US Perspective—21.02.12
21/02/2012
www.themaxfieldreport.com
Although packers entered the week with the mind-set that they preferred not to sell hides this week, panic-stricken buyers willing to over-pay for hides changed their minds. There was a number of reports of unsolicited bids from buyers at levels as high as $86 delivered to Asia for steer hides in the middle of the week and when packers politely refused to counter these bids, buyers upped the ante improving their ideas to levels of $88 delivered.
Packers, who originally would have preferred to let the week come and go without any sales, quickly realised the firm tone of the market and cautiously agreed to some limited sales at levels ranging anywhere from $2-$3 higher than the trading levels of the previous week. Popular opinion of the trade is that it is unlikely that packers sold a week’s worth of slaughter; however, more worth noting is the amount of business that was not concluded, which the consensus of the trade agrees likely exceeds the number of hides sold.
Reports from members of the cowhide trade are very similar to those of the big packer trade. For the most part, sellers entered the week with limited or no offerings. However, sellers faced with numerous unsolicited bids at levels higher than their last reported trading levels, were prompted to take advantage of the higher ideas. Meanwhile, here too the consensus of the trade is that the volume of business not concluded this week easily exceeds the number of hides sold, while trading levels this week were anywhere form $1-$2 higher depending on the selection.
In the meantime, the nation’s cow slaughter although lower than the fourth quarter of the 2011 calendar year, remains well above levels of a year ago. Worth noting is that on a percentage basis, the cow slaughter in February and March 2011 averaged 20.5% of slaughter, while this month the average has been 22.35% of the total and perhaps this is why sellers decided to sell a few more hides this week.
As we have come to the end of another week of trading, hide prices continue their upward ascent, in spite of strong disdain of buyers. Over the course of the last couple of months, it appears tanners have grossly miscalculated the market. It is now apparent that many tanners shared the opinion that the weakness we experienced right before the Christmas holidays would carry over into the start of 2012 calendar year and that prices would continue to drift lower. Unfortunately for those buyers who decided to “play the market”, slaughter levels in 2012 have come in lower than even the most pessimistic of guesses. This, coupled with leather business that appears to be better than most tanners anticipated, is creating a situation that has allowed sellers to push the market higher at a rapid pace in spite of selling what we would call only modest volumes the past several weeks.
What we find very intriguing the past two or three weeks is the amount of business not concluded, which in our opinion tends to indicate there is still a number of tanners who are in need of raw material. What has to be very disconcerting for tanners is the substantial reduction in slaughter numbers that in turn has pushed sold-forward positions for sellers beyond normal levels, while also resulting in shipping delays, as packers are simply not slaughtering enough cattle. In addition, worth noting, with the season of Lent set to begin on February 22 and packers’ margins still deep into the red, it is likely we will not see any vast improvement in slaughter leading up to the APLF fair in Hong Kong (March 28–30).
Speaking of the APLF fair, it is only five weeks away, and we are of the opinion Hong Kong will see strong attendance at this year’s show. That said, we also look for many members of the trade to travel the couple of weeks before the show and historically those travelling like to have hides in their pockets to sell. It will also be interesting to receive reports from those travelling prior to APLF to see exactly how busy tanners really are, as well as their current inventory situation.
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