Don Ohsman’s view from the US17 August 2018
The US hide market entered August in a bit of turmoil, as China announced its proposed retaliatory tariffs that would come into effect if the US proceeds with its next round of levies. While hides and skins escaped inclusion on the previous lists, that was not the case this time around. At press time, it appeared that, should China impose these tariffs, the bulk of raw and wet-blue hides from the US would be taxed at 5%.
The market also saw prices rise on a range of selections for the first time this year. The rally was triggered by a decent-sized handbag leather order placed in Korea and elsewhere, and it didn’t take much for tanners to realise they better have hide coverage. Some of this purchasing occurred in early August, but there were still so many hides overhanging the market, so an increase in tanner buying didn’t affect prices.
So was the uptick a real market improvement or a ‘dead cat bounce’, where prices may go up for a brief time and then fall back to where they were or below? The key is footwear leather, and sources advise that there has not been any change in tanner or brand demand.
Experts in Europe and Latin America did not report any pick-up in prices in those regions. Nonetheless, the spike led producers to raise prices, opt not to issue offer lists and turn down bids at steady prices. However, this sent buyers to the sidelines for a period to wait and watch. If there is no follow-up by buyers/shoe-leather orders in the weeks running up to ACLE in Shanghai at the end of August, the market will resume its 2018 habit and retreat.
In my view, regardless of cheap prices for the best hides of the year, the odds are better for the current turnaround to run out of gas in the near term, unless there is a significant change in footwear fashion.
Sellers tried to hold heavy Texas steer prices steady, but they eased nonetheless. Averages of 62/64lb sold at $32.50. Through the latter part of July, prices of Texas steers were down 41% from the beginning of the year. In fact, the year-to-date average price for 2018 – $47.86 – has not been so low since 2009, when it was $44.37.
Heavy native steers fared better, holding a price level of $54–57. So far this year, natives held their value more than most other selections, losing only 17%. Butt-branded steer prices have declined by 29% in 2018, selling at $42.00–43.50.
It was still a struggle to move cows, particularly with customers pushing for new sales to be averaged down in order to ship previous sales. Natives averaging 48/50lb sold for $18–19. Branded cows were fluctuating at the low end, selling at around $13–14 on 48/50lb. Branded cow prices have dropped 60% in 2018.
US and China tariffs
In a statement concerning China's proposed tariffs on exports, US Hide, Skin and Leather Association (USHSLA) president Stephen Sothmann said, “These retaliatory tariffs will disproportionately affect US hides and skins companies that regularly export more than 90% of total US production, and the hardworking producers, processors, brokers and dealers who make the US one of the top raw materials suppliers to the global leather manufacturing industry.”
He addded, “In 2017, China imported more than $1 billion in US hide, skin and leather products, representing more than 50% of total US production. The Chinese market is not just important for the US hide, skin and leather industry, it is essential to its survival, particularly as formidable competitors finalise free trade agreements that could place the US industry at a competitive disadvantage.”
Semi-annual cattle inventory report
The US Department of Agriculture (USDA) released its semi-annual cattle inventory report, which showed that herd expansion may have come to an end.
The report's findings for 1 July included:
- all cattle and calves in the US which totalled 103 million head – 1% above 2017
- cows and heifers that calved (41.9 million head) were 1% above last year
- beef cows at 32.5 million head were up 1% from 2017
- at 9.4 million head, milk cows were unchanged
- all heifers weighing 500lb and up totalled 16.3 million head, increasing by 1% from last year
- beef-replacement heifers at 4.6 million head were down 2% over the same period
- at 4.2 million head, milk-replacement heifers were unchanged from last year
- other heifers at 7.5 million head were 3% above 2017
- steers weighing 500lb and up totalled 14.5 million head, seeing no change from last year
- bulls of 500lb and up reached 2.1 million head, rising 5% from 2017
- calves under 500lb totalled 28.4 million head, increasing by 2% from last year.
USDA said the combined total outside feedlots of calves weighing under 500lb, and other heifers and steers over 500lb was 37.1 million – 1% above the previous year. The 2018 US calf crop is expected to reach 36.5 million head, a 2% uptick from last year. Calves born during the first half of 2018 were estimated at 26.6 million head, up 2% from the same time frame in 2017. An additional 9.9 million calves are expected to be born in the second half of 2018.
USHSLA reports for May’s US hide exports
Cured-cattle hide exports were up 2% in volume, but down 19% in value compared with the same month in 2017. Wet-blue shipments dipped by 24% in volume and 18% in value. Italy continues to be the largest buyer by value with more than $78 million.
Craig Roalson, guest editor at Hidenet, recently wrote about the lack of market for low-grade material. He said, if the current situation persists with cattle hides, the price will continue to go down and the value will force an increasing portion of the lower-end spectrum to consider whether to market their hides for leather if they cannot cover their expenses to gather, process and ship them to a viable tanning destination.
As of now, renderers are deciding to grind up an entire dead animal, including the hide. Locker plants therefore question the logic of taking up space and salting hides or letting them slip in a barrel to obtain next to nothing for them. I have spoken to collectors who are getting calls from lockers that are no longer being serviced by their traditional route trucks and other customers. They can now ‘buy’ single wet-blue shoulder splits for free if they can cover the freight in a possible sale to Mexico or China. The problem is that they cannot find a destination willing to pay enough to cover the freight.
Will this happen to Texas steers? The US has a special place of favour, as the big-packer steer market is the only big volume producer of relatively good grain hides, so the Chinese really have no alternative for this segment and will keep it moving.
However, the market for US cows is a different story because it has to compete with Brazil, Australia, the EU and other pulled-cow sources. The same thing holds true for US hand-flay hides of all descriptions, as well as threes, and an increasing number of categories of wet-blue products, such as bellies, shoulders and knife splits.
US export figures down in July
In July, average weekly rawhide export sales were 340,675 – the lowest average since February. This figure is down 19% from the June average and a 30% decrease from the highest year-to-date average in May.
Weekly average sales for 2018 throughout July were 378,128, down incrementally from 383,765 for the same period last year. Weekly average rawhide shipments for all of 2018 through July reached 381,054, up 2% from 374,685 for the same time frame in 2017.
July also saw weekly wet-blue sales average out at 107,175, which was down 10% from June. As the lowest average since February, the figure was a 44% decrease from May. Weekly average wetblue sales for 2018 through July were 134,343, up incrementally from 133,503 for the same period last year. Weekly average shipments for 2018 through July were 132,760, which was down from 133,057 for the same period in 2017.