Through the first half of May, US packers were still contending with Covid-19 outbreaks in the meat plants; however, by the end of the month, production was back up at more than 80% of normal levels. In fact, by the latter part of June, weekly slaughter hit a record of 680,000, signalling that major work disruptions were a thing of the past.
Trading in heavy Texas steers continued to be minimal and reported prices were steady at $16–17. Sales of branded steers, also known as ‘Colorados’, recovered from their low levels of the spring, ranging $15–17 for seasonal averages.
The cow sector continued to struggle and prices were again at the market bottom of 2019. For a period in June, a few nominal gains were made; however, the purchasing was said to be mainly all speculative given the low prices. Branded cows were selling no higher than $2 for seasonal average weights of northern type material. Dairy cows grew weaker, with sales reported at $10 for premium quality selections at the top of the market.
A little further back
After seeing surprisingly high export sales in April, average weekly rawhide sales in May were quite low. The weekly average figure was 366,300, which is down by 25% from April and the lowest weekly average for the month of May since 2013. On the other hand, rawhide shipments were better in May than they were in April, a month plagued by issues with blanked sailings and low container availability. For the month of May, average weekly shipments were 403,050. This was up 5% from the April average and the highest monthly average for 2020 to date.
With regard to wet-blue, average weekly sales for May were 59,525. This was down incrementally from the April figure; however, it was the lowest monthly average since 2013. Shipments also suffered, with the weekly average for May at 62,675. This is down 10% from the April average and the lowest monthly average since 2013. It is worth noting that Italian tanneries, traditionally major buyers of US wet-blue, were struggling to maintain operations due to the low level of orders through June.
The USDA’s monthly cattle-on-feed (COF) report for June 1 estimated that 11.7 million cattle were in feedlots with a capacity of 1,000 head or more on 1 June. The inventory was slightly below 1 June 2019 and is the second-highest 1 June inventory since the series began in 1996. Analysts regarded the report as slightly negative as May placements were 1.2% higher than forecast and May marketings were 1.3% less than forecast. May marketings were down 570,000 head on the previous year but this year had two fewer slaughter days than 2019. The 1 June COF total was 57,000 head below the 1 June 2019 total.
In the hide market, the foreseeable future is pretty short and no one can make predictions with any degree of certainty because there are so many moving parts in the equation and none are within the industry’s control. Throughout the spring, one mitigating effect of the pandemic for the industry was the low slaughter level during the period when demand was also the lowest. This helped limit the supply of hides and thus propped up prices.
And, while there were early predictions – even by packer CEOs – that the summer would not see full capacity production, the slaughter totals in June told a different story: weekly figures quickly rose to the usual summer levels and higher.
Supply and demand
From the demand perspective, there were plenty of factors on the negative side of the equation. Although some parts of the globe had reopened, such as Europe, the effects of the worldwide health struggles took their toll. Just a couple of weeks after reopening Italian tanneries were struggling and working at roughly a total of 50% capacity due to a lack of orders. Indeed, lack of demand was the biggest cloud over the market.
In English, ‘kick the can down the road’ is an expression that in many ways describes the hide industry. It refers to a problem that moves along with you on your journey, one that you don’t ever really resolve as you push it into the future.
As a by-product industry, we don’t have control over the supply and we certainly can’t control demand. As one producer put it, “demand is king”, and indeed, it’s what will drive the economy forward – hides included. The problem is that there is no demand and hide purchasing by Chinese customers was based on price and not need, which cannot continue indefinitely.
In fact, by the end of June, sellers and producers began to express some worry over the fact that the bulk of sales in the past several months had been to China. While China has been the largest hide trading partner for the US for some time, the recent global situation amplified its role in US cured hide purchases. Each week in 2020, beginning with April, China accounted for roughly 90% of the cured hide export sales. Shipments, however, had not kept pace. By mid-June, the number of outstanding hides to China was up 59% over the same point in 2019. Moreover, adding up 2020 sales to China, the total was 51% of US slaughter to date. To compare, by the middle of June in 2019, sales to China accounted for 34% of total US slaughter and, for all of 2019, customers in China bought 38% of total US slaughter.
The concern arises from a combination of several factors: the lion’s share of purchasing by Chinese customers has been speculative because while its domestic demand might have been seeing an uptick, export demand had not yet begun to recover. At the same time, shipment delays were increasing with some attributable to too much inventory in China.
Lastly, slaughter was back to seasonally high levels. Unfortunately, the situation the hide market found itself in was inescapable.
While no week had been typical for quite some time, in June the US hide market was a bit odd in that packers had managed to hold levels steady and, in some cases, push them a touch higher. That said, no one felt that this indicated the true market. In addition to China’s large volume of purchasing, Europe’s market was at a standstill with buyers generally able to name their price, and Latin America was still far from seeing an improving market. Altogether, these should have been exerting more pressure on the market.
By the end of the month, it was felt that the spate of high export sales had been achieved through serious discounts dollars below published prices for high-volume sales. This is typical, with buyers and sellers having various motivations for reporting (or not reporting) certain sales. So, while some higher prices were reported, an equal or greater trading volume likely took place at lower levels.
In 2019, the second half of May saw the lowest hide prices of the year and, at that time, almost everyone was saying that they couldn’t possibly go lower. Those low levels were largely driven by the trade war with China, not factors specific to the hide market. And yet, here we are again, in a situation not of our own making, at record lows… prices can’t possibly go lower, can they?
US hide exporters not required to submit Covid-19 certification
In recent weeks, Chinese importers have been asking global suppliers of meat, seafood and other foodstuffs to provide a document attesting that the products shipped to China are not contaminated with Covid-19 and that establishments follow FAO-WHO interim guidance on coronavirus mitigation and food safety. Recently, The Leather and Hide Council of America noted that China’s General Administration for Customs was requesting that US imports of hides, skins and leather products to China be accompanied by assurances that the product is free of Covid-19, that no workers in the facility were sick with Covid-19 at the time of production and that the packaging of the product does not contain Covid-19, among others. The US Animal and Plant Health Inspection Service said that Covid-19 certifications from US exporters would no longer be required.