US Perspective—13.03.12
13/03/2012
Courtesy of The Maxfield Report
www.themaxfieldreport.com
Trading on big packer hides and cowhides appears to have taken a much-needed break last week. Sellers who commented that they easily could have sold double the volume the week prior, decided not to offer for the most part; we suspect most were wanting to keep a few hides in reserve for their representatives who will be travelling in the next couple of weeks.
In the meantime buyers, frustrated by the rapid increases they have seen in prices over the past several weeks, appeared more than happy not to see prices go up another couple of dollars again last week. Overall, the consensus of the trade is that in terms of volume, it is unlikely that producers collectively cleared their slaughter last week, while in terms of prices we would call them up incrementally on big packer hides, with cowhides steady with the levels of the preceding week.
A developing situation worth keeping an eye on are reports that China had the biggest trade deficit in at least 22 years, as well as the weakest January-February factory-production gain since 2009. In addition, there are reports that retail sales were below economist estimates. We believe it is also worth monitoring the meeting of the euro-area finance ministers, who are gathering in Brussels to sign off on the second bail-out package for Greece that is a 130 billion-Euro ($170 billion) package, while they are also focusing on Spain’s budget-cutting efforts and Portugal’s aid programme.
In the meantime, slaughter levels last week edged up to more seasonable levels for this time of year and it will be interesting to see if packers continue to slaughter at these levels, or opt to reduce levels as they saw their bottom lines slip deeper into the red last week.
We suspect that sellers will be reluctant to offer many hides this week, especially with several members of the trade departing for Asia towards the later part of the week to meet with customers prior to the start of the APLF exhibition in Hong Kong (March 28–30). That said, we remain of the opinion that sellers continue to enjoy a very comfortable sold-forward position and we will certainly get a better read on these positions once we start hearing what prices levels they are offering, how many hides they are willing to sell and when these hides can ship.
Tanners have watched prices rise by more than 20% since the middle of December and are struggling to operate profitably; they are fighting with leather buyers to obtain increases on new leather orders. We continue to believe that there are still a number of tanners who do not have all of their outstanding leather orders covered.
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