It’s not just the price of beef that drives cattle values

Hides are a big part of the profitability equation for packers 
and when buyers of leather cut back, producers feel the pain


There has been some great despair over cattle prices this year.

Fed cattle dropped below sea level when they decided to descend. This was not entirely unexpected, but we still don’t have a lot of cattle inventory in Canada and our North American economy is OK. What is happening?

Cattlemen and cattlewomen have always believed the price the packer pays is driven by the value of the beef. And that is true to an extent. But the full value of the carcass includes its credits, such as hide and offal. It is the hide that is the economic indicator for packers and plays a role in meat price.

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Rawhide and skin is 22 per cent of the value in total meat trade. Most packers now add value to the hide. When you take rawhide and add in finished leather and footwear, that once hairy coat is worth three times the value of the meat trade. And although we have seen a slow growth in rawhide values, the value of finished leather had taken a big leap prior to 2014.

Cow hides started to slip in the spring of 2014. By 2015, the price on U.S. rawhides had dropped by $1.5 billion (all prices in U.S. dollars), while sheep and lamb dropped by $300 million. Prior to this time, all the projections were for hide and leather values to increase indefinitely.

To keep it in perspective, let’s review where hides from America are sold. In 2015, China bought 63.3 per cent of American hides, Korea 21.2 per cent, Mexico 5.3 per cent, Italy 1.2 per cent, Vietnam 0.6 per cent, and others, including Canada, filled in the 8.4 per cent gap. China and Korea use 84.6 per cent of U.S. hides and have a free trade agreement between themselves that makes them “significant others.” Hide inventories were good, manufacturing was in full swing, and the insatiable appetite for all things expensive was to go on forever.

The ‘China Doll’ started to crack in 2014 and was in pieces by the end of last year. This had a huge and devastating effect on hide prices and consequently on cattle prices. Cattle remained weighty, offsetting any lack of inventory advantage.

A 2015 snapshot on packer price for hides looks like this (again, in U.S. dollars). Heavy hide $84, branded hides $80, butt branded $92, and native hides at $95. Plump cow hides bring $56 with Holstein hides at a higher value ($71) while any hides that are nicked or damaged while being pulled slump to $50.

Now that we have an idea what classes of hides are worth and where they go, let’s talk about hides as an economic indicator for cattle prices.

China was forced to shut down many of its tanneries in the north because of environmental infringements in the spring of 2014. Shortly thereafter the country had a slump in its economy, the fashion industry took a hit, and sales of luxury leather goods and furniture were slow. At the same time, there were port issues and the hide trade became congested. Between March 2014 and March 2015, butt branded hides skidded from $110 to $66.

With hides being such an important part of the packer profit, the decrease in credit value is passed along to the price of meat and thus the price of cattle. When the big guns — the automakers, shoemakers like Adidas, furniture makers such as Lazy Boy, or the Coach luxury handbag line — have a sales issue there is just one outcome — lower bids on rawhide and leather.

The leather industry has its woes, too, as going green in the tanning process is proving to be difficult. Leather is also challenged on the animal rights front and biofabrication uses materials ranging from mushrooms to skin cells. Memory shoes, where leather is mixed with another agent is all the rage, as are 3D printed leather shoes delivered to your door.

Hides are historically a strength indicator for the cattle industry. An example is the 2008 crunch when the price on U.S. bovine hides dropped by $1.5 billion and sheep and lamb hides peeled off $300 million.

Historically, when cow hides start to slump, steer hides will follow. This could be prompted by a problem with delivery (such as a strike at port), tanneries losing interest or closing, or the main buyer having economic or political troubles.

North American cattle prices are heavily dependent on what happens in the fashion and luxury market of South Korea and China, how well autos are selling, and if folks are buying furniture. As Paul Harvey would say, “Now you know — the rest of the story.”

About the author

AF Columnist

Brenda Schoepp works as an international mentor and motivational speaker. She can be contacted through her website at www.brendaschoepp.com. All rights reserved.

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