The Jacobsen Commentary and Market Opinion – 17.08.10

Courtesy of www.thejacobsen.com

Market activity and analysis

With US temperatures heating up in the dog days of summer, the short-lived hide market rally cooled the week before last (ended August 6) with buyers once again refusing to cross the $80 line.

Buyers were willing to participate below this level and a moderate volume of BBS, Texas and HNS sold primarily in the $70-$73 range FOB plant. There were a few exceptions; one HNS for $75, in particular, raised a few eyebrows. Cowhides had a relatively good week with a fair number of both plump and dairy cows selling at steady money.

Monday’s market (August 9) had a large number of sales reported with quite a bit of carryover from the previous week. Prices leaned toward the lower end for steer hides and steady-to-slightly up for cows. Both cow and hide sales fell within the previous week’s trading range.

The hide market was fairly quiet on Tuesday with few offers and bids reported. The limited offers were steady with the previous week’s, while bids once again had buyers pushing for lower prices. Thirteen sales were reported on Tuesday; predominantly packer steers and heifers. Prices were consistent with the prior week’s trading levels and several were up from Monday.

The domestic hide market was under pressure on Wednesday with somewhat of an impasse ensuing. Suppliers were doing their best to hold the market steady to firm leading into the All China Leather Fair in Shanghai on September 1-3. On the other side, tanners were attempting to push prices back, anticipating that they may be lower after the fair. This posturing is not unusual on either part and with both forces pushing in opposite directions the likely result will be reduced sales volume.

During the week or so leading up to Wednesday, several people had reported that cow hides were doing a bit better, with prices appearing to stabilise as buyers perceived value and looked to capitalise on their lower prices. There was, however, still a number of cows available for sale. While offerings for steer hides remained consistent with both the quantity and price of the previous week, cowhide numbers available were reported up in a couple of instances.

Hide sales reporting picked up on Wednesday afternoon with a large number of both packer and processor sales. Steer prices were relatively steady with the steer averages leaning on the down side with more red than green on the sheet and the Jacobsen Hide Index down $1.35. Cow hide prices were balanced with some down and some up, but overall slightly up on balance. Although many sales were reported, most people acknowledged that sales volume was limited to small order quantities.

The tone in the market on Thursday did not change much from earlier in the week. Reportedly, there were lower than normal numbers of hides changing hands. The top edge of the trading range was retracting slightly on more selections each day but the stalemate was preventing the market from moving significantly in one direction or the other. For the day, the Jacobsen hide index fell $0.135 although most steer hides reported were in the red on average. The two exceptions were reported trades for HNS and HTS at $73. Cow hides were also mostly down with the exception of a high trade for NHNDC at $54.50.

For the week, the hide market had fewer sales than average with prices leaning on the downside, but there was a higher than average quantity of trade reports. Although this seems contradictory, the higher than average sales reports this week are possibly a sign that people want to make sure that prices are represented as the market defines its trading range.

The week ended with a fairly large number of sales reported. Prices fell within the week’s trading range with a number of cow reports edging up to balance out the ground that was lost on Thursday. Steer hides were mostly steady with some mixed reports including HNS up $0.50 at $72.50 and CBS down a dollar at $65.

Mixed messages

Leather business continues to be segmented with the major markets enjoying different degrees of prosperity as they navigate a jittery global economy. Business in the automotive sector is okay, but not great. The shoe sector is generally good, although it is awaiting the results of back-to-school sales with trepidation.

At the bottom of end of the leather business barometer, the furniture upholstery sector has not been doing well this summer. For the US hide market this has meant that cowhides have not fared as well as steer hides. While steer hides over the summer have held steady with a small late July rally, cowhide prices slipped around 15% during the same period.

In the past month the rally peaked for steer hides with the Jacobsen Hide Index (JHI) at $70 on July 29 and retracting last week to $68.11; around the levels they were hovering 30 days ago.

Cowhide prices fell this summer as the housing market and furniture business tanked. Over the past couple of week there appears to have been more interest in cow hides, which has resulted in a floor for the market. Comparing dairy, native and branded cow prices to those seen a month ago, prices are virtually unchanged.

With over 50% of the US hide supply exported to China, rapid growth in China’s economy has been a major driver in the recovery of the hide market from the crash in 2008-09. China’s economy continues to grow at a faster pace than most of the world, but this year it has slowed down considerably.

For instance in the auto sector—one which has very close ties to the leather markets—passenger car sales to dealers increased by 13.6% in July compared with 70.5% in July 2009. Overall GDP in 2010 is also showing signs of slowing down with second-quarter GDP at 10.3%. First-quarter GDP was 11.9%. As China’s economic growth in 2010 becomes more controlled the hide and leather markets will feel the change.

Healthy figures

Thursday’s USDA export sales report for the week ending August 5 had decent numbers for both sales and shipments. For the week, combined wet blue and whole hide sales and shipments were 697,800 and 604,100, respectively. For comparison, slaughter that week was 656,000. The week’s adjustments were also unremarkable with only 19,482 cancellations for whole hides and virtually none for wet blue sales. The most significant origin for cancellations was Germany with a reduction of 4,812 whole hide sales.

Recent economic results had the equity marketing on the defensive last week with all major indices down four days in a row and for the week as well as the year. The Dow Jones Industrial Average ended Friday down 16.8 points at 10,303.

Average estimated USDA cattle slaughter for the week is 643,000, 7,261 less than the Urner Barry poll of industry respondents’ average estimate released on Tuesday. Actual kills for the same period last year were 644,000. Estimated slaughter the previous week was 656,000.

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