US Perspective—05.05.09
06/05/2009
The Jacobsen Commentary and Market Opinion—05.05.09
Courtesy of www.thejacobsen.com
The market began the week slowly with early reports down; but by Thursday, it had regained its losses with most hide selections ending at the previous Thursday’s prices. Two exceptions were heavy branded steers reported at $24, up $4, and butt branded steers up $1.50, averaging $25. Overall, HTS, BBS, and HNS ranged from a low of $22 to a high of $28, with most reaching between $24 and $27.
Suppliers continued to focus on keeping hides moving as kills pick up for the grilling season. The week ended on a firmer tone with few trades reported at steady-to-higher prices. HTS were traded at $26.25 on average and Butts at $25.25.
Slaughter for the week is estimated to be 665,000, up 21,000 from last week and down 5% from the same period last year.
Swine questions
The industry has been all abuzz with confusion and rumours related to export and import restrictions on US swine related products into various countries. These rumours have spilled over onto other areas and have spread to cattle hides and wet blue.
After investigating this more closely, this latest rumour is not accurate. There have not been any restrictions placed on cattle hides and wet blue into Thailand or China according to sources from the US Hide, Skin & Leather Association (USHLA).
USHLA president, John Reddington, stated: “We have received confirmation today that Thailand is not banning imports of bovine hides and skins. Porcine skins are banned, as are wet blue porcine skins because they are considered by the Thais as only ‘semi-processed.’ They have indicated, however, that they would evaluate the process if we can provide them with some information on how porcine skins are processed.”
In addition, USHLA confirmed that China has not banned bovine hides, just pig skins—same as for Thailand. At present, the organisation is trying to get confirmation on wet blue porcine status for China as well, but for the time being it is assuming it would be similar to Thailand in that it is only ‘semi-processed’ and therefore not allowed unless it can be proven that the process can eliminate the virus.
According to USDA’s Animal Plant Health Inspection Service (APHIS), China is banning the importation of swine products from several US states. APHIS is currently seeking clarification and advising companies exporting porcine from California, Kansas, New York, Ohio, and Texas to work through their exporters to determine eligibility.
The flu outbreak is beginning to hit retailers and businesses related to the food industry in this country. Grocers are reporting a reduction in foot traffic and major chains are experiencing drops in share valuation.
How this ultimately impacts the beef industry will depend to a large extent on the extent and duration of this crisis and whether the connotation that pork consumption is a source for swine flu sticks or is dispelled. In the short run, reduction in retail food traffic and food service business could decrease beef sales. However, if the business is impacted farther out and pork products are replaced by other proteins, then the demand for beef should increase.
USDA’s sales figures for combined hides and wet blue of 1,067,900 made an about-face from last week’s paltry combined sales of 425,000. In fairness, last week’s low sales numbers included nearly 300,000 in downward adjustments due to cancellations. Net hide sales of 935,000 exceeded last week’s slaughter of 640,000 by 46% and the combined blue and hide sales exceeded slaughter by 66%.
Exports for the week were solid as well with combined hide and wet blue of 795,000, exceeding the week’s kill by 155,000 or around 25%. Whole cattle hide and wet blue exports were primarily to China with nearly 62% hides and 37% wet blue.
With the impressive performances of last week’s sales, the market has not reacted as one would expect and so far prices continue to be soft in many selections. Low priced hides have made it attractive for buyers to buy down to average down their inventories. With demand for finished leather down and relatively unchanged the question remaining is what will happen to old orders priced a couple dollars above these recent sales? Industry pundits will be watching closely to see if the coming weeks bring adjustments in sales.
Meanwhile, the US Commerce Department has reported that the economy shrank by 6.1% during the first quarter of 2009, down only 0.2% from the final three months of 2008. The silver lining is consumer spending was up 2.2%, which, unfortunately, was offset by spending cuts in virtually every other area of the economy.
In the furniture sector of the industry, High Point Market (North Carolina) turned 100 years old in April and is still the dominant furniture trade show in the world. There was little to celebrate at the trade show, though, as the industry suffers through this recession with weak retail sales and accelerated retail consolidation. Jeff Barron the president of Baron Consult Inc. of High Point was quoted as saying: “The furniture business is as bad as most anyone in our industry has ever seen.” The Commerce Department reports furniture sales down 14% in March.
Many in our industry are calling the furniture leather business off much more with estimates as high as 30%–40%. Some Chinese upholstery tanneries are reported to have reduced production by 50%. Cow prices have reflected this decrease with the market down, depending on selection, from 65–85% from a year ago.
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