US Perspective—14.02.12
14/02/2012
www.themaxfieldreport.com
Sources report that interest on big packer hides came to an anti-climactic close towards the end of the week. Popular opinion of the trade is that interest on big packer hides, although decent again this week, was not quite as brisk as the week prior, as it appears a combination of a general lack of offers and steep increase on asking prices were major deterrents for buyers.
The sentiment of the trade is that Korean tanners were responsible for leading the charge last week. However, it appears Chinese tanners decided that they did not want to be left behind, helping to drive prices even higher. In the meantime, we continue to hear that native hides in the slaughter mix remain difficult to come by and, with the automotive leather business appearing as if it is not missing a beat, sellers with native product to sell are able to get a modest premium.
Meanwhile, heifer hides in the slaughter mix are following their usual seasonal patterns and are very tight; however those producers with heifers to sell claim they are having no problem moving any offers quickly at more money. Reports from Asia claim that the vast majority of hides traded at levels close to $85 and slightly better this week for HTS/BBS, while we have heard a few isolated reports of sales as high as $86 in very limited volumes and even rumours of sales as high as $86.50. Meanwhile, buyers with ideas in the $81-$83 range found sellers to have no patience for such aggressive ideas and we have heard that a few of these stubborn buyers begrudgingly improved their offers, validating opinions of sellers that there are still tanners who need hides.
It appears the firm tone of the market continues, as there are still too many buyers chasing too few hides. Looking ahead to the next few weeks, given the tight supply of live cattle and the fact that packers’ margins remain in red ink, it is not likely that we will see any substantial increase in the number of hides available to buy any time in the near future. In the meantime, members of the trade realise that packers are making their best effort to try to maximise the price of everything they sell with margins so far in the red, but we are hearing more and more members of the trade who are beginning to question when enough is indeed enough. What we find interesting is when having conversations with some of the major players in the marketplace (both buyers and sellers), we are not finding many of these key players of the opinion that we can continue to see prices move by dollars at a time on a weekly basis. Rather, the common theme in these conversations is that both buyers and sellers are saying the same thing: they would prefer prices to stabilise and allow the market a chance to consolidate, both from a standpoint of hide prices as well as leather prices. As we look ahead to the remainder of the month, it is certainly difficult to argue for lower prices and we suspect those buyers who are in need of coverage are going to have a difficult time negotiating prices.
In the meantime, sellers may want to move forward cautiously as we continue to hear of tanners with cash-flow problems, supported by reports of some tanners using a secondary bank to open letters of credit. Of late, the assumption is that they have exhausted their lines of credit at their original bank. In the meantime, as prices have moved to levels where the oxygen tends to get a little thin, we suspect sellers might become a bit more cautious. We look for sellers to be a bit more selective as to which customers they are selling to and this alone might just be enough to allow the market to take a break over the next week to ten days and allow everyone to catch their breath.
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