US Perspective—22.09.09
22/09/2009
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
After a fairly quiet week, the market wrapped up with a surge of late afternoon trades on Friday. Prices on steer selections were off slightly but several spiked back to weekly highs. Cows were mostly steady although several traders noted they were also pressured. There is an expectation among some buyers that prices will be lower this week, causing them to hold off on purchases until then. A few optimistic suppliers are thinking trading will be steady but no one expects prices to rise. Most significant this week was the low volume of reported sales on Thursday, which seemed to take the wind out of the sails and dampen the mood of traders.
Slaughter last week is estimated to be 645,000, up 83,000 from the previous week, which was short due to the Labor Day holiday. It is, however, 36,000 head less than a year ago and year-on-year, it is behind 4.9% or 1.22 million.
The latets USDA export sales report spells trouble for the market with whole cattle hide sales of 214,000—its lowest level yet this year. For each of the past seven weeks, sales of blue and hides combined have been under slaughter. On average, this number is 225,000 pieces per week less than kills.
There was a significant number (93,496) of cancellations for whole cattle hide sales, most notably from China (41,384) and Korea (38,830). No major adjustments or cancellations for wet blue grains and whole hides were reported.
With the low kills of 562,000 due to Labor Day in the previous week, combined wet blue and whole hides sales were 204,000 under slaughter. This does not bode well in the marketplace and will likely embolden buyers to continue pushing the market downward. One of our industry’s experts yesterday speculated that sales needed to be over 700,000 in today’s report to hold further declines in prices.
Exports fared better with combined hides and blue at 601,500, around 39,500 greater than kills. For the year, shipments are still up compared to kills with total combined shipments at nearly 24 million while slaughter through week 37 is approaching 23.25 million.
The recent trend on exports looks different from sales in that several reports over the past seven weeks reveal export numbers exceeding kills. Like sales, however, overall exports for the same seven weeks are behind slaughter, only to a lesser degree, averaging 30,400 pieces per week less.
As the week progressed, the market appeared to be moving sideways in a trading range—around $5 under its highs of August. More interest than last week was apparent, but bids were still low. Some small volume trades at steady money were occurring.
Economic news brings positive signs that retail sales are beginning to pick up. Retail sales in August beat analysts’ expectations rising 2.7%—excluding autos, they were up 1.1%. This bodes well since consumer spending accounts for 70% of the economy. For the hide business, leather goods from belts, bags, and shoes to autos are intrinsically tied to consumer demand.
Trading quantity today was modest with experts characterising the market as anywhere from “quiet,” to “sideways,” to “down”. Most selections held their own with steer selections trading between $50 and $55. The exception was CBS reported at $43.
In industry-related news, JBS Swift today announced its intention to acquire US poultry group Pilgrim’s Pride Corp as well as setting up a new association with Bertin S.A. The Jacobsen congratulates JBS for its leadership in the industry and its latest acquisitions.
Following the retreat of steer prices over the past two weeks, buyers and sellers are posturing for advantage. There was a large amount of trade in the middle part of last week with prices mixed—butts and Texas steers were up and branded steers were down. Sources have said they are now seeing more interest than in the past couple weeks, although bid prices are down.
Tanners are generally in fairly good shape on their inventory positions. On the supply side, with sales falling behind slaughter for the past several weeks, the advantage on inventories is not as good as where it was a month ago. With this in mind, prices for steers should continue to be under pressure. To a certain degree the market appears to be all over the place, possibly seeking definition. If a buyer does not need material, they’re bidding down; and if one needs prompt shipment, they are willing to give asking prices. The farther down the quality food chain one goes, interest seems to dwindle from little to none.
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