US Perspective—28.07.09
04/08/2009
US PERSPECTIVE—28.07.09
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
There was not a lot of activity at the end of a week that saw estimates for cattle slaughter at a paltry 119,000, down 46,000 from a year ago or nearly 28%. A source explained the lack of activity by saying that there aren’t a lot of sales to be made and there aren’t a lot of hides to sell. Despite the lack of activity there was some trading reported from the processor and big packer sectors. HNS cooled off to end the week lower, as did CBS. HNH and HBH were reported higher in per-piece value, but lower on a per-pound basis, and processors were fetching a higher price for branded cows and both branded and native bulls.
One interesting piece of news this week was Nike’s announcement that they would no longer buy leather that originated from cattle that were raised on land that came as a result of rainforest or Amazonian deforestation. How this will affect the North American marketplace is yet to be seen, but there is the potential for an increased demand from the shoemaker’s potential exit from the Brazilian market. There are several thinking points to evolve from this decision, will this spur other shoe companies to follow suit and limit their buying only to suppliers they regard as eco-friendly? If indeed Nike and other shoe companies stop buying some Brazilian hides, who will fill the void of that demand sector? Is there potential business in certifiable eco-friendly hides? In an atmosphere in which buyers of finished goods are increasingly environmentally conscientious, will a so-called green revolution spill into the marketplace, placing a premium on certain hides? These are certainly interesting morsels for thought, but it may be a while out as certainly this would put a premium on shoes and other wares that are currently experiencing less than stellar demand.
The week continued with tight supplies in a strong hide market as packers and traders shortened their forward sales position—exaggerating supply shortfalls and driving price increases. Rumours are prevalent that suppliers are cancelling older, cheaper orders in huge quantities or pushing for buyers to take delivery of older, expensive orders before cheap hides can be shipped.
Sources are indicating the reaction to the unrelenting increases and pressure to renegotiate older contracts is being met with out-and-out resistance from tanners. Yet incredibly, at least some buyers have been willing to pay up money setting the market higher and higher.
It’s no surprise there is little structure in the market as it climbs to new trading ranges when, just last fall, agreements and contracts were ignored by many as the market spiralled into free-fall. One source surmised that the recent panic buying is due to tanners falling into a false sense of security when they bought cheap hides. This implies that for some there was no intention to honour agreements if the market turned in their favour, particularly those who had chosen to ignore purchases when the prices fell. Many, however, continue to ship; but with the apparent shortage of hides here and abroad, suppliers are in their best position since last fall to apply pressure on buyers to take delivery on the old expensive hides remaining on their books.
USDA export sales for week ending July 16 forwards the trend of greater shipments than slaughter, with 785,100 combined hides and blue exports, against a week of 627,000 cattle killed. Sales for the week were down—not surprisingly—with combined hides and blue at 549,000 showing a pick-up in wet blue over the past four weeks of 83% at 176,000. Blue business is much better and appears to be picking up some of the slack as hide availability has dried up. There were no significant hide sales cancellations reported for the week.
Supply continues to be tight with most packers withholding offers this week. Availability of big packer material is spotty with only a few trucks now and then for preferred customers. While some secondary sources indicate there are very limited amounts of branded cows, dairy cows, and bulls, others report a number of branded cows and bulls available. There is consensus within the industry that steers are scarce-to-non-existent.
Big packers are still fetching a hefty price for both weight classes of the HNS hide. This price jump will certainly leave a few scratching their head as they have been questioning the sustainability of these price increases for the last couple of weeks. The cow selections were the exception to this market run as lower numbers continued to be reported on weaker demand.
For weeks, pundits have been amazed by the strength of the market—surprised each week by new rounds of price increases and large sales and export numbers, thinking that the leather business could not sustain them. Most thought it would soon level off and trade steady or perhaps retract slightly.
With the past firmness in mind, including last week’s record highs on a few selections, there was a chink in the armour as sales activity did appear to be down. This is partly due to fewer hides being available and resistance to higher prices. It could be an indicator that the hide market is forming a new trading range. Only time will tell when this will happen; but like all markets it is a certainty that the hide market cannot climb for ever without correction and retractions. There will be a point when these impressive shipments of wet blue and hides will be sufficient for tanners’ requirements. Bearing in mind that year-to-date shipments are virtually the same as last year at 18,132,000 and we are in the midst of a global recession, that time may soon be upon us.
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