View from the US28 January 2020
The US hide market was steady throughout the autumn months. As of mid-November, packers were still holding on to their well-sold positions on the popular steer selections. While prices were steady, there was no room to move them upward as customers remained resistant to any increases. Despite no real upside to the market, no downturn was anticipated either.
Benchmark heavy Texas steers continued to have very light trading reported through November. Prices were steady, with sales of seasonal weights ranging $25.50–27.00. Branded steers, (Colorados), were in short supply and were able to hold prices at levels that matched the highs of previous months ($27).
For the first time in a long while, there was some good news for the cow sector, relatively speaking. An uptick in interest beginning in late October helped sellers clear backlogs, and by mid-November they were able to refuse very low bids. After having dropped to around $0.00 FOB on 52/54lb averages, branded cows were selling at $3–4. Dairy cows saw interest fluctuate, but by the middle of the month they were selling generally selling around $18–19 for an average variety.
With regard to US export sales, late October and November saw higher figures. Net sales of 509,200 wet-salted hides were reported for the week ending 7 November, up 11% from the previous week’s 459,500 and 10% from the prior four-week average. For the month of October, average weekly sales were 488,820, a 13% increase compared with October 2018 – however, it was a 5% decrease from the September average. Average weekly wetsalted shipments in October were 441,620, around 1,500 hides more than the same month last year. October’s average was also a 7% increase compared with September.
Wet-blue hide sales also saw increases. Weekly wet-blue sales averaged 225,060 in October, which is 64% higher than the September average. It is also nearly fourfold the October 2018 average and the highest for the year to date. October’s weekly average wet-blue shipments were 154,360, which is down 5% from September. Compared with the same month in 2018, it is a 31% increase. This month’s average shipments are the third-highest for the year to date.
Throughout the autumn, US cattle slaughter continued at healthy levels; however, in October it failed to hit the 650,000 weekly mark. November saw the weekly total go back up to 650,000 and higher.
The USDA released its monthly cattle on feed (COF) report for 1 October. The numbers for US feedlots 1,000 head or larger were:
- 11.278 million head, 98.9% of a year ago
- placed in September: 2.093 million head, 102.0%
- marketed in September: 1.738 million head, 101.1%.
Cattle Buyers Weekly says that analysts regarded the report as neutral, although September placements were 1.1% above the average forecast. The 1 October COF total was 0.1% above the average forecast and 122,000 head less than a year ago. September marketings were up approximately 4.5% compared with last year after taking one extra slaughter day into account this September, and were the same as analysts’ forecasts. The report also showed that 6.87 million steers and steer calves were on feed, down by 3% from the previous year. This group accounted for 61% of the COF total. Heifers and heifer calves accounted for 4.41 million head, up by 2% from 2018.
The steadiness of US steer prices in the autumn months created a modest amount of cautious optimism in the market. Granted, no sources felt that the market was poised to rise, but similarly, no one was expecting it to decline either.
Ahead of the pack
Packers were well-sold and could maintain those positions as long as they could keep hides moving at steady prices. Buyers were, however, resistant to any price increases, which was nothing out of the ordinary. One hide seller said, “If the market can make it to the Chinese New Year in late January with sellers still positioned as they are now, it will likely be a much healthier 2020.”
Generally, the US market was being called ‘stuck at steady’; a lack of sales in any given week was not from a lack of interest. Between sellers being sold out of popular selections and tanners resistant to higher prices, the two sides had a hard time coming to an agreement. It was said that producers in Australia were sold out until their annual shutdown period and some in Europe are well-sold, so buyers were looking for US hides.
Good interest was not limited to the steer sector either. Cow sellers got some happy news as part of October and much of November saw interest at levels that had not been seen in quite some time, which even led to some minor price improvements. Being well-positioned, they were no longer pressed to sell and were able to turn down low bids. Besides, by November, shipping was generally ready for January because vessels were full and buyers in China do not want to receive hides during the Chinese New Year holiday in the latter half of the month.
Of course, some say that if sellers are so well-sold, what is keeping the market from going higher? One reason is that Chinese buyers are hesitant to give higher prices the green light. If they accept higher levels right away, it could lead to an overall push upward, and this is why lots of bids fizzled each week.
The active interest on everything including cows is reassuring; however, this appears to be simply a case of a seasonal pick-up in demand, but without any real consumer increase for all things leather. Sure there are some leather orders happening, which is normal for this time of year, but the macro market for leather products is no higher than that of a year ago.
The reasons for the firm steer market are clear: well-sold producers can afford to rebuff lower bids as long as they keep moving hides at steady levels.
But the increased interest for cows? Much discussion has focused on this across the industry. It is not likely that improved orders for leather are driving a renaissance of the low-end cow market. One cow seller recently noted that his company had internal discussions about this and they feel that the Chinese are trying to replace something else in the market, and that could be pig skins. With the decimation of pig supplies by ASF, China may be turning to cheap cowhides to replace pig skins in some uses of leather.
Later this week, a source mentioned information out of China that buyers there are purchasing larger quantities of US cowhides, selecting the better hides for tanning and then selling the rest to the gelatin market. One might wonder whether the cost of US cowhides is worth that effort – but indeed it might be. Just as pork availability and prices have been hit by ASF, so have gelatin supplies.
Ferran Junca, managing director of Junca Gelatines and a member of the European association Gelatine Manufacturers of Europe, warns that the ASF situation, “will continue to affect the rise in gelatine prices and may even lead to a shortage of this raw material on the markets”. He indicates that the price of gelatin, “has gone from a pitchfork of €4.50–5.00/kg at the beginning of the year to reach €6.50–7.00/kg in September/October”.
Also, “considering that for obtaining 1kg of gelatine requires about 6kg of pork rind, this variation in price makes the final product much more expensive”, Junca told Sweetpress.
Add to the shortage the increased use of pig collagen, and gelatine takes on a different level of importance. Expert opinions vary, but generally, estimates are that it will take at least five years for China to replace its pig supply. During that time, could US cowhides see at least this level of interest, partly for leather and partly for gelatin? With the leather demand situation still poor, that would be a welcome development.