US Perspective - 05.06.12
09/06/2012
www.themaxfieldreport.com
Members of the big packer trade have mixed reports as to trading last week. Some packers started the week by attempting to raise prices, while other packers held asking prices steady. However, when ideas from tanners came out lower than the last reported trading levels, packers quickly appeared to relinquish ideas of obtaining more money and prices drifted fifty cents to a dollar lower depending on the selections. The trade appears in agreement that there was a decent amount of interest expressed last week. However, we are told the vast majority of interest had an “8” as the first number for HTS/BBS and with packers “digging in their heels” at levels no lower than $90, those looking for lower levels appear to have been unsuccessful for the most part. In the meantime, we continued to hear throughout most of last week that there were some isolated pieces of business concluded by packers with their “preferred” customers at levels closer to $89 delivered. It will certainly be interesting to see the totals on this this week’s USDA Export Report.
Reports from members of the cowhide trade reported that last week was not as active as interest on big packer hides suggested. Overall sources report there was a moderate amount of interest; however, with the vast majority of buyers harbouring lower ideas than the last traded level, sellers were not inclined to chase the lower ideas of buyers, especially with cow slaughter numbers for the last two months running about 8% lower than levels of a year ago. In the meantime, sources report there still appears to be a fair number of HNDC unsold in the market place and we tend to suspect this could be a direct result of the custom investigations in China in the last couple of months, as many of the tanners under suspicion were large buyers of HNDC. Overall prices last week reflected a slight improvement versus the week prior on some strength from HBC.
Looking ahead to what this week may hold, there is plenty of negative macroeconomic news around the globe, especially in Europe. In the meantime, even here in the United States where most of the economic news had been good the first few months of 2012, we have suddenly seen a flurry of negative reports coming out in regards to unemployed, productivity, and now news that the Dow Jones Industrial Average has erased all of its 2012 gains and then some. On the other hand, we have good news in lower oil prices and this is allowing consumers to keep a bit more money in their wallets; however, with beef prices again approaching the record levels set earlier this year, any savings at the gas pump is easily spent at the meat counter, if not more. Meanwhile, sellers continue to talk about the “lack” of cattle, while pontificating about smaller than normal slaughter levels in June and July. This, coupled with packers insisting they possess strong sold-forward positions, is leading to claims by packers that there is no real need to chase the lower ideas of buyers.
What we find intriguing about this argument is that we tend to believe sellers in general are placing a bit too much emphasis on lower slaughter levels. Keep in mind that slaughter levels year-to-date trail levels of a year ago by 4.7% on a per head basis; however live weights coming to slaughter are up 22 pounds versus levels of a year ago, resulting in beef production from a tonnage basis to be down only 2.9%. Something we believe worth looking at is the fact that live weight has been running above levels of a year ago for the last 19 weeks in a row. This leads us to believe that the issue is not the fact there is not enough cattle for packers to slaughter. We contend the reason we are not slaughtering cattle is due to profitability in the packinghouse. In our opinion considering the unseasonably warm winter we experienced in the US, there is no reason for cattle to be heavier than a year ago, especially if we buy into the argument by packers that we are short of live cattle.
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