US perspective - 13.04.2010
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
Monday’s market was not unusual for Monday. It was quiet as buyers and sellers determined their positions and made plans. Overall, the tone was more bullish than bearish with prices expected to remain firm. We had a few carry over/early trades at steady-to-slightly higher prices. The hide market was exceptionally quiet on Tuesday with no trades reported.
Early indications from suppliers on Wednesday noted that there were bids and some business was being done at levels in the range of $71 to $73 for steers with heavy natives on the upper end. Apparently, some tanners were either able to make ends meet or were choosing to cover business even at a loss in order to maintain market share. Cow hides were not in as strong a position as steers, with buyers showing much less interest and not willing to pay up money.
Thursday reports picked up for processor sales, breaking trend with reporting earlier in the week. Prices remained firm although they were mixed with some selections up and a few down.
The market on Friday wrapped up the week in a subdued manner. Although business was fairly steady during the week, several people noted that by the week’s end business activity had slowed down. People remain bullish on the market and most are expecting to see prices increase this week.
Lower kills
Slaughter for the week was estimated to be 616,000, down 21,000 from the same period the previous week but up 17,000 from the same period last year. The week’s kills were significantly lower than the earlier week forecast from industry participants of 637,000. As the week progressed, packers likely curtailed slaughter because cattle price increases cut into margins.
USDA kill revisions for the week ended 27.03.10 are 624,203 compared with the estimates of 615,000. The week’s slaughter comprised 49.9% steers, 30% heifers, 18.6% cows and 1.9% bulls. The actual slaughter for the year through March 27 was 8,124,548 compared with the estimate of 8,181,000. The actual slaughter for the same period last year of 7,925,633 is 2.5% under 2010.
The week’s USDA export sales and shipments for the week ended 01.04.10 indicated both sales and shipments of combined hides and wet blue relatively close to the week’s slaughter of 637,000. For the week, combined sales were 631,600 and shipments were 649,300. The sales numbers were somewhat lower than expected based on reports of huge sales, from several people, at the Asia Pacific Leather Fair (APLF).
As we have seen in other weeks, there were a number of negative adjustments for whole hide sales. The correction totalled 62,165 with the largest contributor a deduction in China for 45,789 and the next largest Japan with an 8,200 piece correction.
On a yearly basis, combined shipments through week 13 totalled 7,428,700 and sales totalled 7,251,995.The cumulative slaughter for the period was 8,181,000. If we subtract from this kill a modest domestic consumption of 24,000 hides per week or 312,000 year-to-date, the net generation of hides is 7,869,000. This means that through week 13, both shipments and sales are behind supply generation by around 440,000 and 615,000, respectively, this year.
The hide market, however, appears to be oblivious of any accumulation of inventory and continues to be very strong. One possible reason is this year’s deficit of 440,000 on the shipment side is too small to be significant; less than a week’s kill and only around 5% of the year’s slaughter.
Mixed reports
Not that long ago, former chairman of the Federal Reserve, Alan Greenspan, used the expression “irrational exuberance” to describe the US equities market. There are some in the hide industry who might want to borrow that idiom to characterise today’s hide markets. After more than a month of prices steadily moving upward, some suppliers this week have asked a dollar to a dollar and a half more, while others are holding offers completely.
One source who recently returned from Asia noted that domestic tanners are in a much better position to adsorb higher raw material prices than the export shoe tanners are. In his estimation, leather buyers for the brands continue to leverage their size and buying power against the overcapacity of tanners keeping leather prices down.
Many people from the hide and leather industry returned from the Hong Kong APLF last week. Those who were back were putting a good face on the market, noting better than expected sales and predicting a firm market for some time. Last week was also the time when many were forecasting a post-APLF market contraction.
As a point of reference, the hide market ended the previous week on the Thursday (no trades on Friday due to the observance of Good Friday) with the Jacobsen Hide Index at $67.38. Keeping in mind that this is a composite of all steer selections including heifers, CBS, natives, brands, etc, a year ago to this date the market was $24.63. This amounts to an increase of 174%. An argument can be made that this number is not out of line from a historic perspective and a year ago the level had fallen too much to a level that was not realistic. The increase is still massive any way you look at it and it is making a lot of people nervous.
Good leather business in both the shoe and auto sectors is helping to keep the momentum in the hide market going. Tanners, in spite of prices that they are not comfortable with, continue to buy enough to cover gaps in their supply chain and suppliers, who are well-sold forward, continue to raise prices. With overall reductions in global hide supplies and good leather demand, the hide market remains strong even as the shoe industry approaches the end of its typically busy time.
