disappearance totalled 67,000 head during May, 2% above 2020.

Taking stock

Halfway through 2021, it is clear that the past year has been an astounding recovery period for hides, bringing prices back up to levels not seen since Q1 of 2018. From last year’s record low point, the increase to today’s levels has been nothing short of meteoric for some selections like branded cows. These have gone from $1.00 at best to an average of $23.50 today – an increase of 2,250%. Today’s popular steer selections have rebounded by anywhere from 200% to 230% since this time last year.

While that’s dramatic, it’s probably more useful to look at prices since the start of 2021. Texas, branded steers and Colorados are currently the most popular and demand has driven those prices up the most, generally between about 75% and 85% since the first of the year. More importantly, these increases come on the back of improved demand, not just bargain shopping by customers with money to burn at a time of record low prices.

Producers say this is a good hide market: demand is strong and most steer selections are very well sold. Moreover, steer sellers say that these are good prices for hides, with steers in the $50s and $60s. This is where they should be, especially given that they have been seriously undervalued for such a long time. As an interesting side note, the shrinking of the traditional price gaps between hide selections has also helped spread some of the demand across the board.

The combination of tight supply and growing demand has fuelled this rebirth for the hide market and for the time being, demand should remain good as global regions vaccinate and try to break free from pandemic restrictions. That said, price increases have their limits and everything hinges on how much tanners can get for finished leather. That’s the factor that will cap the rising market.

For the most part, packers continue to report that they are well sold and don’t need to accept lower prices. The number of popular hides available on the market appears to support this because some Asian buyers have been looking for larger and have been unable to get them.

That said, price resistance among buyers strengthened through the first half of July and many walked away from counters to their bids. While producers managed to get a dollar more here or there, it was the exception rather than the rule. Overall, no one should want to see steer prices rise too much more. Push much higher and the industry risks repeating its history of too-high leather prices, although this time around, there is more than PU vying for our share of the market.

Of course, the situation boils down to the natural conflict between the tanning business and the packer business. Some packers say that tanners are digging their own graves by paying ever-higher levels and that higher asking prices are designed to deter purchasing. If packers wanted to hold prices steady, they wouldn’t demand higher levels. That said, the job of those who sell hides is to get as much as they can for each one. From the tanner perspective, however, they have to balance the outlook for orders and demand for leather, along with the price of hides and the levels they can get for their finished product.

So, at mid-point of 2021, the hide market was again at a standoff between buyers and sellers. The general feeling is that new leather orders are not plentiful and those that are being received are certainly not at price levels that can accommodate further increases in the hide market.

From other reports, this is a time for caution because we seem to be at a tipping point for leather again. Substitution of cheaper materials for leather is already increasing. Instances are being reported of handbag brands in the affordable luxury range foregoing leather for other materials. The same is the case for many shoes and certainly in the automotive sector.

Hidenet’s European Report notes that even in the automotive sector, there is little work for leather that goes into entry-level cars, and not for reasons of competition with non-EU tanneries, but for the tendency of brands to reduce the share of leather in mid-range cars in favour of technical fabrics.

Times have changed and despite the fact that we are still far from the historic high levels that tanked the leather market last time around, it appears we might hit that point sooner rather than later in the post-Covid era.