Hide market collapses as shoe demand walks out

Hide prices across most categories have dropped 50 per cent in the past year, according to Meat and Livestock Australia’s July co-products data.

Queensland and Northern NSW processors are reporting they are now letting tick-free hides go for as little as $7 a piece.

Given the cost of production for finished brine cured hide is at least $10 a piece, that means processors are literally paying hide companies to take their product.

Even worse news is that it appears unlikely the hide market will make any reasonable recovery, considering the dynamics at play affecting demand.

Hide market analyst Dennis King, Southern Downs Management Services in Queensland, said it was a massive hit to Australia’s beef industry that what had been in the past a profitable part of business for the processor was now lost.

“It’s a very difficult situation for the processor because hides still have to be moved,” he said.

Australian hides are predominantly sent to China for tanning and the largest buyers are sports shoe manufacturers, who account for more than half the global hide market, Mr King explained.

“In a world where activism about animal parts is growing, leather has copped a hiding and we are seeing big-name companies caught up in that and looking to minimise their risk by moving into synthetics,” he said.

Running alongside that demand pressure has been high slaughter numbers in the United States and South America, pushing heavy supply onto the market.

The latest beef industry news coming out of the US has cattle and calves on feed for the slaughter market at 11.3 million head on July 1 - the highest start-of-July inventory in more than ten years.

That latest count also marks the 19th month in a row of year-on-year increases.

US analysts have told international media that data supports the view for even larger placements in the coming financial year.

That demand and supply situation means low quality hides everywhere are now unsaleable, Mr King said.

The few local tanneries left in Australia were mostly moving into kangaroo hides, he said.

The depressed hide values make the prospect of processing the lighter cattle that drought is currently delivering even less attractive, processors said.

Heavier cattle are in very short supply, which has driven a hefty rally in prices, but analysts believe that will be short-lived, particularly given the Australian cattle market is now trading in the shadow of a slightly higher Australian dollar.

The Commonwealth Bank’s Tobin Gorey said those higher prices were likely starting to make competitiveness an issue for commodity beef.

The Eastern States kill total for last week was up 9 per cent year-on-year but, as the head of the processing sector’s peak body Patrick Hutchinson points out, that increase is off a very low base.

There has been no massive spike in throughput as a result of the drought, Mr Hutchinson, from the Australian Meat Industry Council, said.

“From a capacity basis, we’ve got 35pc of processors operating at a maximum production level of 80pc or less based on people on ground able to process the product,” he said.

“Even if the availability of livestock improves, our biggest issue remains labour.

“It’s difficult for plants to bring back workers quickly. They leave town because there are no other jobs.”

The lift seen in grids in recent weeks was largely about teasing out supply, he said.

Global beef demand had remained stable, with good increases in frozen product to China and opportunities continuing to grow in Japan and Korea for higher value cuts.

“Often when exporters have good orders, they will make changes in the grid price to see what is actually out there,” Mr Hutchinson said.