US Perspective—03.11.09
03/11/2009
Courtesy of www.thejacobsen.com
Last week’s kills are estimated to fall in at 657,000, up 5,000 from the previous week and 11,000 from a year ago. The numbers are comparatively higher considering seasonal norms and in a year in which slaughter is trending 4% behind. Because of fairly tight positions among suppliers, the higher kills are not expected to influence the hide market.
The market was quiet at the end of the week with reported trading volume down. Several suppliers noted they had pulled out of the market by week’s end. Prices fell within the week’s trading range with the exception of northern heavy native cows up $4.
USDA export sales for the week ending October 22 together with wet blue and whole hides were slightly under 600,000 at 597,700. This was 48,300 under the week’s slaughter of 646,000 and much closer than several pundits were expecting. Wet blue at 171,000 played a big part in closing the gap between the week’s sales and kills.
Whole hide sales once again adjusted downward with gross sales at 458,588 and net at 425,555. The major corrections were China (12,676), Korea (10,987), and Taiwan (5,406) with the three countries comprising 87% of the changes.
Exports for blue and whole hides were 620,000 bringing year-to-date numbers through Week 43 to 27,324,400. Slaughter for the same period is very close to shipment numbers at 27,081,000. Cumulative year-to-date combined wet blue and whole hide sales are 26,314,200, roughly a million less than shipments. In addition to serving to shorten the positions of sellers, this is a much healthier place than where the industry was at the end of 2008.
Prices were up on several steer selections including new highs on HNS, HTS, and BS at $58. In spite of wide spreads, average prices increased on each of those categories. There were no trades reported on BBS or CBS and both appear to be poised to change.
There was more material offered this past week than the one before with most packers offering at least on a limited basis. Suppliers were quite aggressive with asking prices in an attempt to move the market up another notch this week. Sticker shock—a word that has not been used for quite some time—has been expressed to describe the prices on some offers.
One quite bullish supplier thinks there is enough demand and will stay out of the market in order to raise prices further. On the other hand, buyers have not been shy to express their thoughts on pricing and there is a definite gap between both parties. Surprise, surprise! It’s a little early to tell if tanners will be able to absorb the increases or if prices are rising too much too quickly. Bids received by a few suppliers are mostly at or below previous orders.
As industry pundits try to put their arms around what is driving this recent up-tick in demand and hide prices, the traditional considerations of supply, leather business and so on become the main topic of discussion but don’t tell the complete story. The demise of the value of the US dollar is playing an important role and will likely remain so as the dollar continues to fall.
Against the euro the dollar has declined nearly 18% from a year ago when it was $1.26. This means if, for instance, you were to purchase heavy native steers for the same price they were reported last Monday at $55.50 with last year’s euro it would have cost 18% more or $65.37. Another way to look at it is that you can get 18% more now for the euro compared to last year and the HNS only cost $45.62. Any way you look at this, it is a big change in value and all things being equal makes US hides a bargain.
While the overall slaughter has decreased, dairy cows, prompted by herd culling and the Cooperative Working Together (CWT) herd retirement, are the exception with an increase of 230,000 head killed in 2009. Of the increase, the CWT 2009-1 and 2009-2 herd reduction buyouts account for 175,153. The remaining balance is attributed to additional herd culling and perhaps carry over from the December 2008 CWT herd reduction programme.
CWT opened bidding for its members for a third 2009 herd reduction programme at the beginning of October. The deadline for bids was the October 15, with the bidder notification scheduled for November 16, 2009. The quantity of cows targeted for the third 2009 herd reduction is not available while the bid selection process is under way. Aggressive dairy herd management by the CWT has impacted and will continue to influence the availability of dairy hides. Contrary to the majority of the US cattle slaughter—which is trending behind last year’s kills by over 4%—the herd retirement programme has been a major factor in increasing the availability of dairy cows this year nearly 12% over last. It does not look like supplies will tighten soon.
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