Global reach25 September 2023
As a by-product, cattle hides have a complicated relationship between supply and demand. Of course, demand is the primary driver for sales, but supply plays an important role too. The issue is that there are many moving parts on the supply side and change can be slow to happen. Vera Dordick reports on the state of leather markets around the world.
As of 2021, the global cattle herd size was estimated at over 1.1 billion head, according to the US Department of Agriculture (USDA) and its Foreign Agricultural Service. While the total has been on the rise since 2015, it is more than 100 million less than the peak herd size logged in 1989.
Herd size ebbs and flows in all the main producing regions, driven by a host of factors that affect how many hides sellers have to offer in a given period. As already mentioned, this is the list of interconnected moving parts that drive slaughter and herd growth or decline. It starts with beef demand (domestic or export) and goes on to include feed costs, margins, labour availability and climate, to name some major factors.
Global beef production and demand
The latest World Agricultural Supply and Demand Estimates (WASDE) issued by the USDA predicts beef production on a global scale will be up slightly during 2023. Lower slaughter in the US, the largest beef producer, will be offset by growth in the number two and three markets, Brazil and China. Production levels should be unchanged or slightly lower in the European Union, India and Argentina, the fourth, fifth and sixth largest producers, respectively. Mexico and Australia, seventh and eighth, should also see growth in production. On the consumption side, America’s appetite for beef is expected to decrease while China/Hong Kong will see it keep growing. Slight growth is projected for Brazil and the EU.
Rankings of beef production and demand, however, do not match up to the size of each country’s cattle herd. India has more than 30% of the world’s cattle at more than 300 million head. Brazil is next with 194.4 million head, accounting for 20% of the global herd, followed by China with about 11% at 101.5 million head. Only then does the US rank, with its 95.8 million head of cattle and calves, according to the July 1 2023 cattle inventory report.
“Change takes time. Even if the US cattle industry started retaining heifers this fall, feeder supplies are smaller and it could be 2026 before the larger herd had any effect on the hide supply.”
Shrinking US supply
Already this year, the US cattle herd is down by 3% compared to 2022. The 1 July beef cow herd was 29.4 million head, down 9.3% from the 2018 peak, and is 1.2% lower than the 2014 low.
“It’s still getting smaller. Even though there’s been enough improvement in drought areas, that’s not enough,” says Derrell Peel, Charles Breedlove professor of agribusiness and cattle economics expert at Oklahoma State University. Peel, who writes frequently about cattle supply and related issues, says we are on the front end of the shrinkage in the US herd.
“When will we see indications that the industry is actually trying to stop the decline and rebuild the herd?” Peel asks. As of yet, there are no indications that we’re starting any heifer retention for rebuilding, he explains.
The current situation has a lot of parallels to the last time the US was in this position in 2013–15. “At that time, we had a good pipeline of replacement heifers,” Peel says. By contrast, the 1 July cattle inventory showed that the heifer count is 4% lower this year and the 2023 calf crop in the US is expected to be 33.8 million head, down 2% from last year. “Essentially, the tightest supply is yet to come,” Peel adds.
Indeed, change takes time. Even if the US cattle industry started retaining heifers this fall, feeder supplies are smaller and it could be 2026 before the larger herd had any effect on the hide supply, he adds. With leather demand lagging on a global basis, US hide sellers have been using the declining supply to their advantage in keeping hide prices steady. In fact, lower slaughter allowed meat packers to firm prices on most steer selections and push some levels a little higher on improved demand from the automotive sector.
Brazilian slaughter on the rise
Data for Q1 2023 indicate that cattle slaughter is on the rise in Brazil, after hitting a decade-low level in the same period in 2021. According to the Brazilian Institute of Geography and Statistics (IBGE), the total was 7.31 million head, up by 4.7% compared with Q1 2022, 6.98 million head. While it’s higher, it’s still well below the Q1 average from the past decade, 7.48 million. Q1 slaughter was also lower than the end of 2022 because of the Chinese embargo on beef exports from Brazil this spring. Experts say that slaughter in Q2 is already on the way up.
Brazil may be the largest beef exporting country, but its domestic consumption been on the decline. Rising beef prices started to dent consumption in 2020, which was exacerbated by the pandemic and low incomes. This is why the FAS has called beef exports the “escape valve” for producers there.
As the country’s slaughter climbs, the challenges for Brazil’s hide sellers grow. The price of Tr1 has been on a declining trend for the better part of the past two years. The current price of US$0.65/ft2 is almost 20% lower than August of 2022 and 45% lower than the same point in 2021. Also, lower quality material from Brazil struggles to find a market – much as lower-tier materials everywhere.
China’s herd grows slowly
China, the largest importer of cattle hides, also has the third-largest cattle herd, which is projected to grow more slowly. The inventory is already high as are costs, which diminished profits, says the FAS. The country’s industry is also dominated by small- and medium-sized farms that are less efficient. FAS reports that beef consumption is expected to be only marginally higher this year and the outlook for beef imports is uncertain.
India’s big, expanding herd
By the FAS numbers, India has the world’s largest cattle herd and it’s expected to see good growth over the next few years. This is largely due to a healthy calf-crop, thanks to improving dairy cattle reproductive success. The total herd is made up of bovine dairy cattle and the Asian domestic water buffalo. Of course, much of the Hindu-majority population does not consume beef and slaughter is not allowed in all areas. On the other hand, the Muslim and Christian populations consume beef in volume and is growing, according to the FAS.
Challenging European Union climate
The EU accounts for almost 8% of the world’s cattle but that appears to be on the decline. Beef production has been falling for five years and the herd size shrinking. High inflation in the post-Covid era is partly to blame as high costs and below-par beef demand have taken their toll. In addition, the new EU Common Agricultural Policy may impact beef cattle feedlot farmers, reports the FAS.
From the hide perspective, lower leather demand from traditionally strong sectors such as automotive and footwear have driven down hide prices. Ultimately, only the best quality veal skins and sheepskins – in demand by luxury brands – have been strong, leaving most bovine skins on a downward trend. For these too, only the best quality hides have been seeing decent levels of demand.
“From the hide perspective, lower leather demand from traditionally strong sectors such as automotive and footwear have driven down hide prices.”
It bears repeating that there are many shifting factors that are influencing cattle inventory and slaughter levels. Just as Brazil’s cattle and hide industries were affected by the suspension of exports to China in the spring of 2023, other unexpected events can change the patterns.
Climate is one such unpredictable factor. Excessive heat has seriously affected wide swaths of the northern hemisphere this summer. Some might think this is a one-off event, but indications are that extreme weather is an increasing phenomenon. “It’s happening. It’s hard to say exactly what the effects will be, but the impacts will be regional,” Peel says. As for the long-term impacts? He says that it could call into question the sustainability of production in certain areas.
In countries like the US, tighter supply could be a real benefit to the hide industry. Shifts in leather demand can happen swiftly and strongly, unlike changes in the cattle supply. Most importantly, it would not take a dramatic uptick in demand to have a real impact on hide prices in the face of lower supply.