US Perspective–08.03.11
09/03/2011
Courtesy of www.thejacobsen.com
The current hide market continues to be firm as prices increase each week. Over the past year, all hide selections have increased significantly?albeit at different paces?with steer hides the least and plump branded cows the most. The two steer selections, HNS and BBS, for instance, are up 22% and 23%, while NHNC have increased 34.4% and NBC 43.7%.
The current spread between cowhide prices and steer hide prices has not changed much in the past 12 months for the above selections. The difference between native steers and native cowhides currently is $19 with native steers averaging $83.50 and northern natives $64.50. A year ago, the spread was $20.50. The price difference between butt-branded steers and northern branded cows is $32 and identical to a year ago.
Looking back, prior to the financial crisis and subsequent hide market meltdown, the price differences on the same selections are similar for the native selections but the brands are significantly different. In early March 2007, the gap between HNS and NHNC was $21.25 and between BBS and NBC it was $23.50. Prior to 2007, the price differences between plump brands and steers were similar?in the low $20s?suggesting for spreads to return to norms for that period, plump cows could increase $10 over steer hides.
A moderate number of trades capped off last week with prices firm-to-steady. New highs were reported today for HTS and BBS at $85 and HNS at $86. A couple of people commented that business volume appears to have slowed this week compared to last.
The US Department of Agriculture reported estimated week-ending slaughter was 643,000, down 9,000 from the same period last week but up 22,424 from the same period last year. Earlier in the week, the Urner Barry poll guesstimated slaughter to be 637,000.
Last week’s USDA export sales were high at a total of 701,700 for whole hides and wet blue. This came as no surprise with reports last week that a number of packers and processors sold large quantities. Shipments were 575,000 total hides and blue, which appears in line with the year’s averages. Last week’s slaughter was 652,000.
For the first eight weeks, this year’s average weekly combined total sales are 603,557 and shipments 600,137. Below in the three-years-to-date comparison of slaughter, sales, and shipments, total sales and shipments are ahead of 2010 by 16.6% and ahead of 2009 by 11.5%. The comparison has shipments this year ahead of 2010 by 8.7% and 2009 by 8.2%. Slaughter sales and shipments through week eight for 2009 were 4,978,874; 4,329,000 and 4,436,900 respectively. The corresponding figures for 2010 were 5,106,006; 4,138,600 and 4,418,100. The figures for 2011 are 5,134,758; 4,828,464 and 4,801,100.
According to the Sterling Profit Tracker for the week ending February 26, packer margins declined by more than $13 per head, averaging -$28.54 per head. The latest HedgersEdge packer margin index calculates at -$25.30 a head, compared with the previous estimate of -$29.30. Although industry estimates cannot pinpoint exactly what any individual packer margins may be, the general trend appears negative, which will likely result in reduced slaughter.
A lot of people in the trade remain solidly bullish, citing strong postings of the major shoe and automotive companies as evidence that demand will continue to out-strip supply and prices will remain firm. It’s hard not to expect the market to continue to go up when buyers follow price increases every week.
On February 24, the USDA Economic Research Service and Foreign Agricultural Service released its quarterly Outlook for Agricultural Trade report. The report predicts world growth is expected to be solid with world inflation up and the dollar down compared to 2010.
It says: “The world macroeconomic environment supports growing US agricultural exports. Solid world growth and a weaker dollar support US agricultural product export growth through increased demand for US agricultural commodities.”
Although this bodes well for a continued strong demand for US cattle hides and wet blue, the following risks to this favourable outlook should be taken into consideration as it relates the hide markets: “The 2011 macroeconomic outlook is subject to three publicised risks due to inflation, the European debt, and political events in the Middle East. The risk from inflation is that excessive increases in short-term interest rates in developing countries may curtail the world GDP growth at the end of 2011. If the European debt problem were to result in lower debt ratings for European sovereign debt, that rating change would cause the dollar to rise sharply. The political events in the Middle East could disrupt the transportation of oil and agricultural products causing sharp increases in energy prices. The bell-weather Brent crude oil price recently exceeded $108 per barrel reflecting this concern. Nevertheless, the current financial markets, at this writing, reflect little expectation that these three risks will seriously upset the world economic outlook. The dollar is weak, interest rates are relatively low, and the stock markets are back to near their 2007 highs.”
Since the report’s publication, unrest in the Middle East has heightened with the crisis in Libya resulting in higher oil prices and some rollback in the financial markets.
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