US Perspective—08.12.09
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
Slow start
Everyone was getting their desks in order after Thanksgiving before resuming any trading last week. A good number of sources all had the same thing to say in regards to Monday’s activity and that was “dead”.
According to sources, the market appeared steady to slightly stronger at the start of the week. Reports from across the market spectrum had packers in a good position. Sources indicated that packers were comfortably sold forward and had good demand for the product they had on hand. Tuesday’s trading, albeit light, was a decent indicator that business was being done at steady prices. The exceptions were a BS trade reported at $58, which was below previous levels, and a processor N HNDC done below previous levels.
By Wednesday there had not been much activity in the hide market. Sources indicated that response ranged from no response to modest interest. Reports were fairly scarce and included HNS at $65.50 on the high end down to $63. We also had a new high for HNDS at $67, up $5. Cows reported up just slightly. Overall, the tone of the market based on reported trades was steady to firm.
Picking up
Up to Thursday, reported trades appeared to reflect the previous week’s trading ranges. And, while pundits were attempting to put a good face on the market, buyers were showing resistance by purchasing limited quantities. Thursday’s market activity picked up a notch, falling in line with Thursday’s normal levels.
The week’s market ended on a steady to lightly firm note. As of Friday, the Jacobsen Price Index was up $0.58 from the prior week, due mostly to an increase in dairy steers. A considerable number of trades was reported on Friday. Prices were also steady to up. Notably, CBS reached a new high of $60, BH was at $51, and NBC at $40.
Although there have been mixed responses as to the market direction, a number of suppliers are confident that prices will not go down. Their point of view is driven mostly from the supply side of the market rather than demand. With the red meat sales stressed and packers now more than ever disciplined to not flood the market, hide supply will remain down in the low 600,000s for a long while. Take into account reduced productions associated with the upcoming holidays, and the argument is reinforced. In this case, supply trumps demand.
Tanners on the other hand have a different perspective. As long as they have leather orders and they can make money, they will buy hides. Many are now reporting they cannot make ends meet at these high levels and are attempting to raise leather prices. Demand is a strong influence and they point out that, although business has improved, it is still behind normal seasonal levels. In addition, we will soon be approaching the normal slowdown on shipments ahead of the Chinese Lunar New Year.
All things considered, where the market finds itself in the next several weeks seems less certain than it was a few weeks ago. Both sides of the hide market present valid cases and the market once again will become the judge. To cover all bases, I’ll hedge and call the market steady.
Low USDA sale numbers
Looking at the latest USDA data for the week ending November 26, extremely low sales numbers provide insight into where the market may have stalled. During the week—albeit a short holiday week—with kills at 530,000, sales of combined wet blue and hides were a meagre 199,700. Even combining the previous week’s large wet blue and whole hide sales of 799,500, the two-week average is slightly under 400,000; well below the average slaughter of 580,500.
Last week alone, sales numbers were 330,300 under kills. Lower sales numbers seen last week could be interpreted several ways including the desire of suppliers to bring their positions in tighter, as well as a possibility of a market that has reached a plateau.
While sales for the past two weeks were down, export shipments exceeded the two-week wet blue and whole hide average of 645,450 by nearly 65,000 weekly. Last week the combined shipments were 494,800, falling behind slaughter slightly by 35,200 pieces. The shipments, which exceeded kills two of the past three weeks, is consistent with recent efforts of tanners pushing for deliveries, especially for hides purchased while the market was in the $40 to $50 range.
During the week, there were adjustments both on whole hide sales and wet blue. Whole hide adjustments represented a reduction of nearly 30%, or 59,049 pieces, removed from gross sales. These were primarily to Korea (-43,920) and China (-9156). Wet blue numbers were reduced by 8,296, or nearly 12%. The main country on full substance was Taiwan (-4,850) and on split grains was Mexico with (-2,384).
