US Perspective – 22.03.11
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The hide market ended last week with prices firm and volume down. For the week, the prices continued to show upward movement on both steer and cow selections. The Jacobsen Hide Index on Thursday 17 March averaged $89, up $1.34 from the previous week. Most HNS, HTS, and BBS traded between $86 and $88 with a couple outliners.
It is interesting that the hide market was relatively stable this week compared to other agricultural commodities which bounced down and up following daily events in Japan and the Middle East. In the early part of the week, commodities saw steep declines but showed some recovery later in the week. On two consecutive days this week, a number of live and feeder cattle future contracts declined to their daily permissible limits of 300 points as market participants rushed to reduce risk.
Placements in feedlots during February totalled 1.66 million, 1% below 2010. Net placements were 1.6 million head. During February, placements of cattle and calves weighing less than 600 pounds were 400,000, 600-699 pounds were 365,000, 700-799 pounds were 489,000, and 800 pounds and greater were 410,000.
In the USDA export sales report for week ending March 10, both sales and shipments of cattle hides and wet blue were down considerably from the year’s trend. For the week, combined hides and wet blue export sales are 544,800 compared to the ten-week yearly average of 596,256. Shipments for the week were 473,000 compared to the ten-week average of 589,910. For comparison, slaughter in Week 10 was 637,000.
Producers are still forecasting kills to remain low until the first or second week of April—somewhere in the range of 620,000 to 635,000 cattle per week.
Fears that Japan’s nuclear reactor fires could get out of control and contaminate a larger part of the country drove the equities and commodity markets down on Tuesday 15 March. Live cattle, for instance, dropped $4.15 per hundredweight to $113.50 and both corn and soybeans dropped 6% to $6.36 and $12.70 per bushel respectively.
Dry conditions in the Southern United States have reduced the March runs of feeder cattle from wheat pasture this year, moving some feeder cattle into feedlots earlier than is typical and shifting some cattle into summer grazing programs. Tightness of cattle inventories at all levels is increasing the volatility in cattle and beef prices.
US beef exports for 2011 are forecast at 2.43 billion pounds and beef imports are forecast at 2.3 billion pounds, making the US a net exporter of beef again in 2011, and by a larger margin. Cattle imports from Mexico thus far in the year have been particularly strong; however, total cattle imports for 2011 are forecast lower year-over-year.
Most people in the industry are keeping a wary eye on global events. In addition to oil prices increasing above $100 per barrel and the Middle East instability, the tragic events in Japan have created a new round of economic turmoil.
On the immediate horizon, leather orders on the books are very strong and will support the hide market for a while, but the question at hand is will recent events interrupt the economic recovery and cause consumers to stop buying?
The USDA supply/demand reports along with world numbers were released on March 10. In the United States, the corn carryout was left unchanged from last month at 675 million bushels. Traders anticipated that this number could be reduced. As a result of this report, many in the trade still believe this will leave the US with only pipeline stocks available to the marketplace.
If there are any weather problems this spring with planting or this summer, the growing crop prices could ratchet up on future supply fears. The soybean carryout in the United States was also left unchanged from last month at 140mb. This too leaves little room for error this spring and summer.
