US Perspective—23.02.10
The Jacobsen Commentary and Market Opinion – 23.02.10
Courtesy of www.thejacobsen.com
There was no Jacobsen report last Monday because of the President’s Day holiday. Market activity was very slow on Tuesday with suppliers noting that very few bids were seen. Only three processor cow sales were reported.
Activity continued to be relatively quiet on Wednesday. A limited number of sales was reported for steers, heifers and cows. Prices on cows were steady with the previous week’s trading levels while heifers and heavy native steers were up.
The hide market saw a step up in activity on Thursday. Some of this was attributed to the Koreans re-entering the market after the New Year holiday. According to sources, the Korean tanners’ buying was spurred on by their desire to buy ahead of Chinese tanners, who are expected to aggressively buy hides after the New Year holiday.
Overall, business for the week was better than expected. With China as the largest market for US hides, the industry will pay close attention for any signs of buying interest now they have returned from their holidays. More than likely, serious buying will take place later in the week, when we will have a better idea of the tone within the hide market.
Holiday season
The common thread last week with hide suppliers from around the world was that they were all impacted by the Chinese New Year holiday. Although business was generally quiet, sources from different regions indicated that they were maintaining contact with their Asian buyers and that some were requesting offers. This is encouraging, but most suppliers are anxious to see what levels of interest they will see this coming week now that tanners have returned from their vacations.
Besides the Chinese New Year, another commonality suppliers are facing this year is a general contraction in hide supplies. Countries including Argentina, Australia, Brazil, the US and the European Union are all facing reduced cattle slaughter. While these reduced kills are largely caused by weak economies, the hide market appears oblivious as lower supply helps hold hide prices up.
The current level of hide pricing has many people scratching their heads as they try to reconcile leather business with hide prices. While many tanners are busier compared with this time last year, they are not running at pre-recession volumes and have not been able to match leather prices with increases in the hide market. This is becoming a more widespread problem as leather buyers are able to keep the lid on prices by leveraging excess tanning capacity.
Low slaughter
The USDA Export Sales report for the week ended February 11 has sales for whole hides and blue at 540,330 and shipments at 672,500 for the week. Slaughter that week was quite low at 602,000, placing combined blue and hide sales behind kills by nearly 40,000 and shipments ahead by roughly 70,000. The sales numbers for the week were affected in a significant way by corrections or negative adjustments of over 50,000 pieces.
The changes in the sales numbers comprise reductions in whole hides (35,188), split wet blue (12,142) and un-split wet blue (2,791). For whole hides, the largest contributor was an adjustment of 15,203 for Korea. The bulk of the remaining corrections were split pretty evenly between China, Taiwan and Thailand.
For the first six weeks of 2010, slaughter was 3,826,000 with total sales for hides and wet blue of 3,237,700 and shipments of 3,363,300. This compares with 2009’s slaughter at 3,611,000, total sales of 3,154,000 and shipments of 3,291,000. So far this year, kills, sales and shipments are all up from 2009 by 215,000, 84,000, and 72,000, respectively. On the surface, these numbers do not appear remarkable and do not show much insight into the strength of today’s hide market, especially when you consider that the HTS price average reported on Thursday was $66 and that this time last year it was $32.
The USDA estimated cattle slaughter for the week is 620,000, up 18,000 from the same period the previous week and up 4,000 from the same period last year.
Economic woes continue
The economy continues to take the front burner in the US with the release of the latest disappointing round of unemployment numbers on Thursday. The previous week’s new unemployment claims were 473,000, up 31,000 from the previous week and over a consensus of estimates. High unemployment and concerns over growing deficit spending in the US have left many people skeptical about the economy having recovered from last year’s recession.
Economic conditions in Europe are also under strain, but the leather industry has been doing quite well in spite of the Western economic woes. No doubt the world’s leather business is being boosted by China’s strong growth and subsequent demand for cattle hides.
The increased demand for cattle hides from China combined with lower supplies globally are both playing a major role in keeping hide prices up lately. In addition, several sources indicate fashion changes such as women’s boots and upticks in auto upholstery—both of which use larger unit leather quantities—have also contributed to higher demand for hides. Judging by inquiries from Chinese tanners for offers last week, this interest may continue for some time after the Chinese New Year.
