US Perspective—26.01.10
26/01/2010
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
At the end of last week, the Jacobsen Price Index (JPI), including trades reported on Thursday, was $62.37, up $1.10 from the day before (Wednesday). Over the week it was, on average, up $1.50 from the previous week. This solidly places the index within trading levels seen in the second half of 2007 and most of 2008—before the end-of-year hide market crash.
The market this past week has generated an abundance of exuberance, with some people commenting that the hide market may reach levels of historic highs. In the case of the JPI, this would be over $70. However, not everyone is of this mindset and some have expressed concern that the rapid pace of increases has been too fast for tanners to adjust leather prices—which might come back to bite us.
The most recent USDA export sales and shipments for week ending January 14 have fairly solid numbers, but nothing exceptional considering the market excitement. For the week, sales of wet blue and whole hides totalled 557,300 and shipments 511,100. That same week, slaughter was 652,000, nearly 95,000 over sales and 141,000 over shipments.
Kills this past week are estimated to be 665,000, up 13,000 from the same period the week before and up 23,000 from the same period last year.
Heifers and CBS saw new highs towards the end of last week at $55 for HNH, $52.50 for HBH, and $62 for heavy weight CBS. We had a very wide spread of $13 for NNHDC between packers and processors.
The hide market has tested the ceiling this week and it appears it has crashed through.
One pundit said: “I am shocked at the rate and the velocity of all products and I don’t see it ending. Surprisingly, there’s still interest weekly. I thought we stopped three weeks ago, but onward and upward and I’m afraid the end is not near.”
Although not everyone is in agreement with where the market will end up, this week is proving to be a strong one in the US with prices increasing in all selections.
Actual slaughter for week ending January 9, 2010 report by the USDA was revised upward today from 640,000 to 646,787. The kill was 48.3% steers, 30% heifers, 20.1% cows, and 1.6% bulls.
No doubt we are all amazed at the resiliency the hide market has shown over the last year by recovering from its unprecedented crash. At its lowest, we saw steers in the $20s and cows in the single digits. There was even a time when people talked about hides being land filled, but these rumours were never confirmed.
Today prices are close to historic norms and this week the market is testing a new high.
On the surface, it appears from the statistics that most hide prices are trading at levels we have seen in past years but still under the highs of 2007. Looking a bit more closely, native cow prices now represent around 65% of heavy native steer prices while in 2007 they amounted to 75.76% and in 2008, 65.24%. On the other hand, the price of NBC now represents only 38% of HTS prices when in 2007 they were 67.69% and in 2008, 63.76%. From a historic perspective, this suggests there is still value for branded cows and we would not be surprised to see upward movement. If price spreads between cows and HTS return to where they were in January 2007 and 2008, then branded cows would be around $40 today.
A number of proposed changes to Mexico’s animal health certificates for cattle hides are scheduled to go into effect on February 1. According to US Hide, Skin, & Leather Association (USHSLA) staff and several hide exporters, several of these changes will seriously impede the flow of hides into Mexico. One source says it will virtually make shipment of raw hides impossible. Some shippers are not scheduling hides to cross into Mexico around this timeframe.
USHSLA is working with Mexico on these changes; however, to date, there has not been any official response. USHSLA indicates they are focused in particular on concern over the change that hides must be held 28 days wet salted with marine salt containing 2% sodium carbonate or equivalent procedure, anti-mortem and post-mortem inspection, slaughtered under establishments under official control, and the requirement to fumigate hides and containers using an insecticide with larvicide effect.
In 2009, export sales from the US into Mexico totalled 1,264,556 according to USDA/FSA/Export sales reporting.
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