Squeeze on fifth-quarter margins as leather demand dwindles

Falling demand for leather has seen cattle hide values fall by more than 60% and sheepskin prices by 70% over the past five years, eating into processors’ revenues for fifth-quarter products.

Stuart Ashworth, director of economics services with Quality Meat Scotland (QMS), said prices for skins and hides were particularly low at present, with further market disruption for non-edible co-products possible later this year as a result of Brexit.

Low skin and hide prices have a knock-on effect for livestock producers, with lower returns for processors putting downward pressure on farmgate prices.

See also: Slump in wool demand to severely affect prices 

Beef price update

Deadweight prices saw their first significant dip since the end of coronavirus turbulence last week, with prime beef falling by 1p/kg to a GB average of 360p/kg.

Prices remain 34p/kg up on the year and 11p/kg higher than the five-year average.

However, cull cow prices increased by 1p/kg to an average of 261p/kg, while those meeting the -O4L grade gained more than 2p, to 274p/kg.

The GB estimated cow kill fell week-on-week, to 9,300 head, about 1,100 fewer than both last week and the same week last year.

Although Covid-19 had brought additional short-term pressures to bear on the fifth-quarter market, it was long-term pressures that were having the greatest effect, said Mr Ashworth.

Prices have been falling at a time when the volume of hides produced has also been dropping, suggesting underlying demand is poor.

Greater use of faux leather products alongside reduced demand for leather in car and aircraft upholstery had hit demand hard over the past few years, explained Mr Ashworth.

There had been a similar decline in demand for leather footwear.

What are alternative leathers made from?

Faux or synthetic leathers are typically made by covering a fabric base with a plastic coating.

However, more sustainable alternatives have been developed which include mushroom leather, pineapple leather and apple leather.

“Coronavirus control measures around the world have slowed down or temporarily halted many businesses that would have used leather, adding short-term pressure to the market,” he said.

“Nevertheless, the long-term trends in transport upholstery and fashion, for example, remain and are unlikely to reverse in the foreseeable future.”

25% fall in prices

Latest analysis from the AHDB suggest fifth-quarter values are significantly less than last year, leaving margins at the processor level tight.

It points to HMRC data showing that in May the average hide export price was down almost one-quarter year-on-year, and more than 40% lower than in 2018, with May 2020 prices at about 80-85p/kg.

The export price of hides is significant because there are only a small number of tanners and processors in the UK.

China is the dominant buyer of UK hides and skins, but other important markets include Turkey, Pakistan and Italy.

Mr Ashworth said in some circumstances poor-quality hides and skins had no value and in some parts of the world had to be being disposed of as landfill, with processors paying to have them removed.

Market conditions for other fifth quarter products are more mixed.

The market for tallow is being supported by demand to produce bioenergy, with prices currently 10-15% higher than a year ago.

However, the market for meat and bone meals and processed animal proteins has cooled over the past couple of years.

These products are often used in aquaculture diets, with significant demand in the Asian markets, or pet foods.