US Perspective—09.11.10
09/11/2010
Courtesy of www.thejacobsen.com
The market traded steady this week with a fair volume of hides sold. Prices were firm with suppliers appearing to be well sold and unwilling to take down money. Bids generally were around a dollar under asking prices with steer bids around $80 to $80.50. While $81 for packer steers is a price some suppliers considered good, there are reports that business was turned away at this level. Packer steer hides sold in a tight range between $81 and $82. Cow hide sales were mixed, but a reliable source noted hearing a good amount of cows were sold at decent prices.
Slaughter this week is estimated to be 651,000 head, down 17,000 from last week’s estimated kill and up 16,000 from the same period last year. Earlier in the week, the Urner Barry poll of industry respondents forecast the average estimated slaughter for this week to be 655,435.
For the week ending October 28, the US Department of Agriculture whole hide and wet blue sales totals were 682,500 and shipments were 596,100. Sales exceed the week’s kills of 668,000 while shipments fell short. The trends on sales of recent weeks have been higher than the year’s with seven of the past eight weeks exceeding the year-to-date average weekly number of 579,016.
Last week’s wet blue sales were very high at 219,000 pieces with Italy as the primary destination with 128,800 pieces. Year-to-date total wet blue sold into Italy is 1,126,850, making the week’s sales 11% of the year’s total, and significantly above the weekly average of 26,205.
This year through week 43, the numbers for slaughter, sales and shipments are 27,848,000; 24,879,695 and 25,767,800. The numbers for the same week in 2009 were 27,326,000; 26,314,200 and 27,324,400. Those for 2008 were 28,290,000; 26,058,300 and 27,078,800.
Packer margins, which last week began to slide into negative territory, are continuing to show erosion. A source reported that cut-out prices are coming down with the onslaught of the traditional turkey and pork consumption period associated with the Thanksgiving and Christmas holidays. According to The Cattle Network, packer margins for the week ending October 30 dropped more than $13 per head. The Sterling Beef Profit Tracker calculated average packer margins at -$14.51 per head. The reduction in packer margins provides impetus for packers to reduce kills and sheds light on this week’s forecasted lower slaughter of 655,000.
With last week’s favourable export sales report, the momentum of a steady-firm hide market appears to be setting in this week. There are mixed reports on the quantities of offered selections available with some people saying, “less” and some saying, “more.” Prices are steady with last week and suppliers are not interested in selling for less, at least for the moment. Suppliers are reporting seeing interest ranging from a small-to-moderate number of bids.
Sources report wet blue splits are moving very well and are easy to sell, but they are not as high as the last time the hide market was at its current levels. Prices for medium brands, 26 pounds and up are between $0.60 and $0.62 per pound C&F Asia. Lighter weights are slightly less and natives command around $0.05 more. The range for splits spans between $0.57 for the lower end to $0.66 for the upper end.
The US economy continues to be sluggish, but offers mixed signals. Consumers’ spending, along with their incomes, fell in September for the first time in over a year. Meanwhile, manufacturing grew the most in the past five months, boosting prospects for a stronger recovery. The Institute for Supply Management released its latest manufacturing Report on Business. According to the report, US manufacturing grew for the fifteenth consecutive month in October, as did the overall economy, which expanded for the eighteenth month straight. It was also reported that 14 of the 18 industries tracked posted growth last month. The good news is apparel and leather are among the industries that experienced this growth.
Construction and housing aren’t expected to regain their strength for a long time, perhaps years. This is putting a drag on unemployment, currently at 9.6%, which is holding back consumer spending. In September, third quarter GDP growth was 2%. Economist are saying it takes at least 3% GDP growth to keep unemployment from rising and 5% to make a major reduction.
The sluggish underpinning in the economy is one reason why a number of people are taking a more cautious outlook on the hide market over the long term. A second factor promoting a reserved outlook is the tanner’s inability to sustain margins at higher hide prices.
On many occasions, tanners have expressed concern with the erosion of margins they have seen since before the hide market crash toward the end of 2008. With HTS now selling in the range of $80 C&F, these prices are around $7 above the levels they were prior to the market crash which represents a $0.14 per square foot increase. Tanners are still struggling to get the prices they were getting for leather before the crash, never mind overcoming the increased hide costs.
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