Understanding the relationship between hide prices and cattle production is crucial for forecasting supply trends. A comprehensive economic study by Dr. Gary W. Brester, Professor Emeritus at Montana State University and leading Agricultural Economist Dr. Kole Swanser PhD. has quantified this relationship in the Brazilian market, revealing findings that may surprise many in the industry.
Key Findings at a Glance
The research examined whether Brazilian cattle hide prices influence cattle production levels using 40 years of data from 1980 to 2019 and two different economic models. The conclusions are straightforward. Hide prices have no direct effect on cattle production decisions and only a minimal indirect effect.
Specifically, the study modelled Granger Causality and found a change in prices in hides had no impact on cattle production. The study used econometric modelling and found that a 10% increase in hide prices would lead to just a 0.36% increase in cattle production—roughly one-third of one percent. In practical terms, if there were a 10% increase in the value of hides, for every 100,000 head of cattle in production, there would be an estimated additional 360 head.
Understanding the Economics
The research employed two distinct analytical approaches to examine this question thoroughly.
First, the researchers used Granger causality testing to determine whether changes in hide prices directly cause changes in cattle slaughter numbers. These statistical tests found no evidence of such a direct relationship. Past hide price movements do not predict future cattle production changes, suggesting that hide values are not a primary driver of production decisions.
Second, the study investigated whether hide prices might have an indirect effect through their influence on cattle prices. This pathway makes economic sense: when hide prices rise, cattle processors become more profitable and bid up cattle prices. Higher cattle prices, in turn, could incentivize producers to raise more animals.
The research confirmed this indirect pathway exists but found it to be remarkably weak. The study calculated that the elasticity of fat cattle prices with respect to hide prices is just 0.15. This means that for every 1% increase in hide prices, fat cattle prices increase by only 0.15%—a highly inelastic relationship.
Why the Impact Is So Small
These findings align with the fundamental economics of cattle production. Cattle are raised for beef, which represents about 50% of the animal's live weight. The remaining 50% consists of various byproducts, including hides, edible offal, and inedible materials. Meat byproducts are historically about 10% of the value of the animal, and currently about 5%; hides in Brazil are less than 1% of the value of the animal.
While hides certainly have value, they represent just one component among many byproducts. Previous research on U.S. cattle markets has consistently found similar patterns: byproduct values matter, but their influence on production decisions remains modest compared to beef prices and other market factors.
Additionally, cattle production cycles are long and inflexible. In Brazil, where cattle are predominantly grass-finished, animals take approximately three years to reach slaughter weight—much longer than the 15-18 months typical in U.S. feed-finished systems. This extended production timeline limits producers' ability to respond quickly to price signals, even when those signals are strong.
Implications for the Leather Industry
For leather industry professionals, these findings offer several important insights:
Supply forecasting: Hide availability is fundamentally driven by beef demand rather than hide prices. When forecasting raw material supply, focus primarily on beef market dynamics, consumer meat consumption trends, and broader agricultural conditions rather than hide market conditions alone.
Price volatility: The weak connection between hide prices and cattle production means that hide price increases — even substantial ones — are unlikely to trigger significant supply responses. Hide markets must find equilibrium through demand adjustments and inventory management rather than production changes.
Market positioning: The research suggests that the leather industry has limited ability to influence raw material supply through price mechanisms. A 10% increase in what you're willing to pay for hides will not meaningfully increase the number of hides available in the marketplace.
Long-term planning: Because cattle production responds primarily to beef markets, leather industry supply planning should incorporate beef market forecasts, export trends, and protein consumption patterns in major cattle-producing regions.
The Brazilian Context
Brazil remains the world's second-largest cattle producer with over 244 million head and the largest beef exporter, accounting for roughly 20% of global beef exports. The country's grass-based production system and lighter carcass weights compared to U.S. cattle create distinct market dynamics.
China and Hong Kong are the primary destinations for Brazilian beef exports, meaning that demand trends in these markets have far more influence on Brazilian cattle production—and therefore hide availability—than hide prices.
Methodology and Reliability
The study's rigor strengthens confidence in its conclusions. The researchers used multiple statistical techniques, including tests for data stationarity, autocorrelation adjustments, and various model specifications. The final regression model explained nearly 90% of the variation in fat cattle prices, indicating strong predictive capability.
The analysis also drew upon published elasticity estimates from U.S. cattle markets where necessary, applying peer-reviewed methodologies consistently used in agricultural economics research.
Looking Forward
For an industry built on animal byproducts, these findings underscore an important reality: the leather industry is fundamentally dependent on the beef industry's production decisions. Hide prices signal value and help allocate existing supply efficiently, but they exert minimal influence over the size of that supply.
This means that major shifts in hide availability will likely stem from changes in beef consumption patterns, agricultural policies, disease outbreaks, climate impacts on grazing lands, or trade policies affecting beef exports—not from hide market dynamics.
Industry participants should calibrate their expectations accordingly and develop supply strategies that account for this limited price responsiveness. Understanding these economic fundamentals provides a more realistic foundation for business planning and investment decisions in an industry where raw material supply follows beef market forces rather than leather market signals.
This article is based on the research report "Quantifying the Relationship Between Brazilian Cattle Hide Prices and Brazilian Cattle Production" by Dr. Gary W. Brester and Dr. Kole Swanser, prepared for the Leather and Hide Council of America, August 2021.
BresterSwanser Final Report Brazil
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