US Perspective—31.03.09
31/03/2009
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The market ended the week with a modest amount of trades reported. Steer prices were in line with earlier reports, with most between $26 and $28. Branded Cows were up $1 for both northern and southwestern selections.
The sentiment of most people was mixed today with several quite bearish. Industry volume of sales and prices were reasonably good. Other traders were less enthusiastic indicating volume for the week was down and prices steady.
Slaughter for the week at 600,000 is down 17,000 from the same period last year which will reduce pressure on inventories. Year-to-date slaughter is 7,587,000 and 415,000 less than 2008 (5.1%).
Glimmers of light
The news on the economy has begun to show a few glimmers of light in the past two weeks; finally some positive signs. On March 25, the Commerce Department said orders for durable goods rose by 3.4% last month compared to January, the first gain after a record six months of decline. New home sales rose 4.7% to a seasonally adjusted annual rate 337,000 after being at 322,000 in the previous month.
In the hide market there has also been positive movement. The sales figures shown in the most recent USDA export sales report, for week ending March 19, were 873,100 hides and 146,000 wet blue, totaling 1,019,200 combined pieces. Combined wet blue and hide exports for the week were also quite good at 643,000 pieces, with 76,000 wet blue and 566,600 hides. Outstanding sales for hides rose 114,000 pieces to 5,782,500 and for wet blue 42,100 pieces to 716,000 full substance and split grains.
Expectations of firmer prices this week began to take root with reported trades on steer selections. All reported selections were up by between $1.50 and $2 with HTS averaging $28.50 and BBS still around $26. There was upward movement in the heavier HNS at $28.50, but the lighter weights remained at $27. Cow selections with the exception of HNDC were steady. Overall, the market is firm to steady.
Inventory movement
Sellers are still hanging onto their optimism that the market has potential to bounce upward. With many convinced the market is firm following back-to-back heavy sales in the past two weeks, the real key to the way the market shifts is dependent on the movement of inventory. As one source put it, “If sellers are successful in raising price this week, it means that hides are moving out the door!”
Feedback relative to the market this week is mixed, but it seems to be picking up steam. One source conveyed that lightweights were stronger and they were able to get a couple of dollars more for heifers than last week. Steer prices appeared to be holding their own with a few sellers calling the market up $2 for BBS, HTS, and HNS. Reports on cows are steady. Generally speaking, most are maintaining that the market is fairly steady and seems to have consolidated. Trades reported today are consistent with this train of thought.
Several suppliers who travelled to China ahead of APLF have reported that the leather business there is good. The hide market is typically a bit stronger as the industry goes into the fair and for the most part, this year is no exception. Let’s remain hopeful that it ends on the same high note it is beginning with.
Look and feel
The hide market definitely looks and feels better, so the question is whether it is sustainable in the face of poor global economic conditions. The shoe business is somewhat recession-proof but cars and couches are not, and there lies the rub. Since the beginning of 2009, we have been bombarded with bad news and ‘shock and awe’ every day. But as we turn the corner into spring in the northern hemisphere, where hope is eternal, we begin to embrace the concept that hide prices are looking as cheap as they are going to get, and the economy, while not changing, is starting to show signs of life. So what’s the catch? When’s the next shoe going to drop or hit a president? The answer resides in sellers’ and buyers’ confidence.
The value of a decent, law-abiding, contract-keeping, schedule-adhering, quality-accepting tanner has received little recognition or attention in the last six months, and as such deserves to be identified and separated from the rest of the bunch.
Upon closer examination, it would appear that these triple A accounts are more aligned to purchasing directly from producers, compared to the free-dealing ways of traders, dealers, or, in some cases, processors. While we are not trying to take sides in this new theatre of conflict, it is apparent that the volume of noise associated with contract performance escalates closer to the trading side of the hide business and softens when listening to producers. We obviously cannot stereotype the sellers as there are culprits in all aspects of this business; likewise we should not be painting tanners around the world with the same brush. There is no question that the cause and effect of a 50% drop in hide prices is mind-boggling, but as many tanners in Asia decided to step out of their commitments, there were numerous major consumers of US hides that respected their deals and honoured their agreements with contracts being regarded as sacrosanct.
To name names
Similar to the recent congressional hearings on insurance group AIG, the angry crowd was demanding their pound of hide via water-boarding or any other type of torture, in addition to hangings, or simply suicide. Requests to publish the names of people or companies that failed to live up to their obligations were the drumbeat for many hide reporters, most of whom, coincidentally, trade hides.
A more appropriate list to publish would be those companies who did not falter, hesitate, or renege on their contracts. These businesses should be applauded for their conviction and respect to law and order. They need to be recognised as a standard for the balance of our industry to follow.
Using these enterprises as an example of decent business behaviour is a thought not necessarily popular or currently fashionable, but realistically these are the companies that need our support and become the benchmark for others to follow. We need to encourage this activity and reward them with favourable pricing that provides a positive incentive for this type of behaviour. We should celebrate and applaud commitment, integrity, and credibility and not reward failure by re-negotiating or contract-forgiveness. We urgently need to distinguish the people and companies who follow and value the rules. Let’s consider publishing a list of the best performing companies of 2008 and leave the worst to figure a way to gain their reputation back.
Hong Kong
This week many US hide and leather industry representatives are heading to Hong Kong for the Asia Pacific Leather Fair (APLF), which runs from March 31 through April 2. Although there are many US suppliers planning to attend the fair this year, the number of those with booths is expected to be down. The Jacobsen will have representation at APLF and will be providing news from Hong Kong next week, so stay tuned. For everyone travelling to Hong Kong for the event, travel safely and get the market stirring!
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