CHICAGO (Reuters) - When National Football League teams take the field, Skip Horween feels a sense of pride: the leather for the footballs being kicked, passed, carried -- and sometimes fumbled -- comes from his Chicago factory.
But that pride now carries a price. The cowhides he buys and turns into leather are costing a lot more these days.
Demand for leather is growing around the world, and leather makers in China, South Korea, and elsewhere are buying huge numbers of U.S. hides. That has driven up prices and reduced supplies -- good news for the U.S. beef industry, but not so good for domestic leather companies.
"It hurts us," Horween said in an interview at the Horween Leather Company factory on the north side of Chicago.
Each week semi trucks bring pallets of cowhides to the factory, where Horween's 130-member staff removes the hair and uses dyes, oils, and machines to turn them into soft leather.
In addition to NFL footballs, Horween leather is used to make shoes, baseball gloves, clothes, and wallets. To cope with higher hide prices, the company has been developing new products "that can be processed more efficiently," Horween said.
Horween has tried to pass the higher costs on to his customers, but that is not always possible as he competes with lower-priced foreign leather producers.
In 2001, Horween took over the family's leather business, which was founded by his grandfather in 1905.
In the past year he has seen hide prices go from $70 apiece to $80. The company uses 2,500 hides a week, which works out to additional costs of $25,000 a week.
Hides have become a good source of income for beef-packing companies which slaughter and process cattle.
"There is a relatively small number of players who control the bulk of that market and they exercise tremendous market power," Horween said. "The hide has come to be considered a more valuable byproduct."
HIDES ARE BIG BUSINESS
While the overseas demand for hides has pinched domestic leather companies, it has been a minor boon for the struggling beef industry which has operated on thin margins and coped with slow beef exports in recent years.
"It adds $70 to $80 to the value per head (of cattle)," said John Reddington, president of the U.S. Hide, Skin and Leather Association, a unit of the American Meat Institute in Washington D.C.
Amid strong global economies, a cheap U.S. dollar, and a preference for U.S. cowhides, industry leaders predict exports in 2007 will exceed the $1.6 billion shipped in 2006.
"We are anticipating it is going to be up about 20 percent in 2007, based on information in the first three months of the year," Reddington said.
Part of this demand is due to global growth in the middle class which is buying leather goods, whether it be clothes, shoes, or cars with leather seats.
"The worldwide demand for leather is surging," said Jim Robb, an economist with the Colorado-based Livestock Marketing Information Center. "The dollar has been rather weak and that tends to stimulate exports too."
MAD COW HITS BEEF, NOT HIDES
The demand for hides has been growing for some time, which helped the U.S. beef industry survive mad cow disease. When the United States reported its first mad cow case in late 2003, overseas buyers quickly banned U.S. beef.
"In many cases the reaction has been to ban everything related to that species. They never banned the hides," said Robb.
While most of the U.S. hides go overseas, much of the leather comes back in the form of shoes, clothes, handbags and other products.
Australia and Brazil also export cowhides, but Reddington said U.S. hides are preferred because they are generally free of blemishes and insect damage.
"China is the No. 1 market for U.S. hides," he said. "U.S. hides are probably the most expensive in the world because of the higher quality."