US Perspective—11.12.12
11/12/2012
www.themaxfieldreport.com
Last week interest was not as brisk on big packer hides. However sellers, buoyed with a strong sold-forward position, coupled with fed-cattle numbers in the slaughter mix that are running below seasonal levels for this time of year, allowed packers to eke out some incremental increases again, setting new all-time record levels. This resulted in the price of regular-weight steer hides moving precariously close to $100 delivered.
Meanwhile, the consensus in the trade is that it is likely that packers did not clear their production last week. As far as trading levels are concerned, we understand HTS sold at levels of $97-$97.50 delivered, while sales on BBS reflect levels a dollar higher. We are also aware of sales last week on HNS as high as $99-$99.50 delivered, while sales of BS were registered at levels of $95-$96 delivered.
To the chagrin of tanners, we understand offers of regular-weight steers are absent, while overall it appears packers are likely to continue focusing on heavier-weight hides. In the meantime, we have heard reports from China claiming the slowdown in purchases there over the last couple of weeks is directly attributed to tanners reducing their bookings; we are now in the midst of the “off-season” in the Chinese domestic market. In addition, considering that prices are at all-time record levels, tanners are reluctant to make any major purchasing decisions, especially considering tanners are pressing leather buyers for some significant increases on new leather business.
Interest in cowhides slowed considerably last week. In fact, we heard from a handful of producers who did not have a bid as of Thursday morning. Meanwhile, other producers shared they had bids last week, but clearly not anywhere near the volume they saw last month. In addition, sellers attempting to increase prices shared that they met a tremendous amount of resistance last week and this led to some members of the trade starting to ask if the run-up on cowhides might be reaching its peak.
Prices obtained last week include HNDC selling at levels of $76-$78 delivered depending on origin and weight averages. Meanwhile, we are aware of a wide range of trading on HNC with sources claiming sales took place at $67-$72 delivered depending on weight average and origin, while HBC sold at $59- $62 delivered, also depending on the sellers and how heavy they were. In the meantime, the numbers of cows in the slaughter mix are running at historical highs (24.88%) and we tend to suspect that when cowhide producers were attempting to forecast what slaughter numbers would be in December, they likely did not plan on numbers this high. What we find interesting about the cow slaughter is that after a higher than expected cow slaughter in 2011, pundits were forecasting that cow slaughter numbers would be substantially reduced in the course of 2012.
We have seen only 42,000 head fewer slaughtered (slightly better than one day’s worth of slaughter). This in turn is encouraging pundits to predict that 2013’s cow slaughter will be much lower than this year’s. In our opinion, looking at numbers the past couple of years, we can understand the mentality behind these forecasts. However, if long-term weather forecasts are anywhere close to being correct, the Central Plains will remain in drought and if correct this will mean little to no grass and we doubt owners of cows will want to feed stock high-priced grass again next year.
We are now only two weeks away from the Christmas and New Year’s holidays that are traditionally slow trading periods. In the meantime, tanners are looking for any angle possible to justify that hide prices will ease sometime in the near future; however, considering the sold-forward position of packers and forecasts that slaughter levels in 2013 will be lower than 2012, we have our doubts if prices will ease any time before we turn the calendar to 2013. Looking ahead to this week, we do not expect packers to vary from what they have been doing the past few weeks. We get the feeling there are still a number of tanners who are still chasing the market and if this is correct, it could be these tanners who provide the momentum to push prices up to the $100 delivered level.
Meanwhile, we believe it will be much more interesting to gauge activity in the cowhide market this week as we are finally seeing a mix of opinions about the future direction of the market, and usually it is the difference of opinions that moves markets higher or lower.
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