Cattle hides, a by-product of the beef industry, represent approximately 5-15% of the animals' total market value. As hides are produced as a direct consequence of both the meat and dairy trade there is a strong correlation between global red meat and dairy product consumption and the supply of leather.
The price of hides and skins tends to be volatile due to supply-side fluctuations. The supply of skins is price-inelastic and is determined by the demand for meat products and the amount of livestock that is available for slaughter.
The world's largest producers of beef are the US, Brazil, EU, China, and India. However, the main global producers of beef and dairy products combined are, in order, India, Brazil, China, the US and the EU. The disparity in cattle numbers to beef production amongst the major producers is due to the predominance of dairy herds, rather than dry stock (intended for beef production) in India and China.
Cowhides are the key cost driver for the price of leather, accounting for 60% of the production costs. Other significant input costs include overheads (20%), chemicals (10%) and labour (7%). In general, hide prices from Europe are more expensive than South America and China, mainly due to the size of the cattle herd in those regions.
The hides and skin market is heavily regulated with tariffs and non-tariff barriers affecting the market. Some non-tariff barriers include strict sanitary measures in order to protect the environment.
The global hides and skin market was deeply affected by the international global financial crisis of 2008 and 2009, when a sharp reduction in leather demand affected products such as shoes, the automotive and furniture upholstery industries. As a result of reduced demand, raw material (cattle hides) prices fell, which resulted in a decline in world hides production in 2008 and 2009. Global trade for hides and skin also saw a sharp contraction in 2008, falling by around 20%, as a result of weak international demand for finished goods.
Brazilian beef production is expected to increase 2% for 2012, aided by increased government financing support in recent years as well as improvements to genetics and pasture. Chinese beef production in 2012 is expected to fall slightly by nearly 1% to 5.5m tonnes, as comparatively poor farm returns for raising cattle in China are expected to limit the size of the Chinese herd. Indian cattle supply is expected to rise 7% year-on-year to 3.3m tonnes in 2012. Indian cattle production is mainly tailored to meet growing domestic dairy demand as there is relatively weak demand in India for beef.
All in all, the current market price for hides may not be showing the most interesting price moo-vements, but they certainly are not hidden in the trough of 2009 anymore.