US Perspective—19.05.09
26/05/2009
The Jacobsen Commentary and Market Opinion—19.05.09
Courtesy of www.thejacobsen.com
This week’s market began with another round of price increases that was understandably met with the “cold shoulder” from some buyers; but in the end, a number of sales were attained at higher levels.
With sellers and buyers in relatively good positions of forward sales and coverage, a stalemate ensued resulting in fewer trades reported than last week. One packer called it a good week, noting volume was not as good as last week’s but that prices had increased. Several sellers indicated they had good sales this week and continue to be in a good position, while others indicated difficulty in moving hides.
One supplier commented that large-volume buyers were notably missing from the market, although strong interest remained with smaller volume customers. Next week should prove interesting as we watch to see the level of follow-up at the new higher levels.
Trading at the end o the week was relatively light compared to the previous Friday’s exceptionally busy activity. Cows ended the week steady with brands in the $6 level, natives from $9 to $14, and dairies from $15 to $25. HNDS were the only cows reported this Friday. Steers ended up a couple dollars in most selections. A number of 60-62 pound HTS traded ranging from $29 to $34.
Slaughter is estimated to be 672,000 for the week, up 30,000 from last week. The same week last year slaughter was 719,000, nearly 7% over this week’s.
Retail picture
Reported US retail sales fell for the second straight month, sending stock prices down with the Dow Jones Industrial Average off 184 points. The commerce department reported that retail sales dropped 0.4% last month. These setbacks created concern that the economy has not bottomed and recovery will be pushed back further.
The hide and leather industry’s health is linked closely to retail sales, as is the timing of its recovery. Contrary to recent economic news, but similar to equities, the hide market has shown upward movement in prices and sales during the past several weeks. This could lead one to believe that tanners are betting recovery is not far away, or at a minimum that the market has bottomed. Could hide sales be an early indicator of economic turnaround? Only time will tell.
Hide exports higher than slaughter
USDA reported export sales for week ending May 7 at 850,000 combined blue and hides, indicating another solid week, but not quite as impressive as the previous two weeks’ figures of more than a million. Combined exports were 731,000 and just over 12% more than the week’s slaughter of 652,000. Hide sales were primarily destined to China with around 49%, while most wet blue will go to Mexico with 55%. Over half of the wet blue and hides combined exports were shipped to China.
For the first 19 weeks of this year through May 7, combined blue and hide exports were 11,734,000, exceeding slaughter of 11,635,000 by 100,600. If you take into account a 25,000 hide per week or 475,000 year-to-date domestic production, 586,000 more hides were consumed than generated. This would decrease domestic inventories by that amount and could possibly be one of the reasons for the stronger market.
Sales of blue and hides are even more impressive with a year-to-date total of 12,755,000. This exceeds slaughter by 574,000 pieces.
Higher prices
Word from traders around the world validate the market is stronger, but they make a point to remind us that much of the recent sales volume was at older, lower prices with a small amount of purchases at higher prices. Offers this week in the US are up a couple of dollars again and sellers from Europe and Australia are asking up money as well.
It’s a little early to tell if buyers will bite at these levels but sources have noted buyers are having a tough time trying to get over the sticker shock of these increases. There is definitely resistance. One thing to keep in mind is that as good as sellers are feeling about their forward sold position after two weeks of back-to-back million-plus sales, tanners also have much better coverage and may not need to buy. With these recent purchases, buyers—just as sellers—will be able to hold back for some time. The question is, who will blink first?
Although there are flickers of hope that the economy is beginning to turn the corner, most realise that this recession is deep and wide and will take some time to turn around. The automotive sector for one is not expected to change much this year. The shoe and affordable luxury bag business, which is among the healthiest leather segments, is still off last year’s level by between 10% and 15%.
So what is driving the rally? One possibility previously suggested is that buyers trying to anticipate the bottom are buying in an attempt to catch the lows before they are lost for ever. This would be a rally in a bear market.
In favour of a sustainable market shift, a case could be made that buyers are recognising the quality and value of North American summer hide production as other sources such as Europe and southern Australia have reduced slaughter and realised price increases. With 245 million cattle expected to be killed in 2009, only a select few have the grading qualities of North American steers and heifers, and many of these are destined for the strongest segments for the leather business.
Regardless of why the market rallied, suppliers are not going to give up easily any ground gained in recent weeks. We are likely now to see the market tested as sellers try the resolve of tanners with offers at higher prices. This should be interesting, with the market firm and steady.
Share this story:
