Courtesy of www.thejacobsen.com

The previous week’s hide market continued its rally last week with several selections of steer prices bridging into the $50s at one time or another during the week. The Jacobson Price Index for the week was up 10%, climbing nearly $4 from the previous week to $40.92. The market has shown tremendous strength this past month, but many are concerned that the speed and quantity of price increases might cause the market to collapse if hide prices outpace the tanners’ ability to make money.

Monday’s trades were steady to mixed, with a fair amount of reports considering the norm for Mondays is usually sparse. Trades on Tuesday were mixed with a few new highs. Several traders expressed concern that the market has climbed too fast.

A high volume of trades was reported on Wednesday with several new highs, most notably a $54 BBS, $56 HNS, and $60 Jumbo HTS. Among the trade reports there appeared to be a wide range, particularly between packer and processor hides. One trader noted that while steers were being reported in the $50s, they were shipping hides in the $30s.

Thursday’s reported trades were behind levels of the previous few days with the market remaining firm. Several new highs were achieved among mixed reports. A moderate number of trades was reported on Friday, steady within the week’s range.

The week’s slaughter continued to be down with an expected 627,000 for the week, off 12,000 from the previous week and 40,000 from the same period last year.

Cancelled contracts

After paying $4 up last week, tanners were bracing for battle and hoping for the market to let up. Adding to the relentless prices increasing in chunks, many tanners and traders were dealing with cancelled contracts.

Last autumn, as the market spiralled downward with no bottom in sight and contracts were being cancelled and renegotiated left and right, one trader commented on a Friday: “It’s been a tough week and I’m glad it’s over.” Today that same expression might fit for some—maybe a trader or two caught in the middle and definitely anyone needing to buy to cover immediate production.

It is amazing that the hide market continues to show such strength when you consider the USDA Export Sales and Shipment report for the week ending July 30. With slaughter at 639,000, sales for the week for combined wet blue and whole cattle hides were 407,000. Granted, most suppliers did not have much to offer, but hide prices rose $3 or $4 dollars that week. The power of restraint was evident with sellers in the driver’s seat as they picked and chose higher bids and turned down the rest.

There were a few cancellations of whole hides—mainly from Korea (32,175) and China (9,496)—with gross sales totalling 374,994 and netting 331,985. Wet blue gross and net sales were very close, with a total for the week of 75,487 pieces of which 58% were full substance with the remaining 42% split grains.

Combined blue and hide exports for the week continued recent trends of exceeding supply generation with shipments of 684,000, but closer to kills than in past weeks. This could be a sign that inventories have drawn down to healthy levels. Several suppliers are noting, however, that they still have ample supplies of certain selections especially of lower-end material such as branded cows and bulls.

The market steadily marches upward with few packers offering material and some continuing to pull back their forward sales position. Those offers being given are for up money with one supplier asking $54 for BBS and $56 HNS. Although many expected prices to climb, feedback from Asia noted stiff resistance. Once again the resolve of buyers and sellers was tested.

Positive signs

On Tuesday, economic reports on US manufacturing activity projected growth next month for the first time since January 2008. The Institute for Supply Management, a trade group of purchasing executives, says its index measuring US manufacturing activity showed the slowest reduction since last August at 48.9. The group expects it to be above 50 next month if we stay on trend. This would indicate growth for the first time in 18 months.

The wet blue split market continued to show good demand. Although prices varied depending from source to source, good quality heavy natives C&F China were approaching $0.54 with mediums at around $0.48. Heavy brands were selling for $0.48 with lights a nickel or so under.

The auto sector, a large factor in the hide market’s upward movement this summer, was given a boost on Monday by Ford Motor Company’s announcement that its July sales saw an increase—the first year-to-year increase in over two years. The “cash for clunkers” programme, which started July 24, was noted to have played a role in this improvement. The annualised auto sales, a key barometer, were 9.7 million units in June and analysts are predicting it to be as high as 12 million for July thanks to the clunkers programme.

In a 60-37 vote, the US Senate passed the $2 billion extension for the clunkers programme on Friday—enough funds to subsidise around 400,000 new vehicle purchases. The success of the first $1 billion round has left auto makers with lean inventories and has them gearing up for the next wave. This undoubtedly will boost the auto leather sector and add steam to the pressured steer hide market.