US Perspective—15.12.09
The Jacobsen Commentary and Market Opinion – 15.12.09
Courtesy of www.thejacobsen.com
A few surprises
A couple of events raised a few eyebrows in the hide trade during the week ended December 6. There were the low export sales on Thursday’s USDA export sales report and the higher-than-expected slaughter on Friday’s Weekly Livestock Slaughter Numbers.
Export sales for the Thanksgiving Holiday week for combined whole hides and wet blue came in at slightly under 200,000—remarkably low, even with many people not working. Conversely, kills, which are expected to be low for the rest of the year, were estimated to be 638,000 last week—19,000 over the previous year. Although the market maintained its footing through the week ended December 6, these events did not lend it any support and set the tone for last week’s trading.
Market activity and analysis
As you would not expect for a Monday, a large number of trades were reported. Prices were consistent with the previous week’s trading levels but quite a few were down from Friday 4. The largest bulk of reports were on processor hides and these made up all of the lower prices. Several people noted they had received a bit of business over the weekend, accounting for some of Monday’s reports.
The market remained fairly slow on Tuesday with offers reported as limited. Asking prices were steady for the most part and resistance to higher prices was building. One unconfirmed sale of HNS at $66.25 was made. However, there were reports of buyers passing on $65 and $66, which suggested the market had reached a ceiling. Trading on Tuesday was exceptionally light with only reported trade and no changes to the price guide.
The hide market on Wednesday had both sides pushing to establish advantage. Tanners’ appetites were satisfied and interest was modest. Several suppliers were noting bids down and limited to a narrow band of selections. In the auto sector, some suppliers will be extending shutdowns through the holidays. Pipelines have been replenished and production is reflective of relatively anaemic car sales. There were quite a few trades on Wednesday. While prices were mixed, they remained within last week’s trading level, indicating that the market is holding its own.
The word from overseas on Thursday was that there was not much interest from tanners in prices over $70, although early in the week one packer reported selling a small quantity of HNS, C&F Asia at $72. Hide prices appeared to be holding their own; however, downward pressure on the market was evident in bids sellers received. Tanners were unwilling to continue to support a raising market. The good news was there were bids and a number of people reported ongoing sales.
The week’s market in general appeared to have weaker undertones but ended Friday on a higher note. Sources indicated that hides were sold a dollar below the previous week’s levels; however, a number of sales were at steady money. Trading was moderate, about normal for a Friday. Prices did not stray from within the previous two-week trading range but a number of steer and heifer reports were up for the day. HNS had a high of $65 for packer hides and a low of $61.50 for processor. Branded steers had a wide range from $63 for medium packer and a low of $57 for processor hides.
Mixed bag
Thursday’s USDA export sales and shipments for the previous week have sales of combined wet blue and whole hides at 516,400 and shipments at 564,600. Although both were under the week’s slaughter of 638,000, sales in particular were up considerably from the previous week’s 199,700.
For the year, combined wet blue and whole hide export shipments were 30,950,000 and sales were 29,677,000. Slaughter for the same period was 30,557,000, above sales by 880,000 but below shipments by 393,000. Keeping in mind there is a domestic consumption of US hides that conservatively estimated falls between 1.2 million and 1.4 million year-to-date, it’s not hard to imagine that inventory and sales positions are pretty good.
A number of beef processing plants were not operating on Wednesday because of the snowstorm moving through the Midwest. The weather affected four of Tyson's beef plants. The first shift was cancelled on Wednesday at its Dakota City and Lexington, Nebraska, facilities, as well as at its operation in Joslin, Illinois. Its Denison, Iowa, beef plant ran at reduced hours today.
Production at four of Cargill’s beef plants was reduced on Wednesday and the company said it would try to make up the production on Saturday at its plant in Beardstown, Illinois.
Not everyone believes the market is weaker—some think it is being talked down unnecessarily and a few remain bullish. The Jacobsen Price Index this week to date through Thursday was $59.27, essentially unchanged from last week’s $59.10.
Slaughter, which was expected to be down, was estimated at 613,000. This is 25,000 less than the previous week, but 5,000 more than the same period last year. In spite of the Wednesday plant closings, this still beats our earlier in the week prediction of 61,000 by 3,000. These lower numbers lend support to bulls who feel that diminished supply will put a floor on the market and ultimately cause prices to rise.
A look back
If you look at the Jacobsen Price Guide for December 4, it’s amazing to see what has happened to prices over the past year. Steers, once in the low-to-mid $30s, are now priced in the $60-$65 range. Branded heifers at $23 last year were $51 on Friday. Cow selections have more than doubled with northern dairy and native selections trading in the $40s. On the other hand, bulls and kips are trailing the rest of the pack with the exception of small packer hides, with both up around 50% from last year. Small packer hides are behind other selections, up only 15%.
Since steers, heifer and cows represent 99% of the US hide supply, you could say that the market has recovered from its unprecedented crash and is now trading at levels close to historical norms.
