US Perspective—17.11.09
18/11/2009
Courtesy of www.thejacobsen.com
Last week’s market continued to show strength, particularly in the upper-end steer and heifer selections. The week-to-date Jacobsen Price Index until Thursday was $54.45, up $1.83 over last week. Thursday’s index ended at $55.63.
The USDA export sales report for the week ending November 5 once again has combined cattle hide and wet blue (672,500) exceeding slaughter (629,000). The surge was driven by wet blue with sales of 326,000—more than double previous norms this year. Shipments on the other hand were behind kills with combined numbers of 544,000.
Slaughter, sales, and shipments on a year-to-date basis through Week 45, are 28.36 million, 27.6 million, and 28.36 million, respectively. Kills and shipments are virtually identical while sales are behind by 760,000. The trend over the past 13 weeks has changed however. During this period, slaughter is 8.29 million; combined blue and hide sales, 6.81 million; and shipments, 7.34 million.
Looking a little more closely at these statistics, slaughter sales and shipments over the past three months change significantly from the yearly trends. On a yearly basis, export sales are 2.68% under slaughter, or 16,888 pieces per week, while for the past three months sales are 18.8% behind slaughter, or 113,840 pieces per week. Shipments are also lagging yearly trends, falling behind shipments by 11.45% or 73,070 pieces per week.
Keeping in mind domestic consumption estimated at 35,000 weekly, the yearly number would indicate that both year-to-date sales and shipments exceed supply. However, during the past 13 weeks the opposite is true with both sales and shipments trailing supply replenishment.
Usually by the middle of the week there is some kind of consensus of the hide market among traders and buyers—even if it’s agreement to disagree. There didn’t appear to be any last week, with people of different opinions ranging from “slightly bearish” to “strongly bullish”. Could this be a sign that the hide market is forming a new trading range?
Need for a settled trading range
Whether you are buyer or seller, the market settling into a trading range would be beneficial, creating stability and predictability. Granted, buyers would like to buy cheaper and sellers want more money, but sharp increases or decreases in prices are less healthy for the industry. Several traders noted last week that they were keeping their positions in fear that even if they sell for good prices too far off and the market falls, the orders will not be good. And on the other side, some buyers are still looking for the cheap hides they bought when the market was down. The rules of engagement in the hide business changed this past year because of the precipitous drop and ascension in hide prices, leaving both sides trying to figure out how to protect their interests.
When the market settles into trading ranges that are closer to historic levels, the industry becomes less speculative. More traditional rules of supply and demand establish prices and set values. At the same time, tanners do not try to play catch up with leather prices, can count on shipments to be delivered and are not tempted to cancel orders. Sellers conversely do not have to explain why they are shipping $45 hides in a $60 market, and can rely on tanners taking orders. This perhaps is why quite a few people in the industry are voicing concern that they hope the market stabilises soon.
Share this story:
