The Jacobsen Commentary and Market Opinion—25.08.09

Courtesy of www.thejacobsen.com

The market on Monday was fairly quiet with only a small number of trades reported. Overall, the mood was subdued with some saying the market was “tired”, but few were expecting much change. The hide market continued to be quiet on Tuesday with very few trades reported and prices off slightly, and trading activity on Wednesday was very slow with prices mixed.

Trading on Thursday continued to be down with only a couple of packer reports on HNS at $60 and $56.75. There were a few more processor reports with an uptick in bull and branded cow prices. Friday’s trading reflected the week; fairly slow but not unusually so for a Friday. On the upside, HTS and CBS selections were up with a $57 trade for an HTS and $43, $44, and $45 trades for CBS. Other sales came in level to down.

The markets moved sideways with very few trades achieving new highs. The Jacobsen Price Index through Thursday remained relatively unchanged at $50. Most contacts say there was very little trading activity as the focus now turns toward the All China Leather Exhibition in Shanghai.

Slaughter for the week was estimated to be 653,000, up 10,000 from the previous week’s but off from last year’s 674,000 by 21,000. These numbers are still trending higher than the summer’s norms but are likely to return to the 620,000 range after Labor Day (September 7).

Sales for wet blue and hides—as expected—were down, but not that much with a combined 572,000 pieces sold. This is around 70,000 under the week’s slaughter of 643,000; significant but not defining. Blue and hide exports were closer to kills at 629,000. Neither blue nor hide sales had any major corrections or cancellations.

On a year-to-year basis, this year both shipments and sales continue to track ahead while slaughter falls behind. This year through week 33, shipments of combined blue and hides are 21,635,000 while last year they were 21,182,000. Sales compared at 21,359,000 in 2009 and 21,186,000 in 2008. Year-to-date slaughter is 20,716,000 in 2009 and 21,666,000 the same period last year—down nearly a million pieces. By comparison this year’s exports exceed kills by 919,000.

These statistics no doubt have a lot to do with the strength that the hide market has seen over the past couple of months. Add to this an economy showing signs of recovery with some improvements in leather business such as the recent resurgence in the auto sector and you build on that momentum. For the most part, supply is expected to remain down for the rest of the year while the economy slowly moves forward. This will go a long way toward keeping the market up and preventing a repeat of last winter’s crash, but does not mean that it cannot have a small correction if it gets out of line.

The international market

UK

It was a fairly quiet week with something of a stand-off between tanners and suppliers. Ox/heifers were still in good demand; however, there were very few offers about and suppliers/traders are holding out for their asking prices otherwise they will take the offers with them to Shanghai. On the other side of the fence, the tanners say they cannot afford these current prices. We suspect the truth probably lies somewhere in between. Cow offers were also drying up a little with prices unchanged. It does appear that the top of the ox/heifer market has been reached; however, with demand still good, we expect to see a levelling off rather than any sharp reductions.

Brazil

According to sources, leather business has been better with more demand and tanners fairly well sold ahead. Business in Italy is still calm due to the holidays but stronger in Asia. Prices have moved up over the past couple of weeks with better quality hides at around $0.40/kilo and wet blue TR1 in the range of $0.95 to $1 per foot.

Slaughter continued to be down and is expected to be in the area of 40.5 million for 2009. Brazil’s kills peaked in 2006 at 47 million and have steadily dropped each year. In 2007 it was around 46.5 million, in 2008 it was 43.7 million, and this year kills are expected to fall another 8%.

As slaughter has dropped over the past years, the industry has seen improvements in productivity. In 2000 the average age of cattle slaughtered was 5.4 years and in 2008 it was 4.4 years. By comparison, it is twice the age of cattle slaughtered in the US. The industry is also seeing a shift toward feedlots; industry pundits put it at around 5% in 2008. Although it is not anywhere near the levels of fed cattle in the US, where roughly 80% of slaughtered cattle are fed, it is slowly moving towards that direction and quality is improving.

Australia

Slaughter continued to be lower than usual due to the good seasonal conditions, which was motivating farmers to hold on to cattle rather than sell. It is not unusual for abattoirs to cut back on the number of days they are working and this is expected to continue for the next several weeks. In the south, many meatworks are trading in the red.

There has been increased resistance to current pricing and sources indicate they wouldn’t be surprised to see a moderate correction in the near future. Heavy hides may be an exception as there is good demand along with limited supply. The exchange rate has provided a small relief, moving down from US$0.84 to $0.81.

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