US Perspective—24.03.09
26/03/2009
The Jacobsen Commentary and Market Opinion—24.03.09
Courtesy of www.thejacobsen.com
There was a moderate amount of trades this week. Although there were some higher priced trades reported, the market by week’s end appeared to hold its own.
The guarded optimism that many traders ended with last week has lost a share of its sparkle. Yet one trader, after reporting a decent volume this week, was encouraged that the market will stabilise next week. In balance, today the majority of people in the industry are bearish and there is a frustration among some sellers that once again contracts are not being honoured. Sources confirm that some (old sales) agreements on prices in the low $40s delivered into Asia are at risk today. As we mentioned in previous Jacobsen reports, there are still many buyers who respect agreements and those who do should be commended.
In news related to the industry, the US Treasury Department has announced a $5 billion financing programme to guarantee receivables for troubled auto parts suppliers should one of the big three automakers go bankrupt. According to the Milwaukee Journal Sentinel, representatives from automotive seat manufacturer, Johnson Controls, have said they need to study the specifics of the programme before agreeing to participate.
Cattle and calves on feed for the slaughter market in the United States totalled 11.2 million head on March 1. The inventory was 5% below March 1, 2008.
Placements in feedlots during February totaled 1.68 million, 3% below 2008. Net placements were 1.62 million head. During February, placements of cattle and calves weighing less than 600 pounds were 320,000. Those weighing 600–699 pounds were 385,000; those between 700 and 799 pounds were 538,000, and those at 800 pounds or greater were 435,000.
Marketings of fed cattle during February totaled 1.68 million, 5% below 2008. Other disappearance totaled 56,000 during February, 7% below 2008. This is the lowest other disappearance for the month of February since the series began in 1996.
This week’s USDA Export Sales for week ending March 12 provides an interesting validation of the claimed large volume of hide sales last week and a hard-core reminder that those order cancellations being talked about are indeed occurring.
Wet blue negative
For the week, combined net sales for hides and blue were 841,500 with hide sales 853,500 pieces and wet blue negative (14,000). After further investigation, a representative from the USDA confirmed that the negative 14,000 was an adjustment factoring in a decrease from Hong Kong of 62,000. Although he could not be specific, the representative indicated that the decrease resulted from either a cancellation or buy-back. This confirms rumors out of Asia for the past two weeks that some tanners were indeed reneging on old purchases subsequent to the latest price drop.
Overall, the combined sales of hides and blue that week exceed its slaughter of 623,000 by 218,500 pieces which is quite impressive. Exports for combined hides and blue were 602,700, which is 20,300 pieces or 3.3% under the week’s slaughter. With sales being subject to adjustment as frequently has been happening, the real ball to keep our eyes on as an indicator of the market strength is clearly the exports.
Consolidation of the market so far this week into a solid trading range does not appear to have occurred yet. While some sellers are working prices up, many are focusing their emphasis on cash and shipments. Today’s market is generally in line with prices from earlier in the week with BBS, HNS, and HTS in the range of $26-$28.
China’s tax laws
There is news out of China indicating that changes in the tax law regarding the importation of wet blue and exportation of leather has been, or soon may be, put into place. This could benefit Chinese tanners exporting leather produced from imported wet blue. Sources indicate that China has or will soon repeal ‘Announcement 17’, a tax law that was announced two years ago and was put into place early last year. Announcement 17 prohibited tanners with processing licences from exporting finished leather. This caused tanners who have tanning and finishing plants in other countries to divert operations and created a great burden for those with plants solely in China who were dependent on overseas markets.
The warm weather in Chicago is a good reminder that the cattle slaughter will begin its seasonal ascent soon, thus putting more hides in the marketplace. A bit of good news is that the major stock indices showed gains again today.
Finally, The Jacobsen extends congratulations to The Tasman Group for the acquisition of its tenth plant, Tasman Great Lakes. At a time of business contraction, it is great to see bold leadership and expansion in the US hide and leather industry. Congratulations also to James Zwiers who has been promoted to president of Wolverine World Wide’s biggest shoe division, The Outdoor Group, which includes the Merrell, Chaco, and Patagonia brands.
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