US Perspective - 01.03.11
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The high BBS at $83 on Friday 25 February was the highest for the week – and likely one of the highest price points for the selection ever. On a C&F basis, steer hides were reported to trade in volume at the $90 level. It was noted that some producers sold a lot of hides this week but not everyone sold all they needed. One pundit opined that those who didn’t sell many hides this week were likely very well sold last week and inflexible on pricing.
Last week’s export sales and shipments picked up following three weeks of lacklustre results. For the week ending February 17, reported USDA export sales and shipments of whole hides and wet blue totals were 636,000 and 613,700, respectively. Slaughter the same week was 651,000.
Through Week 7, combined sales of hides and blue were 4,126,764 and shipments were 4,225,300. Sales for 2011 are ahead of 2010 by 12.4% and 2009 by 12.5%. Shipments are ahead of 2010 by 9.7% and 2009 by 6.9%.
The hide market seemed to have taken a big shot of caffeine on Thursday 24 February as buyers continued to follow the market upward. For the day, the Jacobsen Hide Index was up $0.43 at $80.08 breaking the $80 level. This may be good news if you are a packer but it was a tough day for tanners.
Trading was vigorous with most steer and cow selections on the sheet reporting. Prices were mixed but most selections showed gains. Steer hides on the rise include HTS and BBS which were both up $0.50 at $84 and $82.50 respectively. Heifers increased a dollar on their upper end for both brand and natives at $75 and $73. Most cow selections traded up from $0.50 to $1.
Everyone in the hide industry has etched in his or her mind the effect that the global economy has on the hide market. We just have to look back to 2008 and 2009 when, prompted by the financial crises, the hide market collapsed and spiralled downward to the $20 level for steer hides. In less than two short years, the hide market has enjoyed resurgence as demand for leathergoods pushes prices to record or near-record levels. Last week for instance, steer hides sold as high as $91 C&F and this week some producers are asking $2 up on some selections.
Prompted by unrest in Libya, oil prices surged and stock prices plummeted with the DJIA losing 1.4% or 178 points. The markets reacted quickly; concerned that the economy is at risk with higher oil prices. Economist Brian Bethune, projects “a $10 rise in the price of oil subtracts roughly 0.4 percentage points from economic growth.” All is not doom and gloom, however, with reports that consumer confidence hit record high this month at 70.4, rising from 64.48 in January.
All eyes will certainly be on the Middle East in the coming days with hopes that solutions are found that can stabilize the region and subsequently oil prices. If consumers are faced with $4 gasoline this summer, it is easy to imagine what this will do to consumers’ confidence, and consequently, the demand for leathergoods. In addition, higher oil prices will greatly impact freight and operations costs for tanners. Energy cost is a major factor of the conversion of hides to leather. Chemicals are an even greater factor of conversion cost and chemical costs are hugely impacted by the price of energy.
The hide market remained firm last week with more resistance building at each incremental price increase. Volume was up a bit from the previous week but not everyone sold a week’s worth of hides. Prices held their own with a few selections increasing from $0.50 to $1. Most BBS and HTS sold in the range of $81 to $82 and HNS from $82 to $83 FOB. One supplier confirmed a small volume of steer hides for $91 C&F. Sources noted that premium cowhides moved quite well – up $1 to $2 – while plump cow hides held steady.
Most people feel the hide market will remain firm this week. At the same time, they concede that as prices go up, it gets harder and harder to sell. For now, producers maintain they are still holding favourable positions. If last week’s sales were less than supply generated, this will be four consecutive weeks of low sales, which surely will put a dent in these positive positions.
