US Perspective - 19.07.11
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
We are between seasons for the majority of side leather tanners and Italian hide and wet blue buyers will be out of the market for their summer holidays for at least two more weeks. Meanwhile, the money supply in China is tightening and the customs issue has increased the cost of doing business in Southern China. These normal and extraordinary conditions ordinarily would push down the hide market, but this is not the case this summer.
Last week the US hide market continued to trade steady with prices near record high levels. HTS, BBS, and HNS sold between $85 and $86 for packer hides, although volume was not great. Despite the anaemic US and world economy, the hide market is holding steady and one reason it is bucking the summer doldrums is the weak US dollar. Compared to a year ago against the US dollar, the Australian Dollar (23%), the Brazilian Real (13%), and the Euro (12.4%) are all higher. In 2010 dollars, if you discount US hides by 13% for currency depreciation, against other competing hide sources the $85 US hide becomes $74—which looks more in line with last year’s prices. This time last summer BBS/HTS and HNS traded around $72 to $73.
Last week saw live cattle prices up $2.55 per hundredweight to $114.52, increasing cost 2.3% for the week. Live cattle prices from a year ago are up 24.7% or $22.68 per hundredweight with an average weight of 1,272 pounds. Meanwhile beef cutout value is up .50% for the week and 15.6% from a year ago at $179.63 for 600 to 750 pound choice cutouts. Drop values last week was basically unchanged at $13.68 per hundredweight live weight.
A fair number of negotiations this week appear to be testing the resolve of buyers and sellers with buyers redoubling their efforts to adjust the hide market downward. Following the conclusion of the busy season, side leather tanners are finding new bid prices for leather inadequate to cover hide and other manufacturing costs. Having depleted lower cost stock and facing losses with current hide prices, they are not anxious to jump in the hide market. The rub is with most producers sitting on good foreword-sold positions, they are not much interested in any price concessions—thus the stalemate.
Packer margins are in the black although according to Sterling Beef Profit Tracker, they slipped more than $7 per head to $9.77 for week ending July 9. Packer representatives indicate higher live prices and slow meat sales are making it more difficult to keep margins positive.
Export Sales Review
Wet blue and whole hides sales for the start of the second half of the year (week ending July 7) totalled 449,900. For comparison, the previous two week’s wet blue and whole hides sales were (June 31) 514,000 and (June 25) 557,300. The past three week’s USDA sales totals are trending below this year’s average weekly combined sales of 585,947. Up till now, favourable forward-sold positions by most producers have kept the market in check. Recent sales numbers infer these positions may be eroding and could very possibly put producers back in the market with more hides and blue to sell.
Wet blue sales last week were 95,600 hides with China, Mexico, and the Dominican Republic buying nearly 80%. This year’s year-to-date weekly average wet blue sales are 134,587, tracking very close to the same time in 2010 when the average was 133,085 pieces.
Whole hide and wet blue export shipments for the week totalled 532,800, under the year-to-date weekly average of 591,207 by nearly 60,000 pieces.
