View from the US

19 May 2021

As the vaccine rollout has continued across the US, so has economic optimism and a promising outlook for demand. While prices had been rather stagnant in January and February, the market took a dramatic turn in early March. Although an increase in prices was expected, no one foresaw the magnitude of the rise. Even industry veterans couldn’t recall a time when prices rose so much quite literally overnight.

Trading in heavy Texas steers had been scant due to the limited supply of cured hides, but now that has carried over to other popular steer selections as well. Sales prices of Texas had eased a little in late January and firmed in February. The big March increase saw the price of seasonal weights jump as high as $35.50. Branded steers, also known as Colorados, were also up dramatically, as high as $36.00–37.00. The US cow market benefitted from the higher market, although the increases were not as substantial because they had already risen quite a bit and had come close to some steer prices.

Despite good sales and higher prices, all was not smooth sailing for US hides, mainly because of shipping problems that remained a serious issue. Port backlogs, shortages of equipment, including chassis and empty containers, along with various rail transportation snags, made it difficult to get hides to customers; this was reflected in the weekly export shipment numbers throughout the period. Buyers who could provide transport and take a volume of hides promptly continued to benefit when it came to price.

An added wrinkle came in February when a winter storm of historic proportions hit some areas in the Midwest and, most importantly, parts of the south including Texas, which does not usually experience snowfall and such frigid temperatures. The resulting power outages and related problems decreased slaughter rates and created a host of other lingering disruptions.

Highs and lows

It can be difficult to compare statistics with 2020 because of the pandemic’s effects on the market, but for February, at least, it was not yet a major factor for sales and shipments. Average weekly raw hide sales for February 2021 totalled 361,300, which is almost identical to the January weekly average but up 21% over the same month in 2020. Weekly raw hide shipments averaged 348,650, 9% higher than the January average but 10% lower than in February 2020. For wet-blue sales, the February 2021 weekly average was 108,800, which is down 29% from January but nearly identical to the February 2020 average. Wet-blue shipments in February averaged 100,425, down 30% from January’s average and 32% lower than that of January 2020.

USDA’s monthly Cattle on Feed (COF) report for February showed that for US feedlots 1,000 head or larger, the COF total was 12.106 million head, 101.5% of a year ago. January placements totalled 2.017 million head, 103.2% of the year-to-date figure and January marketings were 1.822 million head, 94.3% of the previous year.

January marketings were down 109,000 head from last year, but this was because of two fewer slaughter days this year. Marketings on a daily basis were more than 2% above last year. January placements though were 3.1% above the average forecast from analysts. This means the February 1 COF total was 178,000 head above the February 1 total in 2020 and 0.5% above analysts’ average forecast.

The perfect storm

At the start of March, the US hide market appeared to be poised to go higher. Producers had few hides to offer, prices were firmer, bids were plentiful and some customers were ready to pay more. Overwhelmingly, sellers were saying that buying hides at steady levels was already a thing of the past and the market was trending up. As already mentioned, no one knew the magnitude of the increases to come.

The substantial jump in hide prices during the second week of March left some wondering what the big driver was for the buying frenzy. By the end of the week most chalked it up to a combination of factors that came together in what was being called the perfect storm.

“At the start of March, the US hide market appeared to be poised to go higher. Producers had few hides to offer, prices were firmer, bids were plentiful and some customers were ready to pay more.”

First, around the globe slaughter levels are down – and quite significantly so in countries such as Brazil, Argentina and Australia. This pushed more demand to the US market where, until recently, supplies had been more plentiful. This also happened at a time when leather orders were increasing and buyers actually needed more hides, unlike last summer’s price-driven purchasing. In addition to supply issues, a number of other external factors contributed to higher prices. With the vaccine rollout gaining steam in the US, expectations for increased demand were more optimistic: once people can congregate, retail will pick up.

At the same time, shipping problems fuelled more hide purchasing. With transportation affecting more and more levels of the supply chain and no solid predictions for when the situation might ease, buyers were concerned about covering orders. Desperate for their shipments, they wanted to have enough sales on the books so that they are not left short-handed in an extended period of shipping woes.

Finally, there was a degree of ‘FOMO’ in the market – fear of missing out. As customers started snapping up more hides, others worried that they may miss out on good prices if they wait, which further fuelled the buying frenzy.

As the month wore on, producers still offered next to nothing each week and those that did had substantially higher asking prices. Even still, they had plenty of unsolicited bids. While sellers were happy to see that the market was on an upswing, many would prefer that prices level out and hold firm rather than keep rising rapidly, possibly putting a damper on demand.

The new normal

When comparing data with last year, it’s impossible not to highlight that a year ago in mid-March the lockdowns started in the US. It was also March that marked the beginning of the pandemic price plunge for hides. A year later and things look different but are still far from what we think of as ‘normal’.

In the US, positive sentiment is more widespread among sources in the industry than it has been for quite some time. Although the situation must still be approached with caution, strong demand and higher prices have most sellers feeling rather optimistic. Of course, optimism leads producers to keep trying to push prices higher, which essentially is their job – but too high and too fast is not friendly for the demand side of the equation.

From a buyer perspective, steady is a good thing but fast growth in prices is a concern, even at current levels that are still very low from a historical perspective. Higher prices are a bottom-line win for producers but might not be so good in the long term.

Many footwear manufacturers have been setting their price contracts for the next round of seasonal production and, as one source put it, “variability causes discomfort” for brands using leather. Even with increased interest in sustainability and traceability, leather still has to be price competitive. If using leather becomes a pricing issue, the industry will lose out.

USDA export sales
There was a dramatic rise in hide prices in mid-March.
The cattle on feed total for 1 February 2021 was 12.106 million head, 101.5% of a year ago.
Branded cows
Butt-branded steers
Heavy native steers
Heavy Texas steers

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