US MINK: STATE OF THE INDUSTRY - 2007

By Simon Ward, Communications Director, FCUSA

Production of US farmed mink has been climbing gradually in response to strong auction prices, buoyed by booming manufacturing and retail markets in China, and retail in Russia and elsewhere. However, a dip in prices at the January/February round of auctions may cause farmers in the US and other countries to rethink their breeding plans.

Domestic consumption, meanwhile, remains strong in value terms, but is slowing in terms of volume - at least through traditional furriers. However, market sentiment is that the consumer base for furs of all types continues to grow, as department stores and boutiques promote wraps, linings, accessories and trim using lower-end furs such as shearling and rabbit, in addition to higher-end pelts such as mink and fox.

Production

Output of farmed mink in the US has been edging higher in the last few years, according to the National Agricultural Statistics Service (NASS). In 2005, the latest year for published statistics, 2.63 million pelts were produced, up 2.7% from 2.56 million. Production peaked in 1989 at 4.60 million.

Extrapolating from the number of females bred to produce kits in 2006, and factoring in favorable weather conditions reported by farmers, a further increase of 2-5% is expected for the 2006 crop.

In terms of world production share, the US currently ranks fourth with 6.7%, behind Denmark (32.1%), China (19.9%), and the Netherlands (8.2%), according to Oslo Fur Auctions. The most dramatic growth in mink farming in recent years has been seen in China, which overtook the US in 1999. But the vast majority of its mink are considered too poor in quality for the international fashion market and instead are used domestically. Thus, despite the gradual erosion of Western producers’ share of global output, they remain the dominant suppliers to international auction houses.

Without doubt, the recent increase in US output is a response to the sustained popularity of fur fashion, and the consequent doubling of pelt prices over the last three years. Had fur’s return to favor, now in its seventh year, been a passing fad, pelt prices would not have kept rising, and farmers would not have increased their herds.

NASS reports that the 2005 US mink crop sold for $160 million, up 33% from 2004, which in turn was up 18%. The average pelt price for 2005 was $60.90, compared with $30.60 as recently as 2002. This is the highest ever by a wide margin, eclipsing the old record, set in 1995, of $53.10. The average price over the period 2001-05 was $39.70, up 24% from $32.10 over the preceding five years.

That said, average prices at the January/February round of auctions fell and some goods remained unsold, reflecting a slowdown in retail and consequent inventory build-up, blamed largely on unseasonably warm weather in key markets. There was also probably an element of correction creeping in, as buyers balked at record prices set as recently as December 2006. The latest levels are still profitable for farmers, but it is likely some will now be rethinking their breeding plans for 2007.

When assessing profitability, farmers must also factor in the steady weakening of the US dollar against other major currencies. American farmers have enjoyed an exchange rate windfall that won’t last forever, while for Canadian and European farmers, the current dollar prices at North American auctions aren’t nearly so exciting.

In terms of farming units, for many years the US industry was contracting, with both the number of farms and output falling. More recently the trend has been towards consolidation, with smaller farms merging into larger ones, and multiple family-run operations coming together under one corporate umbrella. With this change, output has more or less stabilized since the early 1990s, despite the continuing fall in the number of farming units reporting to NASS, indicating improvements in efficiency and productivity seen in the farming sector as a whole.

Additionally, the average size of farmed mink has grown with time. According to farmer and auction experts, farm-raised mink result in substantially more square inches of pelt today than 30 years ago.

Despite these problems of comparing today’s farms with those of the past, government statistics still provide a benchmark by which to judge this trend. In 1985, 1,042 farms produced an average of 4,002 pelts. By 1995, there were only 478 farms, but average output was 5,864 pelts. In recent years, the trend has accelerated. In 2004, 296 farms produced 2.56 million pelts for an average of 8,642 per farm. Just a year later, 277 farms produced 2.63 million, for an average of 9,486.

Apparel imports

After rising for five straight years to a record high of $339 million in 2004, imports of all fur apparel to the US have fallen back sharply in the last two years, according to the Commerce Department. This latest decline has been attributed to excessive inventory build-up, but last year’s value of $232 million was still far higher than the figure of $153 million in 1999.

The overall strength in imports, by value in particular, has been due to a number of factors: strong consumer demand, higher prices of finished goods reflecting the strong pelt prices, and the collapse of the domestic garment industry, including fur, chased out of New York and Chicago long ago by high rents.

As the domestic industry declined, first Canada, then Hong Kong and now mainland China have stepped in to meet the lion’s share of US demand.

In 1996, mink exports to the US from Hong Kong/China were valued at $47 million, accounting for 53% of total mink imports. By 2006, they were worth $80 million, or 67% of the $120 million total.

Retail

Fur retail sales in the US edged up to set a new record in 2005, despite high temperatures across much of the country, according to the Fur Information Council of America. The latest survey, conducted for FICA by Southwick Associates, found that sales of fur and fur-trimmed apparel and accessories reached $1.82 billion, up 0.2% from 2004.(1)

Mink continued to dominate at 71.4% of all sales, with sheared mink accounting for 28.7% and unsheared for 42.7%. Once again, sheared mink sales showed the greatest growth, according to 82% of respondents. Shearling (sheepskin) ranked second at 12% of sales, up sharply from 7% a year before.

However, FICA surveys should be viewed with certain caveats, such as: (i) They cover traditional furriers selling mainly high-end furs, but do not include the growing volume of sales through department stores and boutiques. These have played a major role in reaching younger consumers with lower-end furs such as rabbit, trim and accessories, and have led the way in promoting unusual furs such as brushtail possum and innovative processes like knitted fur; (ii) One of the most popular fur items these days, sheepskin boots such as Uggs, are not counted as they are neither accessories nor are they typically sold through regular fur outlets.

It should also be noted that, as with import statistics, an increase in value may not mean an increase in volume. According to FICA, the average price of an individual item sold in 2005 was 6.8% higher than in 2004. Given that the market’s total value grew just 0.2%, clearly the volume of fur being sold - through traditional furriers - is falling, perhaps as a response to higher sticker prices.

For American mink farmers, however, prosperity does not hinge on the strength of the domestic market. They supply a global trade, the strength of which has long depended on the existence of one or more markets where, at any particular time, consumers are enjoying a rise in disposable income.

According to the International Fur Trade Federation (IFTF), global fur retail was worth $12.77 billion in 2005, up 9.1%, and marking the seventh straight year of growth.(2)

Thus the US retail market of $1.82 billion accounted for just 14% of the global market. So where are the bulk of the best mink, from North America and Europe, ending up?

The IFTF doesn’t publish a country-by-country breakdown, but it is well known that the markets now buoying the industry are China and Russia.

“We’ve always had our biggest markets in countries where there’s an explosive shift up the socio-economic scale,’’ says Torben Nielsen, CEO of the world’s largest auction house, Kopenhagen Fur. “In the 60s it was Germany, in the 70s Japan, in the 80s Italy, in the 90s Korea, and now it’s China and Russia.’’(3)

“The truly rich are a growing demographic in China,’’ he said. “This top end is really beginning to flourish where there’s a very large potential for the most expensive labels.’’

China is now the world’s third-largest consumer of luxury goods, and will surpass the US and Japan by 2015, says Goldman Sachs.(4)

As if that weren’t enough to fuel optimism, there are even reports of strong growth in the home of animal rights.

According to The Independent newspaper, sales of fur in the UK “are up 30% on two years ago, with fur products worth £40 million imported every year in a market worth an estimated £500 million.” It added that imports of “fake fur” fell from £3 million in 2002 to £1 million in 2006.(5)

At the current exchange rate, that means the UK fur market is now worth $950 million, or half the US market, with only one-fifth the population.

The Financial Times told a similar tale. “According to Fendi, its fastest-growing fur market in Europe is ... England (and according to the sales people in the Fendi shop, it’s the natives, not the tourists, doing the fur buying).”(6)

With China’s economic growth set to continue, Russia’s nouveau riche now buying the hats of their dreams, and furs being snapped up in the UK of all places, there’s good reason to expect another strong year. Unless Mother Nature deals another bad hand and has us wearing T-shirts into December again. It could happen.

Notes:

(1) “US fur retail sales still edging higher,” FCUSA press release, Aug. 29, 2006.

(2) “Global retail sales up for eigth straight year,” IFTF press release, Mar. 9, 2007.

(3) “Danish fur house sales reach records as rich Chinese buy minks,” Bloomberg News Service, Nov. 10, 2006.

(4) “China becomes the world’s third largest consumer of luxury goods,” Press Interpreter, Dec. 9, 2005.

(5) “Madonna & the curse of chinchilla: What she should know about that coat,” The Independent, Dec. 10, 2006.

(6) “Are we gradually warming to fur?” Financial Times, Nov. 17, 2006.

For further information contact: Teresa Platt, Executive Director, Fur Commission USA, PMB 506, 826 Orange Avenue, Coronado, CA 92118-2698 USA, (619) 575-0139, (619) 575-5578/fax, furfarmers@aol.com, www.furcommission.com.

To take a cyber-tour of a fur farm, visit Fur Commission USA's Fur on Film at http://www.furcommission.com/video/index.htm

© 1998-2007 Fur Commission USA

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