US Perspective—16.02.10
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The hide market certainly appeared to be less active last week than the previous several weeks, although there continued to be business leading into the Chinese holidays. Depending on who you talked to, most bids were under the previous week’s levels but some were steady with prior-week sales.
The market was very quiet on Monday. There were only two sales reported—both branded steers priced at $61 for processor and $65 for packer hides.
It was also quiet on Tuesday with only a few trades reported at relatively steady levels. Suppliers appeared to be in good forward-sold positions and several did not need to offer many hides. A number of bids received by suppliers indicated that some people were in need of hides and perhaps buyers were looking to round off their hide requirements ahead of the Chinese New Year holiday. Most people were expecting the market to remain steady throughout the week.
On Wednesday, the hide market began to show signs of the then approaching Chinese New Year holiday, which started February 14. Several suppliers reported that activity was beginning to slow down; however, there were still some sales being made into China. Prices on bids were off slightly on Wednesday, but trades reported were still within the previous week’s trading ranges.
There was a modest number of sales reports on Thursday, with prices falling within the previous two weeks’ level of trades.
I predicted a quiet Friday of trading, but as the afternoon proceeded, a stampede of trades ensued. Most sales reports were priced steady within the previous two weeks’ level of trades.
Prices for steer and heifers, which was reflected in the Jacobsen Price Index on Friday, was $64.09 and for the week $63.38. By comparison, it was $63.65 the previous week, a negligible difference. Cows were also steady last week with no significant changes from the previous weeks’ trading ranges.
Last week, a number of Chinese shoe tanners were already in the New Year holiday mode and this coming week much of the business activity from China tanners is expected to be considerably down because of the celebrations. China accounts for over half of the US hides sales and shipments and, for the next couple of weeks, while many offices and tanneries are closed, suppliers will be concentrating their efforts on other destinations.
Fall in export sales
Thursday’s USDA US export sales for the week ending 04.02.10, delayed by an East Coast snowstorm, is now available. Sales for the week of wet blue and whole hides totalled 588,500. This is down considerably from the previous week’s 732,700, but fairly close to the year’s average weekly number of 539,480. Wet blue sales for the week were 184,400 pieces—very close to the previous week’s number of 186,900 and up from the year’s average of 127,540. The most prominent destination for wet blue was Italy with 76,000 unsplit hides.
Shipment numbers for wet blue and whole hides total was 500,900, trailing sales by over 87,000 pieces and the week’s slaughter of 642,000 by about 141,000. For the first five weeks in 2010, shipments of blue and whole hides were 2.69 million, averaging 538,000 per week. Wet blue shipments for the week were 129,100, slightly behind this year’s weekly average of 136,500.
Slaughter the week was estimated to be 602,000. This figure is 40,000 less than the previous week and 16,000 less than the same period last year.
Declining herd
According to the USDA, the cattle herd on January 1 was the smallest since 1959. Last year was the eleventh year out of 14 when the national herd declined, says Steve Kay (Cattle Buyers Weekly). The US herd declined from 94.521 million to 93.701 million head in 2009. Poor profit margins and high feed grain prices are among the causes of these declines. The herds are not expected to expand this year.
On Tuesday, the USDA projected commercial beef production in 2010 to be 25.650 billion pounds. Although the forecast is about 0.7% higher from earlier predictions, the number is 1.2% or 313 million pounds lower than what it was in 2009.
Both the reduced herd size and beef production estimates support earlier projections of smaller kills in 2010 that some pundits were predicting to be down by up to 3%. Slaughters for the first four full weeks this year have not yet followed the expected trends and are up by around 4% from last year. This early-year increase has been attributed to buyers reloading their inventories. Kills are expected to be down in February and March—typically the worst months. In addition, packer margins are now entering negative territory which will hasten low kills.
Trouble for Toyota
Embattled Toyota has been pulling out all stops to put an end to its bleeding image caused by an across-the-board accelerator safety recall, followed by its Prius brake problem. Beginning with the cessation of manufacturing operations for one week, Toyota Motor Company has been focusing resources to quickly resolve the issues.
Last year in January, Toyota sold 117,287 light vehicles in the US compared with 98,769 this January. Overall, light vehicle sales in the US were up over 6% this January at 695,707 compared with 654,802 in 2009. Beneficiaries of Toyota’s decline in US vehicle sales are US and European suppliers with US carmaker sales increasing from 281,456 to 317,267, nearly 13%, and Europeans from 45,658 to 56,705, up 24%.
The concern of automotive leather suppliers is how long damage to Toyota’s reputation will take to recover. While on a macro level Toyota’s pain is other suppliers’ gain, automobile leather companies having significant market share penetration with Toyota will also be negatively impacted if the problem is protracted.
