US Perspective—24.08.10
The Jacobsen Commentary and Market Opinion—24.08.10
Courtesy of www.thejacobsen.com
The hide market bounced around the week before last with prices overall down, but only slightly, for the week. The Jacobsen Hide Index, which tracks a composite average of steer and heifer prices, was down around $0.35 at $86.89. Within the average, some selections were off a dollar or so while others remained steady. Most steer hides traded in the range between $70 and $72 FOB, give or take a dollar. Branded steers had the widest trading range selling between $66 and $72.
The wide spread within the branded steer selection is not unusual as it typically carries the title for the largest price spread in the steer hide category. The reason for this lies in its definition, which can include any steer hide with brands. Generally, branded steer hides infer that they are straight-run steer hides with only the natives removed. In most cases, however, suppliers have been careful not to guarantee any specific percentage.
The value of the product is typically established over time between buyer and seller for each source point. In some instances, the product might have mostly or all side brands and others very few. Although natives are not supposed to be included, with the narrow price difference between HNS, HTS, and BBS, some people contend there are some BS sources with straight-run, unsorted steer hides.
Market activity and analysis
Monday’s market was fairly quiet with a few sales reported at prices within the previous week’s trading levels. Several people commented that they did not think there would be much movement on prices until the All China Leather Exhibition.
Activity was subdued on Tuesday with reported sales low, but not unusually so for that early in the week. Offers were limited as well, with prices and products similar to the previous week’s. A few bids came in with prices quite low. The standoff continued as both buyers and sellers put on their best face ahead of the ACLE. One pundit commented that he did not expect to see much change or business during the week.
The market on Wednesday continued to trade within a fairly tight range with the majority of suppliers maintaining that it was holding steady. Tanners continued to make it very clear they cannot make ends meet at $80+ C&F for HTS. This holds back sales volume and keeps price ranges small. One thing that has changed recently is that more and more suppliers are beginning to believe this.
Sales reported on Wednesday were tight and within the previous few days’ trading range. There was a large spread between packer and processor NHNDC. The high of $55 on HNDC was up by $0.50 from the previous Thursday’s high packer sale. HBH also had a fairly large spread from $56 to $60, with the overall average unchanged from Tuesday.
Only a few sales were reported on Thursday. The only steer reports were one packer HNS for $73 and one processor sale for $71. One source noted that there was a fair amount of activity on Thursday but not necessarily many trades. Several people said they heard HTS and BBS had sold for $78.50 C&F.
The market was quiet on Friday with most of the buying done by Thursday. A moderate number of sales, which includes late Thursday trades, was reported. Prices edged down in a number of selections including HNS, HNDS and the high end of the range for HTS and BS—which were both off $0.50. Heifer selections were down by more than $2 but trades did not include any packer sales. Overall, the Jacobsen Hide Index was off $0.36 for the day.
The week in review
The hide market last week was a bit squeamish, but a case can be made that it held steady. Some sales were made at steady prices while some were off a dollar and by the end of the week buyers backed out of the market. Packer HTS and BBS were reported as high as $79.50 down to $78.50. A number of people opined that steer hides might be off $0.50 to $1 from the previous week but a few eternal optimists thought not.
Evident last week was the impression from a large number of buyers that they will either be able to pick up special deals from suppliers while at the Shanghai leather fair, or that prices will fall afterward. It should be noted that this prediction is not uncommon, just as the good face that suppliers tend to put on ahead of any trade show is normal.
Average estimated USDA cattle slaughter for the week was 667,000. This figure is 16,719 more than Tuesday’s Urner Barry estimate of 650,381. Estimated slaughter the previous week was 643,000 and actual kills for the same period last year were 658,000.
For the week ended August 12, the USDA export sales reports of combined wet blue and whole hide export shipments of 642,300 nearly equalled the week’s cattle slaughter of 643,000. The week before last, a number of industry pundits predicted that combined sales would be less than normal. Their forecast was accurate with sales at 506,600; less than the week’s slaughter by 136,400. Year-to-date (YTD) average weekly combined shipments are 592,787, sales are 559,381 and weekly average slaughter is 643,875.
This year is remarkable in that both sales and shipments are significantly lower than the previous two years, while YTD slaughter of 20,604,000 falls between the 2008 and 2009 levels.
Whole hide sales this year, as expected, are primarily destined for China and Hong Kong. YTD, nearly 49%, or 8.6 million cattle hides, are destined for China and Hong Kong. The next largest export sales destination is Korea with 25%, or nearly 4.43 million, followed by Taiwan with nearly 9%, or 1.55 million. These four countries total 83% of the YTD US whole cattle hide export sales.
According to the Sterling Profit Tracker (Drovers), packer margins improved nearly $3 per head last week, but are still entrenched in negative territory at -$19.52 per head. Packer margins the previous week averaged -$21.51.
Besides being very small compared to five or ten years ago, the US split market is fairly strong. Whole hide brands are selling for around $0.49 per pound CFI for light weights, $0.54 for medium weights and $0.59 for heavies. Native whole hide splits are commanding $0.05 or $0.06 more per pound. Premium natives, such as those generated in the making of automotive leather, have a wider differential.
The hide market is overshadowed by the All China Leather Exhibition fair with at least some of the customer base waiting for face-to-face negotiations with their suppliers. This does not only apply to the US hide supply base, but to most regions with significant sales into China and other Asian countries. The sentiment expressed by one hide trader in Australia who said that “all eyes are on Shanghai for the next position” captures the thoughts of many people in the industry today.
