US Perspective–15.03.11
15/03/2011
Courtesy of www.thejacobsen.com
The hide market this past week remained steady-to-firm with several selections increasing from $1 to $2, and even more. BS sold for $86—up $1 from the previous week’s high. In addition, heavy HNS sold at a new record, up $3 at $90 FOB, which is getting very close to the $100 C&F mark. Heavy Texas steer hides followed through with two more sales of $87 and a last-minute report for $88, upping an all-time record high for that selection. Medium CBS picked up $2.50 on average with a new high trade for $85. Although several people reported that business slowed by the latter part of the week, a large number of sales were reported.
The market is very hard to figure out and the only “for sure” things are: (1) Pundits have all kinds of ideas on where the market will go and (2) Hide prices are high. Many people are very nervous as they watch the financial markets react to turmoil in the Middle East, weak economic news from China, and renewed fears about Europe’s debt crises. Yesterday the DJIA had its biggest one-day drop since August, falling 228 points. No one knows whether recent events will dampen the economic recovery, but there has been a loss in its momentum the past couple weeks.
While you can argue that there is no direct correlation between the financial markets and hide prices (clearly the case during the past two weeks); there is no disagreement that the markets do correlate to retail sales for consumer goods including shoes, automobiles, and furniture. It is also pretty clear that as go shoe, automobile, and furniture sales, so go hide sales. This is good reason for the hide trade to keep an eye on global events and the financial markets in regard to forecasting what may be down the road for hide prices.
The US Department of Agriculture (USDA) estimated week-ending slaughter was reported at 637,000, down 6,000 from the same period last week but up 13,051 from the same period last year. Earlier in the week, the Urner Barry poll guesstimated slaughter for the week to be 636,440—can’t get much closer than that! Increases in live prices and negative margins have prompted packers to curtail slaughter and reductions are expected to extend through next week at least.
More cutbacks are expected for next week as packers try to curb soaring cattle prices. Any unplanned reduction in kill automatically places packers in longer forward-sold positions. If packers are sold forward to their limit, then adjustments must be made by stopping new hide sales.
We are all keenly aware that commodity prices this year are rising at extreme rates—and hide prices are no exception. In the past 12 months alone, the Jacobsen Hide Index (currently at $82.50) is at a record high and is up 26.23%. Near the beginning of last week, HTS hide’s average price was $84.50, up 27.06% or around $18 from a year ago.
Most other commodities have seen increases as well, but the farther up the processing chain the products move, these price increases diminish. Some grains, for instance wheat and corn, are 95% to 96% higher than a year ago, while live cattle are 23.56%, and finally the cut-outs are 14.85%. Tanners have been saying all along that they cannot pass on their hide price increases at the pace that they are coming in. The realisation that current prices are real and may go higher is beginning to sink in as major leather users anticipate the impact on their respective industries.
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