US Perspective - 03.08.10
The Jacobsen Commentary and Market Opinion – 03.08.10
Courtesy of www.thejacobsen.com
Market activity and analysis
It was not a typical start to the week. Market activity in the hide trade was very quiet with zero sales reported on Monday. Most people were holding their opinions close to their vests as to what they were expecting for the week.
Some people said prices dropped $2 the previous week but a few reported on Monday that there was sufficient interest at the end of the prior week and over the weekend so they felt they might have been able to get some back last week. What most were in agreement with was that at $78 to $79 C&F you can move hides, but at $80 you hit a wall.
The start of the week seemed to continue with the standoff in the steer market, with suppliers trying to hold prices but buyers working to roll them back. The interest and inquiries over the weekend gave some sellers cause to think buyers would be ready to buy hides, but buyers’ interest remained price qualified.
Although suppliers are still purported to be in decent forward-sales positions, there appeared to be more hides available than past weeks according to several buyers. Offers in the early part of the week were limited but steady with the previous week’s prices.
A few people on Tuesday reported that branded cows continue to be under pressure, but premium cows were easier to move. Pundits were not expecting much to change on steer prices and a few thought we would see the market slip slightly.
A modest number of sales was reported on Tuesday. Most prices fell in the same range of the previous week’s trading but overall steer prices were up for the day. One exception was SBC at $32, which was down $2 from the prior week. Branded steers picked up with a $71 packer sale for the higher end of the spread and a processor sale for $65 on the bottom.
The mid-week point in the US hide market saw little change with a few sales reported within the previous week’s trading range. While some people reported bids steady from the week before, a couple of people saw bids they referred to as “cheap”. Buyers still thought they might have been able to move prices down, but suppliers had a different idea. In general, premium material such as steer hides and Holstein cows were in demand, while branded cows were not.
A small number of suppliers reported on Thursday that interest had picked up and began to move hides overnight. This edged the bull-bear dial a little toward the bull side. Since not every supplier had sold everything they needed to, a consensus was not formed and some people reserved their opinions. There were only six sales reported on Thursday with prices pushing on the upper end of the previous week’s trading levels.
The hide market ended the week on a positive note with most steer hides cleaned up. A number of cows were sold but there were still some left by the end of the week. The steer market last week was steady to firm while cows traded steady but with softer underpinnings.
A large number of sales was reported on Friday with the majority of people on the supply end relatively optimistic about the market. The increased late-week interest prompted some to forecast that there will be carryover demand into this week, which might lead to modest price increases. Others are sceptical that the $80 C&F barrier can be breeched.
In Friday’s trading a number of HTS and BBS sold between $70 and $73.50. Native heifers were $64 and branded heifers sold between $58.50 and $62. Branded cows sold for $34 to $36 and native cows from $42 to $48. We once again had a large spread for branded steers with prices ranging from a low of $66 to a high of $72.50. Colorado branded steers were unquoted on Friday. The week-ending slaughter is estimated to be 654,000. The week’s kill was 666,000 and actual slaughter for the same period last year was 639,000.
Dairy cow update
In the first half of 2010, the total federally inspected (FI) cattle slaughter was 16,572,000 compared with 16,294,000 in the same period the previous year. Looking at how dairy cow slaughter affected these numbers in the same period in 2010, dairy cow kills were 1,369,000 or 7.1% of the total FI slaughter. This was down considerably from 2009's kills at 1,445,000 head, or 8.7% of total slaughter. The higher numbers in 2009 are due to the Cooperatives Working Together (CWT) herd retirement programme, which removed 200,000 dairy cows for the year.
Earlier this month, CWT announced that it had tentatively accepted 194 bids in its latest herd retirement programme. This represents 34,442 cows that will be removed this year. In the programme, cows must be slaughtered and producers cannot become involved in the commercial production of milk for a 12-month period in order to get 100% reimbursement.
Lower export sales
For the fourth week in a row, Thursday’s USDA export sales report for the week ending July 22 had both whole hide and combined hide and blue sales below yearly averages. Combined wet blue and hide sales were for the week were 442,000, compared with their 29-week average of 552,000. This low trend has persisted for the past four weeks with average combined sales of 395,825. Hide sales during the week were 286,200, down from their average yearly sales of 419,972, but close to the average of 275,300 for the past four weeks.
On the other hand, export shipment last week looked much better than sales. Combined wet blue and whole hide shipments were 630,800, up from the year’s average of 590,531. Total combined shipments this year amount to 17,125,600. For comparison, slaughter through week 29 is 18,655,000, or 1,529,600 pieces greater than combined shipments. This averages to 52,744 pieces per week that are either converted into leather in the US or added to inventory. Some people estimate the domestic usage of hides at around 24,000 pieces per week.
Following the previous week’s deluge, cancellations looked more “normal” with a total of 35,725. The bulk of these cancellations were from Korea with 21,126 and China with 11,769.
The round-up
Recent reports from a number of shoe brands and bag producers have been positive and support the stronger steer market. Meanwhile, the sluggish housing markets and furniture upholstery sectors cannot provide enough demand to keep cow prices up. BBS prices have held ground at around $72 since April 8, while heavy native cows are down 13.5% from $52 to $45 and branded cow prices have fallen 15% from $40 to $34 during the period.
In the hide trade, a number of people are expressing concern for the cow market. Cowhides represent around 18% of the federally inspected slaughter. This is divided fairly evenly between the fat/fed cows and the dairy cows. To put this in perspective, the hides most closely linked with the troubled furniture upholstery—the fat/fed cows—represented 1,758,000, or 10.7% of the US slaughter during the first half of 2010.
