US Perspective - 03.04.12
US Perspective – 03.04.12
Courtesy of The Maxfield Report
www.themaxfieldreport.com
The vast majority of the trade has returned from the APLF in Hong Kong, while there are still a handful of people still travelling Asia following the show. Overall, it appears the initial perception of the trade is that although attendance for this year’s fair may not have been as strong as previous years, we have heard from a number of people that the ratio of serious buyers to overall visitors to booths was much higher than in years past. In the meantime, this week is the Bologna Fair and although this is a fair not well attended by members of the US trade, we spoke with several members of the trade in Europe who will attend.
Our perception of the APLF last week was that those hoping to trade hides during the fair were disappointed, and with the exception of a few pieces of courtesy business, those producers in attendance were not laying claims to selling a large volume of hides last week. In the meantime, we did hear from some sources who laid claims to having decent sales trips the week prior to the fair when travelling Asia and it certainly will be interesting to see how many hides were sold when the USDA releases its Export Sales Report later this week.
In regards to prices, we saw numerous situations where packers, processors and traders were attempting to hold prices steady, while we can attest to a few pieces of business concluded. It was very clear that if sellers in general were willing to consider ideas a dollar to two dollars below their asking prices, they could sell a substantial numbers of hides. At the end of the day, we would call prices at the end of the week, no worse off than where they started; however, it is widely agreed that although there was barely 600,000 head of cattle slaughtered last week, it is likely that producers failed to liquidate their production last week.
In the meantime, from our vantage point, it has been sometime since we have encountered such mixed opinions as to the future direction of the market. On one hand, you have sellers who are insisting that the vast majority of tanners they visited before the fair do not have adequate amounts of raw stock in inventory. In addition, perceptions by the trade are that although tanners may not be operating at full capacity, the vast majority of tanners appear as if they have orders and facilities appear busy enough. Finally, slaughter levels are running well below seasonal levels for this time of year and with expectations that levels will continue to remain at these low levels, sellers insist that there is no pressure to sell from their side.
From a buyer’s perspective, they are looking at reports that automobile sales, which have been one of the major driving forces in the market and are showing signs of some significant declines, especially in the Chinese luxury market. In addition, with the higher price of hides the past 16 months, many of the major brands have shared that they have switched out of bovine hides to alternative materials in order to maintain their profit margins.
Meanwhile, buyers share that current hide prices are wreaking havoc with their margins, as higher priced hides, increases in wages, insurance and higher freight costs are eating up operating capital. There are many financial problems facing tanners and with questions as to whether leather orders are as strong as levels of a year ago, it is understandable why some of the large tanners prefer not to gamble on buying hides in volume right now.
At the end of the day, something taking place that in our opinion is a great indication as to the sold forward position of packers are reports from some large, well-financed tanners, who share they are being extended the opportunity to ship hides much quicker than earlier this year. In fact, one tanner shared that he practically had to beg to buy hides at the beginning of February and as a favour, the packer agreed to sell the hides, but for end April/May shipment. However, last week, the packer called to say they could ship the hides if he needed them.
The look ahead
Attempting to look ahead as to what we expect this week, we have heard isolated reports of packers selling a decent quantity of hides Friday and Saturday last week, which we cannot confirm or deny. That said, the number of hides on sellers offer lists is unchanged this week, especially if reports of another poor week of sales is correct. Meanwhile, considering the amount of interest from tanners at levels $1-$2 below asking prices, we look for asking prices to be steady with the week prior.
