US Perspective—25.05.10
26/05/2010
Courtesy of www.thejacobsen.com
The latest figures show that cattle and calves on feed for slaughter markets in the United States—in feedlots with capacity of 1,000 head or more—totalled 10.5 million head on May 1, 2010. The inventory was 3% below May 1, 2009.
Placements in feedlots during April totalled 1.63 million, 2% above 2009. Net placements were 1.54 million head. During April, placements of cattle and calves weighing less than 600 pounds were 365,000, 600–699 pounds were 300,000, 700–799 pounds were 469,000, and 800 pounds and greater were 495,000.
Marketings of fed cattle during April totalled 1.85 million, 1% below 2009. Other disappearance totalled 89,000 during April, 29% above 2009.
News on the economic front points to trouble with the fragile US economy—and some in the industry fear that trouble could possibly spill into the hide and leather business. Newly released disappointing unemployment numbers show applications for unemployment benefits rose to 471,000 last week, up 25,000 from the previous week. Already skittish from the European financial troubles and declining euro, the Dow Jones Industrial Average moved into correction territory towards the end of last week, losing another 367 points or 3.6%. The Dow at that point was 10.2% from its 2010 high.
Against this backdrop, the sentiment among pundits is mixed with some people somewhat bearish and others still confident the market will hold. There are still a few bulls who believe the fundamentals in the leather business are strong enough to keep hide prices from falling. However, there is a growing number who think otherwise and recent trading might change some of the bulls’ minds.
The market once again had a high volume of trades reported with prices dropping across the board by $1.50–$2 in most selections. Of the 16 selections of steers, heifers, and cows reported on Thursday, 15 were down and only one up.
The US Department of Agriculture report for week ending May 13 (Week 19) indicates combined wet blue and whole hide sales are 570,000 and shipments 674,000. Whole hide and wet blue export sales are up from the previous week’s 522,000 by 48,000 combined. Shipment totals were ahead of the previous week’s 539,700 by 134,300 pieces. Sales fell below the same week’s slaughter of 671,000 by over a 100,000, but shipments nearly matched kills for the week.
Figures for the three year-to-date comparison of sales, shipments, and slaughter in 2010, through week 19, show combined whole hide and blue sales are 1,359,805 pieces less, and shipments are 971,500 less than accumulated slaughter. The gap in 2010 continued to grow for sales, but was unchanged last week for shipment numbers.
At the beginning of last week there were sales at steady to up, but also a lot of sales at lower prices. HTS sold for $73.50 and $71—the same as last week’s highs—and HNS at $74 to $70 down in both weight ranges. Heifers had a wide spread with HNH ranging from $63 to $66 and HBH from $60 to $65. NHNDC also followed the widespread trend with a packer $59 and processor $52. Branded cows were steady at $40 and native cows were up a dollar at $50. At that point, there was about an even amount of red (down) and green (up) on the Jacobsen Price Guide, which illustrates the market’s turmoil.
In general, prices are off their highs $2 to $3 for steer hide but both buyers and sellers are pushing hard to advance their positions. Several people noted that there is no good reason for the market to be soft with global supplies down and leather business good.
HTS prices for the past five years show prices for 2010 at their top in May with the month-to-date average $72.65. In 2006 and 2009, prices increased steadily all year while other years tended to level off as the summer approached. With prices coming off their highs, it appears that this year is shaping up to be more like the latter.
Although the market has lost some of its sheen, suppliers are not easily giving ground. Looking at the some of the recent trades such as dairy cows and heavy native steers, wide spreads in trades are evidence of the market’s struggle to hold ground while lower-priced sales erode support. Most people generally expect the market will lose more ground—but gradually—and they do not expect to see huge movement.
The hide market wrapped up the previous week under pressure with overall prices off their highs, giving back a couple dollars. Sources have recently reported Chinese tanners seeing weakness in the market and wanting to take it down $5–$6, targeting $75 C&F for US steer hides. A packer noted today prices for packer hides last week sold around the $80 level C&F Asia port, making the spread between buyers’ and sellers’ positions about $5. Taking out the exceptions at both ends, the majority of steer hides sold for $72 to $73.
Expectations among a number of people in the trade are for the market to be softer, but any declines to be measured. With some traders choosing to liquidate their longer positions and willingness to take lower prices, the outlook for another round of price shaving is likely.
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