U. S. cattle ranchers, already hit hard as the global recession eats into beef consumption, have the added hardship of shrinking prices for cowhides, used to make leather car seats, coats, shoes and upholstery, industry sources said Feb. 3.
Cowhides are an important revenue stream for the beef industry. But sales have slipped as many global carmakers have cut production as sales of new cars tumbled due to consumers putting off big-ticket buys and luxury purchases.
“The demand for cars is down and the demand for leather seats is down,” said John Whittenborn, president of Leather Industries of America.
Cowhide prices have shrunk nearly by half in the last six months, according to economists.
“In most markets for higher-quality hides, we are running about $40 per hide. In August, they were about $70 per hide,” said Jim Robb, economist with the Livestock Marketing Information Center.
“So the dismal world economy impacted the cattle industry directly due to the hides and other items,” said Robb.
Most cowhides are exported but return to the United States in the form of finished leather that is then used for the car seats, coats, and upholstery. Sales of cars have fallen sharply due to the economic slowdown.
U. S. auto sales were down 18 per cent in 2008. Recently, Ford Motor Co., the No. 2 U. S. auto-maker, said its January sales in the United States were down 40 per cent from the prior year. Industry-wide, U. S. January auto sales are expected to be near a 27-year low.
China is the largest export market for U. S. hides. But because of the global recession it has more than it can use and dropped the price it would pay, said John Reddington, president of the U. S. Hide, Skin and Leather Association.
“So the prices fell,” said Reddington. “That’s why the hide prices are not contributing to the value of the cattle.”
The drop in price, coupled with lower prices for other non-beef products, was equivalent to taking $6 per 100 lbs. off the price of a steer, said Robb. Since steers weigh about 1,250 lbs when sold, that equals about $75 per steer.
It may take a long time for the hide market to recover, because demand for leather goods is tied to the economy. When global economies improve, so do leather sales, and Robb and others believe it will be 2010 before that happens.