View from the US

Benchmark heavy Texas steers saw trading continue, but not at great volumes. Sales prices in the latter half of June were as high as $23 on seasonal weights of 62/64lb. Some producers chose to divert Texas to wet-blue in order to avoid selling at the record lows seen the previous month. Heavier-weight material declined a little further with levels at around $27.50 on selections over 72lb. Branded steers, also known as Colorados, sank as low as $19 before stabilising at levels close to those of Texas steers. These and other popular selections such as butt-branded steers and heavy native steers were well sold and remained steady.

The cow sector continued to see weak interest but some large sales in the latter half of June helped stabilise the situation at least a little bit. Branded cows remained at a price level where sellers could barely cover the costs of processing. Reported sales of branded cows were in the range of $5–6 on 52/54lb averages. Dairy cows also saw prices decrease again to sell between $14.50 and $16 for medium-to-average types, while premium dairy cows were still selling dollars higher.

US export sales continued at generally decent levels but only once, in early June, outstripped slaughter. That said, most in the industry have come to look at them as a loose guide rather than gospel. Too many resales and late reporting affect those numbers, making them less than reliable for a true picture of business during the week.

With regard to US weekly slaughter, early June saw continued high totals in excess of 660,000. At the same time, the USDA reduced its 2019 red meat forecast from the previous month as lower forecast beef, pork and turkey production more than offset higher broiler production. The decline in beef production largely reflects lower steer and heifer slaughter in the second half of the year.

Derrell Peel of Oklahoma State University wrote in Drovers that uncertainty is impacting cattle markets. He noted that “weaker beef demand may be the biggest threat to cattle and beef markets for the remainder of the year. Strong beef demand supported cattle and beef markets in 2017 and 2018, but there are signs that some weakness may be developing in beef demand in both domestic and international markets.

“While unemployment remains very low, other indications of weakness in the macroeconomy are concerning and have led to reduced forecasts for US economic growth in 2019. These, combined with record supplies of beef, pork and poultry, may be limiting domestic beef demand going forward in 2019.”

In April, China imported 77.039 million kilos of whole hides >16kg for a value of $82.886 million. This is a decrease of 4% in volume and 8% in value from March 2019. Of this total, hides from the US in this category accounted for 34.138 million kilos or 44% of the total. The value of these hides was $41.010 million, accounting for 49% of the total value. The average price per kilo was $1.20, the same as in March. The April total imported from the US was down 11% in volume and in value from March.

Despite the better US export sales of late, along with a reprieve in downward spiralling prices, conversations with sources painted a difficult and changed landscape for the hide market; some packers and other sellers say that the market has not found its final bottom.

When the prices of premium steers are declining, it means that no US hides are selling well. If a premium steer drops to $20, where does that price a dairy cow, or a branded cow? Sales volumes are low because no one is worried about the market taking off, so there is no pressure to buy, sources say. Why worry about buying when the price might be even lower in the next couple of weeks? And, as prices go lower, it makes every cow useless, except for specific kinds for specific purposes, noted another seller.

Some are advocating that the industry should shift to trading the better hides and disposing of the rest, which would level out the market. In any event, most say that the sooner we get to the bottom, the better. Warehouses are full of hides across the globe, and while prices continue to decline for demand reasons, external sociopolitical issues are also negatively affecting the hide market.

From the demand perspective, automotive has retracted, while the shoe business is lagging, but for one bright spot: sources say that the safety boot and work boot sector of footwear is doing well, so heavier-weight leathers are okay. The men’s casual shoe market is said to be hanging on but there is virtually no business for the women’s market, thanks to the prevalence of synthetics. As has been the case for some time, fashion must be the driver of any turnaround for the footwear sector.

With several weeks of steer prices having settled into a steadier trading range, the skid downhill has stopped for a period of time. Packers may be countering every steady bid, and while a selection might gain a dollar here and there, it is not an improved market.

As always, the question comes down to how long the steady levels will hold given the poor leather demand. Current steadiness is not rooted in any market strength and as we have noted before, some feel strongly that the decline is not over.

Looking back through other observations in recent years, it is surprising to see how many times we read the sentiment that “the market won’t go down forever and shoe leather orders will pick up at some point”. Time has already shown that an extended decline is possible and that shoe leather orders don’t necessarily have to increase now that leather is competing against a wide range of other materials.

As we have noted before, the leather business won’t be stimulated by price, but by fashion, and this doesn’t happen or change overnight.

So the price slide has stopped and, for now, is supported by the lack of availability. Some packers have been offering far less than they have in a while and at mid-June, some had almost no fed steers to sell. Despite the better scenario, few are prepared to say the challenges of the down market are over. One source attributed current improved demand to the better quality of US steers compared with other origins and the fact that they don’t have as much competition as the cow selections do.

Temporary or not, hides are moving at a steady price and that is a good thing.

US Market in Review

Hidenet‘s flagship report, established in 1975, covers the recent cowhide prices for all major selections. US industry news and market predictions for hide prices are also regular features.

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