US Perspective—29.09.09
29/09/2009
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
There was very little activity to report at the end of last week, with some stronger prices but nothing exceptionally higher. The exception was a trade of NBC for $22.00, which some have suggested are premium hides (very good quality).
The week ended as expected on a softer note than last. The Jacobsen Price Index (JPI) finished the week-to-date down $1.2422 from last week but on Friday was up 58.75 cents from Thursday. The increase is mostly due to some stronger steer reports.
One needs only to look at the sales-versus-shipments-versus-slaughter chart to see that reported sales have dropped significantly in the last month. Some brief news from China was that a lot of tanners are frustrated over shipment concerns and are taking a wait-and-see attitude, while others are only buying when they find bargain deals.
For the few in the trade who expressed earlier in the week that prices would slip a dollar, the JPI is supporting your forecast. Through Wednesday, this week’s JPI fell $1.16 to $47.31.
Not transparent in the recent USDA sales reports are any contracts that are renegotiated. As an example, if two old contracts for hides purchased with one at the bottom and one at the top of the market were settled at a new price, this would not show up as a new sale. As you may recall, at the bottom of the market many suppliers were over-selling. When the market bounced back, many hides that were sold had little chance of ever being shipped. This process in effect is making outstanding orders a more realistic reflection of what they should be, but it clouds the picture of what is going on in the marketplace.
So while the industry watches for the latest sales report, it should pay particular attention to the actual shipments and understand that making too much out of the sales numbers is like reading tea leaves. For the hide and wet blue markets to strengthen, the trend of low sales needs to change. However, with the complication of re-sells and re-negotiations which began last fall, it will be difficult to judge by numbers alone when this happening.
With the recent trend of the hide market retreating in sales, shipments, and prices, the wet blue market has also experienced setbacks with a reduction in shipments this year over last by nearly 25,000 hides per week. This year, exports for wet blue whole hide and split grains through Week 37 are averaging over 108,000. By comparison, for the same period last year, blue exports were 133,000 per week. This year’s year-to-date total of 4,017,000 is under 2008 by 914,000. Wet blue shipments have improved slightly over the past four weeks picking up to 118,000.
Wet blue capacity in the US currently exceeds these numbers by a significant number. With three major packers now operating six facilities and two independent operators, bluing capacity is estimated north of 200,000 hides per week. This blue capacity is not only destined for export shipments, it includes a domestic demand estimated somewhere in the range of 22,000–25,000 hides.
While blue business has been tough this year, the reduction in production of wet blue has produced a bright spot on the split market. According to sources, split demand is good. Prices on splits are ranging from $0.44 to $0.35 FOB per pound for Natives depending on weight and quality, with Brands around $0.02 to $0.03 under.
The spread on Native Bulls and Northern Branded Cows was quite wide and can in part be attributed to their diverse sources and perceived yields and quality. The market is now very close to the level of $55 C&F many buyers were bidding in Shanghai nearly three weeks ago.
This coming week, the Chinese National Day and Mid-Autumn holiday will be celebrated, from October 1–3, with local Golden Week celebrations continuing until October 8. All workers will be back to work on October 9. With buyers out of the market for that period, Asian tanners will likely be motivated to buy this week to prevent too large a gap in their supply chain. This should have a stabilising effect on the market.
Share this story:
