US Perspective - 10.01.12
Courtesy of The Maxfield Report
www.themaxfieldreport.com
We have encountered mixed opinions as to the amount of activity last week in the big packer market, as well as prices obtained. Reports from packers claim a busy week of trading in spite of the holidays, as well as claims to concluding business at no worse to incrementally higher levels.
Meanwhile, we have mixed reports from traders. Many traders share seeing a decent number of inquiries last week; however, the vast majority of ideas were running well below the ideas of packers. There were a few isolated reports of a handful of these buyers improving their ideas and some minimal volumes sold, but overall, unless packers sold a decent volume of hides direct to tanners last week, we are not sure we are convinced packers liquidated a holiday-shortened slaughter last week.
Overall, based on the various conversations and information we obtained last week, we call the big packer prices unchanged from levels of a week earlier and it will be interesting to see if packers attempt to raise asking prices this week.
Members of the cowhide trade are reporting that momentum in the cowhide market has shifted in favour of sellers. Several sources are reporting a decent number of inquiries last week from tanners and tanners who still were harbouring ideas of lower prices, even begrudgingly improved their ideas.
Overall, popular opinion is that last week saw a moderate number of hides exchange hands last week and is it very possible that buyers were able to liquidate their slaughter last week. In regards to pricing, there are claims by sellers of obtaining higher prices; however, with the exception of an increase in HNDC prices, we cannot attest to significantly higher prices on cowhides.
Reports from sources in Asia suggest that many of the brands continue to press tanners for further reduction in leather prices. Tanners in the meantime are attempting to convey to leather buyers that prices have stabilised, but as of this writing, ideas on both sides are reported to be far apart. Meanwhile, sources share that tanners producing automotive leather appear as if their orders for January are equal to levels in December, while shoe-upper tanners in general are anxiously waiting for orders.
The government said the unemployment rate dipped to 8.5% in December. This has pundits hoping the economy can put in a stronger performance this year than last. Meanwhile, fed cattle prices were lower this week in light volume as the five-area average price for slaughter steers sold on a live weight basis was $121 per hundredweight, down $3 from the week prior, but $15.55 per hundredweight above the same week last year. Worth noting, is that there were not enough fed cattle sold on a dressed weight basis for a market quote.
Beef cutout value also was lower last week with the choice cutout value at $190.34 per hundredweight, down $4.26 from the week prior, while the select carcass cutout was down 43 cents from the previous week to $179.28 per hundred pounds of carcass weight. The choice-select spread, $11.06, was down $3.84 from a week earlier to the lowest level since September 14.
The look ahead
Opinions as to offers this week are mixed. We have encountered members of the trade who believe that packers who are well sold and if packers offer this week will seek more money. In the meantime, we are not sure we agree with comments of how well sold packers are, especially considering last week’s outstanding sales on the USDA Export Report was a meagre 3.2 million hides, the lowest in several months.
Meanwhile, we would not be surprised if producers offering cowhides did not continue to push for higher prices as it appears demand for cowhides is decent, while it also appears that producers possess a stronger sold forward than some of the packers.
The wild cards in our opinion as we move forward are new leather businesses and the slaughter. Pundits are forecasting that we will see smaller slaughter numbers this year and if leather business in 2012 comes anywhere close to levels of 2011, then we can certainly follow an argument for a rise in prices. However, there is much speculation running through the trade that synthetics have replaced leather in many articles. This coupled with reports that other articles that utilised steer / heifer hides have been swapped-out for lower grade hides, we believe a more plausible argument is that we very well could see the spread between cows to big packer hides at its lowest levels in quite some time.
