US Perspective - 14.2.14
18/02/2014
www.themaxfieldreport.com
Please note – We will not publish a daily US Hide Report on February 17 due to the President’s Day holiday.
THE COMMENTARY
Interest on big packer hides today was not much different from the balance of the week, with sources sharing mixed reports as to their interest / activity. Worth noting, the majority of the trade is claiming that they had to “scratch and claw” for every piece of business they concluded this week, while sharing trading levels were no worse than steady with a few isolated sales at incrementally higher levels. Meanwhile, we did encounter a handful of market participants who shared that they had seen a decent amount of interest this week and able to move a fair number of hides at steady to incrementally higher levels.
As to trading levels, over the course of the past couple of days, we have heard BBS sold at levels as high as $114-$115 delivered, while sales on regular weight HTS reflect levels of $112, with rumblings that some isolated pieces of business where higher levels may have occurred. Meanwhile, we are aware of sales on CBS at $110 delivered, while BS were traded at $111 delivered and sales on HNS were quoted as high as $116 delivered.
Overall, opinions of the trade are mixed as to whether or not packers were able to liquidate a week’s worth of their production; however, with the slaughter at only 539,000 head this week, the proverbial bar is not set too high to accomplish this feat.
In the meantime, reports from overseas claim tanners in general are frustrated at the firm tone of the market, while it should be noted that there was once again a modest amount of business that was not concluded due to the fact buyers were not prepared to pay sellers asking prices. This, coupled with the fact that the slaughter is at its lowest levels in more than 20 years, have most pundits of the opinion that the lack of supply will likely force the hands of buyers in the near-term.
As to sales reported today, we can share we have BBS reflecting levels of $107, while sales of Jumbo BS check in at $112 and Super-Jumbos at $114. Other trading is quoting CBS at $103, while HNS check in at $109. The only other trading is calling regular HTS at $105 and Jumbos at $113.
Our weekly TMR Big Packer Hide Index comes in unchanged from last week at $101.95, its all-time record high. As a comparison, our index is $10.75 or 11.79% higher than levels of a year ago, while for the calendar year, our index is up $7 or 7.37%.
Reports from members of the cowhide trade appear as if they are as mixed or more than reports from the big packer trade. Several sources shared that they only saw a minimal amount of interest this week, while also sharing that they had to work harder than they expected to conclude the few pieces of business they wrote this week. Meanwhile, a few other isolated sources were laying claims that they enjoyed a surpassingly better than expected week of interest, sharing they were very pleased with their load counts this week.
Overall, opinions are mixed as to whether or not producers were able to sell their production this week; however, with the nation’s cow slaughter appearing as if it will labour to exceed 105,000 head, it would not take nearly as many sales to liquidate this total. As far as prices are concerned, like big packer hides, prices were steady for the most part to incrementally higher on a few isolated selections. Sources share that trading levels reflect HNDC at $97 delivered, HNC at $90 delivered, while sales of HBC in the North were sold as high as $80 delivered.
Sales reported today include HBC in the North at $73, while we have HNC reflecting levels of $83. Meanwhile, we also have HNDC checking in at $90, while sales of processor HTS were registered at $102.
THE LOOK AHEAD
We have come to the end of another week of trading and prices end the week on a steady, if not incrementally higher note. The early consensus of the trade for next week is that sellers are likely to press for even more money on the heels of one of the smallest slaughter this week in 20 years.
Meanwhile, we came across some interesting reading today as the USDA published its outlook for cattle for the next several years. According to the report, beef production will decline through 2016 as producers retain heifers to grow the overall herd; production is expected to exhibit signs of increasing in 2016. The USDA is projecting that beef cow numbers will increase from 29 million today to more than 33 million in 2022-2023. The total cattle inventory is projected to expand to approximately 96 million in 2023, and increasing slaughter weights add to increased beef production projections. The USDA is projecting beef cattle prices to increase through 2017, then fall but increase again through 2023.
With regard to global beef trade, USDA is projecting world meat consumption to increase by about 1.9% annually from 2014-2023 and world meat trade to increase by 22% during that same period. Stagnate beef export projections from Australia resulted in the top four beef exporting nations, according to USDA, to be Brazil, India, the United States and Australia. On the import side, China and Hong Kong are projected to increase beef imports by 55% in the next decade as China’s middle class grows from 300 million today to an expected 640 million by 2020.
What is interesting about the report is that it is well documented that the US cattle slaughter will be down in the neighbourhood of 2.5 million head or more this year, while we will also see smaller numbers in Australia and to a lesser degree in Europe. However, the USDA Foreign Agricultural Service is predicting that Brazil’s slaughter will increase by slightly more than 5.5 million head this year and that the global cattle slaughter is projected to be 3 million more head than last year.
Taking thee graphs into consideration, one starts to question if there is truly a shortage of hides as some sellers are insisting. The short answer is yes, if you are talking about popular selections from the US, Europe and Australia. However, as the graph indicates, Brazil by itself will easily account for the lack of slaughter in these areas. The problem is that Brazilian hides are not that easily interchangeable with these hide selections.
At the end of the day, we see a long-term transition taking place in the cattle hide trade, similar to the transition we saw in the automotive trade in the later 1990s and early 2000s. There was a time and a day when the automotive trade was dependent on HNS and BBS to a lesser degree. Today, there is still a small percentage of HNS destined for automotive, but this product mix is now a combination of hides from Mexico and Brazil. As we move forward, we can see a similar transition happening in the shoe-upper and handbag trade, especially as supplies of hides from the States and Europe are not readily available and prices reach levels deemed unaffordable.
In our opinion, as prices are trading at all-time record levels, there will be some ramifications in the long-term such as it is likely we will see some tanneries forced out of business and some of the brands switching their components / downgrading leather. Of course, this will be some very painful growth for the industry to endure; however, in the long run, we believe that the industry will be stronger for it.
As to what we expect for next week, we tend to believe that sellers will be buoyed with confidence, and with slaughter levels hanging around the 550,000 head mark, those looking for bargains / discounts are likely to be disappointed.
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