US Perspective—18.08.09
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The market on Monday was relatively quiet with no packer and only a few processor trades reported. Trades were steady. Early in the week, business was quiet with a few early offers out at higher prices. Although there were not many confirmed trades, asking prices for HNS, BBS, and BS were in the range of $56 to $59. Falling within the range, one HNS was traded on Tuesday at $59, up $3.50 from its highest point this year. Other trades on Tuesday included BS, HTS, and HBH all within the previous week’s range of trading.
In spite of less than enthusiastic acceptance of higher prices, a large number of packer trades were reported on Wednesday with several at, or above, yearly highs. Among those, jumbo HTS were sold for $61, NHNDC at $43, HBH at $42 and HNH at $44. In addition, CBS broke into the $40s on Wednesday.
The market was very quiet on Thursday with only a small amount of reports. A new high for HNS at $60 was recorded with other reports falling within the prior week’s range of trades. A moderate quantity of trades was reported on Friday, normal for a Friday with prices steady to up. Most notably, HTS ranged from $52 to $56 and BS from $49 to $54. Branded bulls and kips traded up 50¢ while small packer increased $1.25.
Holding back
The hide market this week remained firm from a pricing point among light trading. There appears to be a classic standoff with tanners claiming they cannot recover the hide prices on their leather sales and suppliers showing restraint with limited sales. While packers are comfortable with pricing, there is fear that if they extend their positions the sales will not be liquidated. The lessons from the numerous cancellations and requisite renegotiations of last winter are burned into the minds of packers causing them to hold back.
In the market’s run up, steer pricing has outpaced cheaper cow selections. Last year’s branded steer prices were $64 and branded cows at $36.26. Last week prices were $50 and $17 for BS and NBC, with the steers 22% under last year’s price and the cows around 50% below.
Over the past month, however, the pace of prices increasing is much closer. This change could be a sign that the market is shifting into cheaper sources. As prices for steer selections continue to climb to price points where they are no longer cost effective for many tanners, it forces them to seek alternative materials, opening the door for cheaper substrates and making cows more attractive.
Highs and lows
A recent survey of economists says a majority now think the recession is behind us. Wednesday’s upbeat report from the Fed expanded this sentiment, indicating that the economy had returned to a more stable footing and has levelled off. This sent stock shares soaring with the DJIA up 120 points for the day and continuing a four-week rally of over 1,000 points. The hide market has mirrored recent increases of equity shares, rebounding from their unprecedented lows with steers prices in the $20s this past spring into the $50 range this week. This is not surprising since both are closely linked to the overall health of the global economy.
Thursday’s USDA export sales report painted a slightly less positive picture with both combined wet blue and hide sales and exports falling behind week ending 06.08.09 slaughter. For the week, hide and wet blue sales totalled 411,400—215,000 pieces under the previous week’s kill of 627,000 while combined exports totalled 569,000—57,700 under kills. Both hide and wet blue numbers were affected by cancellations. Gross hide sales, while very low at 294,000, netted 267,490 with adjustments mainly in
Predicting that the market will soon top off is probably a safe bet if you broadly interpret “soon”, but a fool’s errand if you try to pinpoint when and at what price. Some sources note that more hides appear to be becoming available and see this as a possible chink in the rising market. Resistance to higher prices by tanners is increasing each week and will translate into more and more buyers passing on purchases which will ultimately increase availability. These dynamics will change the shape of the market and level prices fairly soon, but soon in this case needs a wide berth.
The international market
Last week was a quieter week largely because hide offerings were extremely limited, which means there was not much to bid for. Sellers were still covering existing contracts and the supply remained low. There is a feeling that prices may start to level out as we approach the ACLE in
Robust domestic business continued in
Order backlogs are down with few commitments beyond September/early October for leather orders. There appears to be a consensus that shoe factories are working with shorter and shorter delivery requirements. One source indicates that in some cases the product needs to be made ahead in order to meet lead times. And, while lead times have shortened, the complexity is increasing with smaller order sizes and many more colours.
Although most agree the demand for hides is real, it is expected that a large driver for this is
Many tanners are continuing to push for shipments of older, cheaper contracts worrying about deliveries. Some are expressing concern for domestic business after September and in general many tanners do not want to make any big moves on hide purchases before they can successfully up leather prices. Tanners caught short of hides, however, will need to continue to pay the price: $60 plus for HTS delivered.
The exchange rate continued to trouble exporters having risen to $0.83 US$. Signs that the economy is picking up with unemployment falling and the housing market increasing are all contributing to increased confidence in the Australian market and a stronger currency.
Seasonal short supplies, particularly in the southern region, continued to be an issue. Australian kill numbers fell on average by about 10% in July compared to last year. Improved conditions have prompted many farmers to hold onto their stock, which has further tightened supply across the board.
The domestic market was a little firmer on some items while overseas markets were quite strong. The situation in the
