US Perspective - 08.05.12
08/05/2012
www.themaxfieldreport.com
Last week was another decent week for packers. The vast majority of sources we spoke to in the in packer trade reported that interest was a bit sluggish towards the early part of the week, especially with firm-to-higher asking prices, but that by late Wednesday night or Thursday it appears that those who needed hides entered the market and paid sellers their asking prices.
Opinions are mixed as to whether packers were able to sell a week’s worth of production, but this much we know for sure, prices were definitely higher last week. Reports from the cowhide trade claim there are still some lingering problems from the recent customs investigations in China. Members of the trade who have containers involved share that they are still attempting to juggle shipments and reassign product, either in transit or at the port. Meanwhile, there are rumblings swirling through the trade about a large upholstery tanner in Haining, in Zhejiang Province that is reported to have been taken over by the bank; this is likely only to add some further confusion and misery to those selling cowhides in these areas. It also leads to questions over the ability of sellers to command further increases moving forward.
Members of the trade in Asia report that tanners in Korea have bought a modest number of hides at levels as high as $93 delivered for HTS and BBS, while tanners in China and Taiwan bought at levels fifty cents to a dollar lower due to differences in freight. As stated a number of times before, tanners continue to insist that they cannot make money at current trading levels, however, with many tanners’ backs up against the wall to meet delivery deadlines, there is not much they can do considering the sold forward position of sellers and unseasonable low slaughter levels.
In the meantime, tanners continue to press leather buyers for increases in new leather business. We have heard in a few isolated cases of tanners obtaining modest increases, while for the most part convincing leather buyers to agree to price increases on new business is no easy task.
Cattle prices have weathered quite well the announcement of a US cow with BSE. The June live cattle futures contract ended the week at $115.37 per hundredweight, up $2.52 from the previous Friday. The August contract settled at $118.50 per hundredweight, up $2.95 for the week. The October fed cattle contract ended the week at $123.80 per hundredweight, up $3.08 compared to the week before. December fed cattle settled at $127.15 per hundredweight, while the August feeder cattle closed the week $6.05 higher than last Friday at $158.10 per hundredweight.
The US Department of Agriculture(USDA) says 53% of corn acreage had been planted by April 29. That compares to an average of 27% planted on that date, and 12% planted on April 29, 2011. USDA is predicting that 2012 corn acreage will be the most since 1937. A big drop in cash corn prices is expected this fall. May corn futures gained nine cents this week to end at $6.62 per bushel. December corn futures are trading $1.38 a dollar per bushel under May futures. The beef cut-out value was a bit lower last week as the choice cut-out value on Friday was $190.20 per hundredweight, down 45 cents from the previous Friday. The select carcass cut-out was down 93 cents from the previous week to $186.31 per hundred pounds of carcass weight. Meanwhile, fed cattle prices were mixed this week as through Thursday, the five-area average price for slaughter steers sold on a live weight basis was $120.16 per hundredweight, up 37 cents from last week and up $5.07 per hundredweight from the same week last year. Steer prices on a dressed basis averaged $190.90 this week, down $2.79 from a week ago, but up $6.80 from a year ago. Packer margins are improving. Last week, steer dressed prices were $3.04 per hundredweight above the choice cut-out value. This week the price spread is only 70 cents per hundredweight. Meanwhile, the average dressed weight for slaughter steers for the week ending on April 21 was 835 pounds, down two pounds from the week before, up 20 pounds from a year ago, and above a year earlier for the fifteenth consecutive week. Year-to-date beef production is up down 3.3%, while Oklahoma City feeder cattle prices were mostly $2 to $8 lower this week.
Sellers continue to do a masterful job marketing their hides, in spite of slaughter levels that were 7% higher than levels only three weeks ago. We took a few minutes to review USDA’s export sales reports for April; and it appears sellers for the most part were successful in selling the reduced slaughter numbers overseas, while the hides sold to US tanners for the domestic soak allowed sellers to extend their sold forward position incrementally. What is intriguing to us is the fact that although steers do appear as if they are in strong sold forward position for the most part, it is widely known that there is more than one packer who is struggling to sell heifer hides.
Meanwhile, the nation’s cow slaughter has seen a significant decline since the end of March. Since that time, we have seen the price of a couple selections move a dollar higher, while for the most part, all other selections remain unchanged now for several weeks. Looking ahead to this week, all of Asia will be back in the office and will be interesting to see how tanners attempt to play things this week, especially those who need hides. In the meantime, as slaughter levels are slowly working their way back to levels that are closer to seasonal for this time of year, we would suspect that sellers might have a few more hides on their offer lists this week; however, we doubt any of the sellers will be looking to give any prospective buyers a break on prices.
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