US Perspective—18.09.12
18/09/2012
www.themaxfieldreport.com
Reports from various members of the big packer trade reflect a mixed bag of trading. The majority of packers laid claims this past week to decent demand for hides, exceeding their expectations, while the vast majority of traders reported lacklustre interest due to the fact packers in general failed to offer many steers. What we find rather interesting is that from the start of the week packers as a group shared that they had enjoyed decent sales in the past couple of weeks and were almost in an over-sold position; they insisted they really did not want to sell this week. However, as the week progressed, it appeared that packers were the ones attempting to lead this market higher, claiming broad-based interest from tanners as well as traders, with some packers sharing that interest easily outstripped supply this week.
Based on conversations we have had with various members of the trade, we are of the opinion that packers were able to sell hides this week; however, quantities sold appear to be in question, as packers themselves appear to have provided the trade with a number of mixed signals. What we know for sure is that the hides that did exchange hands appear as if they were sold at levels higher than the last reported levels prior to the All China Leather Exhibition at the start of September. Sales reported include several trades on BBS with sales of lighter-weight material at $84, while sales of heavier-weight material range from $84-$85. Other trading is calling regular-weight packer BS at $83, while sales of Jumbo BS reflect levels of $86, while we have a couple of sales on CB with lights at $80 and heavier weights at $81. We also have a couple of sales on heifers that we believe are catching up with trading from a week ago, with sales on HNH at $72 and HBH at $70. The other trading we can share are several reports on HTS as we have regular weights at $84 and Jumbos ranging from $89-$91.
Looking ahead to what we expect this coming week, it would be logical to assume sellers are likely not to have many hides to offer, especially if we are to take reports at face value that there was a decent number of hides sold this past week. In our opinion, it will be worth keeping an eye on slaughter numbers, even though the slaughter this week was much higher than pundits’ estimates (647,000 head). In regards to packers margins, those who like to count the packers’ money claim their margins went into the red this week with cattle prices $5-$6 higher and it’s likely we will see a substantial reduction in next week’s slaughter.
Meanwhile, there continue to be more than ample supplies of unsold wet blue hanging over the market. As much as we would like to subscribe to the argument of many sellers that there is upside potential to this market, we maintain this unsold inventory of wet blue hides and producers’ reluctance to reduce their numbers is likely to limit any upside potential.
Then when we start look forward as to what we can and should expect for demand in the fourth quarter of 2012 and first quarter of 2013. Given current macroeconomics around the globe, we have doubts if sellers will be able to sustain current prices through the remainder of the calendar year, regardless of the reduction we will see in the slaughter.
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