Cattle hides for many years added up to US$60 to the value of a fed steer or heifer and accounted for two-thirds of the value of all byproducts. But hide prices and the value began eroding in 2018 and have not recovered. Now the COVID-19 pandemic has delayed any improvement in hide prices and the global leather market.
Last year saw a highly depressed hide market. Nearly 16 per cent of all U.S. cattle hides produced went to landfills because there was no market for them. Global demand for hides and leather began to improve marginally at the start of this year. But the onset of the COVID-19 pandemic had a heavy impact on demand as tanneries from China to Italy closed down. This forced hide prices to go lower again and meant an even larger percentage of hides have gone into landfills than before the pandemic began. But tanneries, especially in China, appear to be operating more normally now and hide traders are cautiously optimistic that hide prices and global demand will start to improve again.
About 5.5 million cattle hides failed to reach the leather value chain in 2019, says the Leather and Hide Council of America (LHCA). These hides have almost all gone into landfills, as there is no other practical way to dispose of them. A few more hides percentage-wise have gone into landfills since the onset of the pandemic, says LHCA president Stephen Sothmann.
Hide demand and prices saw the slightest bit of growth prior to COVID-19, says Sothmann. But they then weakened again. Native unbranded hides in late August were fetching only US$29 to $30 versus a high of US$120 five years ago. Branded cow hides have no market so are all going into landfills. USDA at the end of August reported a butt-branded steer hide brought US$26.
China has been the major market this year for U.S. hides, says Sothmann. Its tanneries and those in Italy are now up and running again. So the industry is finally seeing a very small price increase. Hopes are that prices will increase enough for hides to get back to break-even levels in a couple of months, he says. Leather usage by automakers accounts for 20 per cent of global hide usage and has been the bright star for the leather industry. But 50 per cent to 60 per cent of all leather goes into footwear and has been hard hit by the use of synthetic materials, he says.
The leather industry previously tried to compete with synthetic materials by making leather look just like synthetics, says Sothmann. The industry is now focusing on promoting the natural attributes of leather versus synthetic and is attempting to re-educate consumers about leather’s unique qualities, he says. The industry was also feeling pretty good pre-pandemic that leather was becoming fashionable again among top clothing designers. The industry hopes this trend will grow, he says.
The low price of hides means that byproduct values are currently averaging only seven to eight dollars per cwt or US$98 to $112 per head. Contrast this with the record high prices in 2014. The weekly record of $16.69 per cwt set the week ended August 23 put US$234 in packers’ pockets. Those were the days when packers called byproduct values (also called the drop credit) the fifth quarter of an animal.
No one, however, will shed a tear for fed beef packers that hide prices and byproducts values are the lowest in many years. Packers reported record beef earnings in the April-June quarter, with Tyson reporting operating income of US$615 million, which I calculate was close to US$500 per head. July and August saw margins of US$250 to $300 per head.