US Perspective—17.01.12
17/01/2012
www.themaxfieldreport.com
According to various sources, interest slowed considerably on big packer hides as we approached the end of the trading week last week. It appears that buyers who needed to replenish their inventories came in and paid the prices packers were looking for, while other looking to buy decided to delay their purchases for at least another week.
Overall, the consensus of the trade is that there was quite a bit of interest this past week; however, with the vast majority of ideas from buyers in the neighbourhood of $79-$80 delivered, sellers appeared not to have much interest in accepting these levels. In the meantime, buyers willing to pay $81 to even as much as $81.50 found they were able to buy hides this week, the only problem is that popular opinion of the trade is that there was not enough business at these levels in order to allow packers to clear their slaughter.
Trading reported today includes a sale of heavier weight BBS at $73, while we were able to round up a couple of sales on Jumbo BS ranging from $74-$75. Other trading today is calling heavier weight CBS $69, while we found a couple of sales on heifer hides at more money with sales at $64 for HNH and $62 for HBH. The only other trading was a couple of sales on HTS as we have regular weight packer material bringing $73.50, while Jumbos were sold at $75.
The end of the week finds the market on firm ground, as buyers looking to buy at levels below the market found this a difficult challenge. In the meantime, sellers in general are laying claims to possessing a strong sold forward position and this, coupled with reduced slaughter the three weeks prior to this week, forced the hands of buyers desperate to replenish their inventories. What we find very interesting is what we perceive as a glaring imbalance in the market.
It is no secret that there are a number of unsold wet blue hides in inventory in the US; however, taking some time to review the numbers today we were shocked at just how many hides could be sitting in warehouses as of this writing. A simple exercise is to determine the weekly wet blue production in the US. We have listed the various producers (withholding names), while listing what pundits believe is their weekly wet blue production: producer A—80,000 hides; producer B—30,000 hides; producer C—30,000 hides; producer D—20,000 hides; producer E—20,000 hides. This makes the weekly average production 180,000 hides. Each of these figures is an estimate.
Assuming the information above is factual, during 2011, these five producers would have produced 9,360,000 wet blue hides. In the meantime, sales of wet blue hides total only 6,822,400 hides, while shipments of wet blue hides were slightly better at 6,888,800 (numbers according to the US Department of Agriculture). Again, we state, if all of the number above are correct there are roughly 2.5 million wet blue hides—or approximately four weeks of slaughter—sitting unsold in various warehouses across the US.
Where this gets very interesting for us is when we compare trading levels for wet blue hides versus wet salted hides. Because of this large unsold inventory of wet blue hides, an argument can be made that wet blue hides are actually selling at a discount to wet salted hides. In fact we will take this argument one-step further, that the insistence of producers to continue to produce wet-blue and store in in warehouses, has actually driven up the value of wet-salted hides as there are tanners who simply will not buy wet-blue hides.
One other observation that we have is that we are not convinced sellers have the sold forward positions they are advertising. Again utilising numbers from USDA the weekly combined sales average dating back to October 1 and including this week’s report is 545,000 hides, while the weekly average slaughter during the same time frame has been 626,000 animals, which is 1.1 million hides. As mentioned above, there is no question that prices are firm; however, we are of the opinion that these sellers have done a masterful job marketing their hides using a lot of “smoke and mirrors”, and it will certainly be interesting to monitor sellers over the course of the next two weeks with the majority of Asia out for Chinese New Year.
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