Don Ohsman’s view from the US – June 2016

20 July 2016

The latest US leather market updates.

To the surprise of just about everyone, steer prices have risen since the last Hidenet report. In May, 62/64lb heavy Texas prices, on a C&F basis, rose from $71–72 to $77 at the month’s end. As we go to press, the industry is still wondering what caused the market to rise but, regardless of the reason, the major packers that produce the most voluminous selection in the US found themselves forward sold enough to be able to reject any bids not to their liking.

A similar story could be said for branded steers, the second-largest selection. Prices in the second half of May rose from $67 up to $70, and even $71 C&F on seasonal weights.

Butt-branded steers, and especially heavy native steers, also rose, albeit with more resistance. Butt-branded steers ended May at $80 and heavy native steers at $81–82 C&F, as has been the case for a long time, on automotive seating demand.

The age-old saying of supply and demand influencing markets was disproven. During most of May, slaughter picked up as beef retailers stocked up for the US Memorial Day holiday at the end of the month, where many Americans begin their barbeque season.

Federally inspected slaughter that had been declining for several years was up on a year-on-year basis of 2.2% with the second week of May seeing a kill of 601,000 head. At the end of the month, 241,000 more head, or hides, were put on the market, and still, except for cows and bulls, prices rose.

Herd it here first

In addition to higher slaughter numbers, the US beef herd continued to grow. Cattle on feed as of 1 May were up 1% from the previous year at 10.80 million. More indicative of growing supply, placements into feedlots rose 7% to 1.66 million head. This means that these cattle will be ready for slaughter by early autumn.

The United States Hide Skin and Leather Association released USDA export totals for the first three months of 2016. The numbers showed that for the first quarter, total wet-blue sales on a worldwide basis were down 28% from the same period in 2015 and wet-slated hides exports on a worldwide basis were down 20% from a year earlier.

This caused many in the trade to question the validity of government export totals. Each exporter is supposed to report their weekly export sales to the government agency, which then tabulates them and publishes the results each week. These numbers appear in each daily and weekly US market report, and are watched closely by the trade. However, it is
on a voluntary basis, which means that if an exporter forgets or, for whatever reason, chooses not to report their sales, or does so inaccurately, USDA is not aware.

Most US hides and wet-blue are exported by four major corporations, which reliably report their sales. However, there are a multitude of smaller exporters that may or may not report their sales, and thus a discrepancy can be found. The market’s strength belies the accuracy of the USDA numbers that have shown all this year that slaughter exceeded sales and shipments each week with few exceptions. Had these numbers been accurate, the market could have never increased as it has.

Another saying

There’s one other old adage that says, “Liars figure but figures don’t lie”. Since APLF in Hong Kong in early April, footwear brands have been expounding on leather’s loss of market share in footwear and, for that matter, it’s also been the case regarding all leather accessories as well. As we ourselves have explained over the past year, leather prices got so high that designers simply took leather out of their products and substituted synthetics.

We are not calling anyone a liar (but negativism seems to have won out over more balanced rationale. We call attention to the charts heavy Texas steer prices. Regardless of increased slaughter this year, tanner demand has grown enough for steer prices to increase, even beyond the lows of 2015.

The seasonality effect of the prime leather-selling season winding down in May and into June is no different this year than normal, but we think that tanners were hesitant to maintain adequate levels of inventory during this period due to their anticipation of lower prices ahead. Now that they have been proven wrong, we are seeing, to varying degrees, hide buyers having to scramble to have Texas steers, especially, in hand to meet their required shipments of finished leather.

There is one caveat to all of this: wet-blue heavy Texas steer prices have not risen in consort with their wet-salted brethren. We’re not sure, but our guess is that it could be the case of wet-salted producers being able to sell far enough forward to turn down lower buyer bids, where this has not been the case with packer production of wet-blue. Time will tell.

Meanwhile, with respect to the cow market, prices have been on a downward trend all year. While the end is not yet in sight, the end of May saw a pick up and some stabilising prices in the heavy end, as upholstery tanners have been able to use choice varieties at bargain prices. We can’t help but think that as the price disparity grows between the cow and steer sectors, enough tanners will be able to create a type of leather that can use this category at historically bargain prices.

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