US Perspective—10.04.12
10/04/2012
www.themaxfieldreport.com
Members of the trade who had expectations that they would see big packer prices drift lower last week were disappointed as it appears there were enough tanners who were in need of hides and who had no choice but to participate, to allow packers to hold prices steady. Opinions are mixed as to exactly how many hides exchanged hands last week; we tend to lean towards those pundits of the opinion that the volumes sold are likely not to have exceeded the weekly slaughter.
Meanwhile, packers are aggressively touting substantially lower slaughter numbers this week, in spite of a decent slaughter last week of 622,000 head. Early guesses are that it is likely we could see numbers this week struggle to exceed 600,000 head and this, coupled with claims by packers they are well sold, is likely to result in minimal offerings this week.
In the meantime, we are hearing some isolated reports out of Asia (especially Korea) that there are a few larger tanners who in the last week have started to ask suppliers to delay their shipments. In contrast, there are reports that some small to medium tanners are asking suppliers to ship hides earlier than contracted – thus almost “balancing” the situation.
Reports from the cowhide trade are claiming a modest week of sales last week after a sluggish start. Buyers started the week with expectations that hides would be cheaper; however, by mid-week they found sellers not willing to negotiate prices. This forced the hands of a few buyers who needed to replenish dwindling inventories and allowed sellers to register a decent week of sales at steady levels.
Worth noting is that the nation’s cow and bull slaughter finally fell below levels of a year ago after claims from pundits for the majority of the calendar year that we would see a significant decline in the availability of cows for slaughter after last year’s drought forced so many to slaughter.
In our opinion, this is the week is when we are likely to see the paradox of “the irresistible force meets an immovable object”. Packers, who are staring at margins deep in the red, will be reluctant to take any less for their hides and with slaughter levels at least this week that will struggle to exceed 600,000 head are unlikely to accept any less for their hides. However, worth noting are reports that there are signs that cattle numbers are starting to appear as if they are backing up in the nation’s feedlots. If this is correct, we could see live prices that have fallen by $12 per hundredweight in the past couple of weeks continue to decline. This would be welcome news to packers who would in turn increase slaughter numbers.
In the meantime, tanners are no strangers to the inability to operate profitably. Tanners are now taking delivery of some of the most expensive hides they have purchased since about this time a year ago. Tanners are battling leather buyers and the major brands for price increases on new leather business and it will be very interesting to see how this all plays out. As to what we expect this week, we would not be terribly surprised if offer lists reflected a few less hides this week, while the question debated amongst members of the trade is what we can expect for slaughter levels come May and June.
Of course, we are well aware of historical levels; however, if slaughter levels are to run at levels 5%-6% below levels of a year ago, will it have an impact on prices that historically drift lower in May and June? Keep in mind there are plenty of pundits who insist that the decrease in leather orders this year will easily offset any decrease in slaughter numbers.
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