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Hides and Skins
The Asian crisis affected U.S. hide exports in 1998 with lower prices and reduced demand. However, 1999 should be better for the U.S. hide industry as lower slaughter, higher U.S. domestic consumption, and stable Asian demand should push up hide prices to more profitable levels.
Hides and skins production in countries tracked by the USDA declined again in 1998. Gains in the United States, Brazil, and China were more than offset by lower production in the European Union, Argentina, and Russia. Production is forecast still lower in 1999 as cattle slaughter is expected down about 1 percent. However, North America and the European Union are expected to reduce slaughter about 2 percent.
Global trade in bovine hides and skins decreased in 1998 as Asia's financial crisis resulted in a 23-percent decline in imports by Korea. Japan's hide imports also fell, continuing a long-term decline.
In addition to lower exports, lower hide prices decreased revenues in 1998. According to the IMF Commodity Price Index (1990 = 100), the international hide price index for the last quarter of 1998 was 73.6 compared to 95.7 for 1997, and 82 for the first quarter of 1998.
The United States continues to dominate the world hide market, exporting almost half its production-mostly in the form of whole cattle hides. According to the U.S. Bureau of the Census, exports during 1998 totaled 18 million whole cattle hides, compared to 19 million in 1997. Lower prices in 1998 reduced total export revenues 23 percent to $871 million.
U.S. production of bovine hides in 1998 was estimated at 987,000 tons, virtually unchanged from 1997. Although hide production in pieces declined approximately 3 percent in 1998, production by weight remained unchanged due to a 2-percent increase in the average slaughter weight for U.S. cattle to 1,206 pound per head. For 1999, reduced slaughter is projected to result in a 1-percent fall in production to 977,000 tons. This would be the lowest U.S. production since 1995.
The Asian financial crisis affected Korea throughout 1998 and slashed demand for U.S. hides as Korean importers could not access credit. This caused prices to drop from $81/cwt in early December 1997, to below $52/cwt in mid-January 1998, and end the year at about $57/cwt. The outlook for prices, however, is more bullish for the second half of 1999 given the expected drop in U.S. and European hide production this year.
Resilient U.S. hide exporters have capitalized on low U.S. prices by expanding sales to markets beyond Korea, Japan, and other Asian countries facing economic difficulties. Sales to Mexico, China, Italy, and Spain, benefitted from the competitive price of U.S. hides in 1998. Although U.S. hide exports to Asia, excluding China, were off 26 percent by volume in 1998, exports to the aforementioned countries increased 42 percent. New opportunities also opened up in Latin America where U.S. hides are appreciated for their quality and durability.
Demand for U.S. wet blues remained strong in 1998 because of their suitability for better quality shoes and bags, and the fewer pollutants they generate during the tanning process. Although Korea, Japan, and Hong Kong imported 44 percent fewer U.S. wet blue hides in 1998, U.S. exports to China, Italy, and Taiwan increased 110 percent to over 2.4 million pieces. The total export quantity of split and unsplit wet blue hides dipped slightly. However, a marginal increase in unit values to over $51/piece in 1998 offset the volume decline, and increased the export value slightly to $225 million in 1998.
Korea remains by far the single largest market for U.S. hides. In 1998, U.S. whole hide exports to Korea dropped 35 percent by volume and 45 percent in value from 1997. However, the USDA Export Sales Report indicates that during the first two months of 1999, Korea imported 1.6 million pieces of U.S. whole hides compared with only 1.1 million for the same period last year. Korea obtained and used a $100 million GSM-102 credit guarantee for hides during fiscal year 1998; it has not requested a similar guarantee for 1999.
Improvement Expected in 1999
This year should bring better returns to the hide industry because U.S. hide production is projected to drop more than 1 percent, while domestic consumption is projected to increase 3 percent, thus strengthening prices. For the first two months of 1999, total U.S. bovine slaughter dropped more than 2 percent. On the export side, although hide imports by Korea are not expected to fully recover in 1999, overall demand in key Asian markets is expected to be stable, lending support to prices in 1999.
For further information, contact José A. Rivera,
(202) 720-1349
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