Courtesy of www.thejacobsen.com

There was very little reporting on trades at the end of last week. Early reports from the US Hide Skin and Leather Association (USHSLA) conference in Chicago on Thursday and Friday were positive. Leading into this week, we are expecting a fair amount of activity on Monday after the busy travel days of Thursday and Friday. There was some talk of a stronger steer market going into the week too, but again there were no confirmed reports of anything higher.

Some late processor reports were submitted that contradict the sentiment from some of the USHSLA conference attendees that the steer market is feeling some strength. However, the processor trade may not foreshadow what many of the big packers have on their plates for the coming week. There has also been a lack of buying from tanners on account of the Chinese autumn holiday.

Sources have indicated that levels remain steady on the steers and heifers. Stronger numbers have come in on south-western cows, with the northern dairy cows being reported down significantly.

The market appears to have settled in a trading range that is workable for both sides, with most steers falling between $49 and $52. This is down around $8 or $9 from the highs of the end of August and early September, just ahead of the All China Leather Exhibition in Shanghai when steers sold as high as $60.

This drop in hide prices has had a significant impact on cattle drop credits, which, for steers, is off around $14 from their highs of $122 in early September and is now down to around $108. Normally the hide represents approximately two-thirds of the drop’s value and the recent rollback in hide prices comes very close to this. Other factors contributing to the reduced value of the drop credit include setbacks in tallow, meat and bone meal, and blood-meal prices.

Packer margins fall

The decrease in drop value is playing a large part in current packer margins, reported by some to now be in the red. Reduced margins will continue to drive lower kills, which are expected to be in the range of 620,000 to 625,000 for the near future.

A few suppliers have sent out offers asking up money but do not appear very enthusiastic about changing the market in their direction. On the demand side, although leather business has improved somewhat, buyers remain price sensitive and are unlikely to jump into the market in a big way if they must pay more.

There were encouraging signs in a few sectors of the economy. The Institute of Supply Management’s service index hit 50.9% in September, up from 48.9%  in August. This index, which hasn’t grown since August 2008, tracks more than 80%  of the country’s economy, including trucking, retail, and financial services. Shares have responded well with the Dow Jones Industrial Average increasing 112 points on Monday of last week and 131.5 on Tuesday.

At the start of the week, steer selections were trading in a fairly tight range between $49 and $53 depending on source and selection with HNS as high as $53 but generally $51 to $52. Butts, Texas, and Branded Steers averaged around $50 with some trades as high as $51.50. The market is expected to remain steady for a while according to a number of industry pundits. A couple suppliers noted brisk business over last weekend with prices level.

The JPI (Jacobsen Price Index) last week was $47.14—virtually unchanged from the prior week at $47.37.

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