US Perspective - 21.06.11
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
Last week the US hide market remained in a stalemate without much change one way or the other. Although a floundering economy has doused the stock markets for the past six weeks, it appears there has been enough demand the past couple weeks for US cattle hides to manage to hold prices. Last week the majority of packer BBS/HTS hides traded around $84 to $85.50 with the occasional exception above or below. In addition, cow hides held on to their prices with NHNDC topping at $72 and NBC at $51.
The sentiment in the trade is mixed with some participants with a bullish tone while others seem to have a more cautious approach.
North American automotive leather business has slowed according to sources who note several auto leather tanners are currently producing at levels well below capacity. There are some indications that production may be down by over 50% for some companies. Part of the contraction is due to the parts interruption caused by the Japanese tsunami. US auto sales for May were 1,049,292 units, down 4.1% from May of 2010.
Sentiment in the hide market remains diverse with people expressing a wide array of opinions ranging from the most positive to a fairly negative outlook. Prices have been mixed but within lasts week’s trading levels and the market is steady for the time being.
On the bullish side, pundits point to the favourable forward sales positions maintained by suppliers, good leather business, and continued interest from tanners who step into the market each week to buy. Some of the more bearish folks are apprehensive that the floundering global economy and shaky business fundamentals will undermine the current decent run of leather business. The reality is that enough tanners seem to buy enough hides each week to keep prices firm and this week is shaping up to continue that trend once more.
Packer margins are beginning to erode but continue to be positive. According to Sterling Profit Tracker’s calculation for week ending June 11, packer average margins were $74.16. Due to an uptick in live cattle prices and decreases in meat and hide offal prices, margins fell $33.69 from the previous week. For week ending June 11, live cattle prices were up 1.2% at $106.20 per hundredweight and beef cutout values were down 2.1% at $174.08 per hundredweight.
USDA Livestock, Dairy, and Poultry Outlook
Beef/Cattle Trade: US beef exports for 2011 are forecast at 2.59 billion pounds—nearly 13% higher than 2010. US beef imports are expected to decline nearly 5% in 2011 to 2.19 billion pounds. The United States is expected to have a wider net export margin this year than last year. The US net export margin should narrow again in 2012, as beef exports for 2012 are forecast at 2.52 billion pounds and imports at 2.48 billion pounds.
Dairy: Milk production is forecast to continue to rise. This year, continued herd expansion is aiding production. However, next year’s forecast production increase will come from higher production per cow; herd size is expected to contract fractionally. This year’s export forecasts are revised upward based on year-to-date results. Exports are expected to rise next year as well, helping support milk and dairy product prices, but prices are expected to decline modestly next year as milk production increases.
Unemployment claims by the US Department of Labour reported 413,000 new claims were filed last week making it ten weeks in a row the numbers have been over 400,000. Combined with a barrage of negative news over the past couple months, many economists are losing faith in earlier GDP growth projections for the remainder of the year and the talk of a second recession is becoming louder with each successive dismal report.
The hide market continues to shrug off the negativity with steady-to-firm pricing and a decent amount of activity.
USDA Export Sales Review
Combined wet blue and hide export sales for week ending June 9 were 751,600, up from the previous week’s 452,600, with an average of 602,100 for the two weeks. Through week 23, the average weekly total sales are 589,081. The above average sales last week support a slightly firmer tone experienced in the hide market this week.
Shipments of hides and wet blue at 560,400 were considerably under sales and slightly below YTD average shipments of 594,009.
For comparison, last week’s slaughter was 681,000 and year-to-date weekly average slaughter for 2011 is 642,934 and in 2010 it was 643,348.
Wet blue sales last week were 170,200 pieces, increasing considerably from the previous week’s 58,200. Year-to-date average weekly wet blue sales are 132,693 and the pattern of major swings in blue sales volume from week to week continues. Wet blue sales this year are trending below last year at this time by -4,329 hides weekly.
On Friday 17 June the market concluded a week of more or less sideways trading with a fairly narrow range for most selections. The only dissenters were some steer selections that to a certain extent widened their trading range. Packer HTS, for instance, were reported in a range from $83.50 to $86 and BS in a range from $83 to $87, which could be indicative of either a changing market or simply the extreme highs and lows of the selections. There seemed to be more of a consensus on C&F pricing than FOB where most people agree that packer HTS/BBS traded between $92 and $93.
The Jacobsen Hide Index (JHI) week to date was $82.72—up $0.5456 from last week average.
USDA estimated week-ending slaughter was 688,000, up 10,000 from last week and also up 20,687 from the same period last year when it was 667,313.
