US Perspective—11.01.11
11/01/2011
Courtesy of www.thejacobsen.com
The hide market in the first week of the year was solid, with prices steady to firm. Volume was mixed with an array of opinions from producers regarding the week’s business—everything from “limited” to “normal” to “good”. Interest in general was good compared to the last week of 2010. Several sources noted that inquiries and bids came primarily out of China with other regions noticeably silent.
Slaughter for the week is estimated to be 639,000—returning kills to more seasonable levels. Earlier in the week, the Urner Barry poll of industry respondents forecast the average estimated slaughter for this week to be 644,533. Slaughter for the same period last year was 647,000.
Tanners are not out buying huge quantities, but rather picking and choosing what is necessary to keep production going. This said, the feedback is mixed regarding the amount of interest from buyers with some suppliers seeing a good number of bids and some reporting less. Meanwhile, producers took advantage of good positions and market momentum, which is edging up prices on certain selections.
In today’s USDA hide and wet-blue export sales report for week ending December 30th, export shipments were down considerably from previous weeks, with 476,100 wet blue and hide shipments. Sales last week were even lower with combined hide and wet blue totals at 316,289. This is the lowest weekly combined number for all of 2010. As expected at the end of the year, hide and wet blue sales deliveries are split between 2010 and 2011. Last week’s whole hide and wet blue sales were no exception having 133,887 scheduled for 2010 and 182,402 for 2011 deliveries. It is interesting that 124,241 hides last week were shipped immediately.
Below is the three-years-to-date comparison of slaughter, sales, and exports of hides and wet blue through week 52. For 2010, slaughter, sales and shipments are 33,614,418; 30,517,386 and 31,306,600. For 2009, the corresponding figures are 32,624,753; 30,668,800 and 32,485,400. The figures for 2008 are 33,547,138; 31,596,300 and 31,935,200.
There continues to be quite a bit of push-back from tanners who all claim they cannot increase leather prices at the same pace as hide price increases. Tanners are saying they will buy the smallest quantities required and some are planning to close early ahead of the Chinese New Year holiday (February 3).
For the automotive leather sector, there is good news out of Detroit with 2010 US auto sales rising for the first time since the recession. For the year, sales for cars and light trucks were 11.6 million units, up 11% from 2009. General Motors, Ford, and Toyota are all predicting this number will increase to a range between 12.5 to 13 million, or by 10%. Although there is optimism, rising gas prices or other unforeseen economic problems could cut into these forecasts.
On January 3 last year, steer hides were $61 compared to $76 on the same day this year. This difference represents a 24% increase, which is slightly over half the amount cowhides increased during the same period. Depending on selection and region, on average in 2010 cowhide prices increased 44%.
Going back three years before the market meltdown, steer hides were priced at around $66 or 13% less than today’s prices. Cowhides on January 3, 2008 on the other hand were slightly higher than today prices, averaging $0.75 above. This suggests that by comparison, the differential between cowhides and steer hides is still trailing the pre-meltdown spread—and all things being equal, still have room to go.
Last year’s cowhide increases outpacing steer hide increases as a percentage of their prices could be a result of the progression of leather business as it rebounded from the great recession. The first leather segments to recover were the shoe and specialty business, prompting steer hide prices to rise. This was followed by improvements in the automotive leather business, which further boosted steer hides and pushed upper end cows.
Branded cow prices are largely associated with the furniture business and continue to be a drag on the market. However, they have benefited from the rising tide of hide increases in other sectors. With buyers struggling to match rising hide prices with leather prices, in order for tanners to keep prices down, they are forced to look at cheaper alternatives such as cows to keep cost down.
Looking forward in the new year, it is likely that the spread between cow and steer hides will continue to narrow to historic differences if prices on steer hides continue to rise. Cow prices will also have upward pressure as the housing and furniture industries improve.
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