US Perspective—11.09.12
11/09/2012
www.themaxfieldreport.com
The impressions of the All China Leather Exhibition in Shanghai that we heard from a mix of participants was that the fair was a success and we did not find anyone with any serious negative comments. Heading into the fair there was a bit of pessimism in the air, especially on the heels of US packer hides slipping about 3% over the course of the past couple of weeks prior to the fair. This led to opinion held by several members of the trade that we would likely see some additional incremental declines again this week. However, at the end of the day, we have to call big packer prices unchanged, in spite of strong attempts from buyers to push prices even lower, with bidding in decent volumes on HTS and BBS at levels of $88-$89 and BS at $87-$88 that were refused. In the meantime, we were successful in rounding up a decent number of sales today led by reports of trading on some heavier-weight BBS with trading levels ranging from $83.50-$84. We also have a couple of sales on regular-weight packer BS with sales reflecting trading levels of $82-$83, while trading levels on Jumbo BS reflect levels of $85. Other sales are calling lighter-weight CBS $79, while we had several reports of trading on packer regular-weight HTS ranging anywhere from $83-$84, while Jumbo HTS traded in a wide range from $87-$90 depending on weight average.
Those members of the trade who were of the opinion that we would see additional declines in prices this week appear to have been disappointed, at least for the moment. Sellers collectively as a group appeared united in their stance and refused to follow lower ideas in decent-to-modest volumes this week bid by tanners.
Looking ahead to next week, it certainly appears from our vantage point that a bit of a stalemate has developed. Tanners insist their business is lacklustre and they cannot follow the ideas of sellers, while packers, after watching their prices slide roughly 3% the last two-three weeks, appear as if they are in no mood to chase the lower ideas of buyers. What will be interesting is that we continue to hear numerous reports of tanners who are a bit slow in opening their letters of credit and we will have to see the results of the ALCE if this provided tanners with any more insight into what they can expect for leather business for the remainder of 2012.
Meanwhile, producers at the show continue to talk about forecasts of lower slaughter levels for the remainder of 2012, while also sharing that initial outlooks for 2013 are not much brighter with regard to the availability of cattle for slaughter. Something worth keeping an eye on in our opinion are reports earlier this week that the nation’s hog herd is up 6% over levels of a year ago. If these numbers are correct, and with corn prices at $8 and higher, we tend to believe we will see higher than expected hog slaughters the next couple of months. This extra protein will certainly compete with beef for its share of consumers’ disposable income and this could reduce slaughter levels for bovine hides even more than some are forecasting.
Meanwhile, there continue to be concerns over the economy in Europe and to a lesser degree China, as it does not appear as if China will be able to match its growth of the past couple of years. In addition, most business in the United States are waiting to make any major investments until after the election as the outcome of our national election still appears to be a coin-flip at best as to who will win. This in turn has spurred comments by some that it is very feasible we could see a noticeable decrease in spending and demand the 4Q and 1Q of 2013. In fact, some pundits claim the decrease in demand we will see will pale in comparison to the decline many members of the trade are talking about in the slaughter of bovines and should make for a very interesting last quarter of the year.
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