US Perspective—22.01.13
22/01/2013
www.themaxfieldreport.com
Reports from members of the big packer trade claim that trading eased as we moved toward the end of last week. According to sources, one of the packers was laying claims to selling all of the hides they had for sale last week and removed themselves from selling any more volume, while we heard reports that another of the packers refrained from offering wet-salted hides this week, informing customers that they were only interested in selling wet blue hides.
We continued to hear all week that many of the packers were pushing hard to market heavier-weight hides. In addition, we also heard reports that a packer was boasting to the trade of selling BBS into Asia at levels as high as $103.50 delivered, while we heard some other isolated rumours of a limited number of HTS selling into Asia at levels in the range of $101-$102 delivered. In the meantime, traders we spoke to were certainly not boasting of a busy week of trading on big packer hides. This resulted in the trade having mixed opinions as to whether or not packers liquidated a week’s worth of production. The trade agrees that the hides that exchanged hands did so at incrementally higher levels.
Sales reported include regular-weight BBS trading at levels as high as $95, while we know of sales on Jumbo BBS as high as $102. We also have packers laying claims to selling regular weight BS at levels of $93, with unconfirmed rumours of sales as high as $94, while trading on regular-weight CBS reflect levels as high as $92. Other trading is calling regular-weight HNS as high as $96, while sales of Jumbo HNS reflect levels of $104. The only other trade to share are packers selling regular-weight HTS at levels of $94.
We have mixed reports from members of the cowhide trade. We have spoken to a few producers who shared that they continued to have decent interest again last week, while one producer shared that they turned away more business than they concluded. Meanwhile, we understand there were a few producers who opted not to offer, claiming their sold forward position was too far forward and with the number of cows in the slaughter mix expected to move lower as we move forward, opted not to extend their position. In the meantime, business appeared mixed for traders, as we heard from a handful of traders they were pleasantly surprised that they enjoyed a decent week of business, while other traders shared they were not as fortunate.
It was certainly an eventful week at least from a news standpoint. In particular, the latest USDA Export Sales report from our vantage point was one of the least talked-about reports in quite some time, especially when you take into consideration that combined sales of wet-salted and wet blue hides totalled slightly more than 1.1 million hides. In addition, the news that one of the packers was idling operations at one of their plants in Texas, seemed to draw the attention of more members of the trade than the large Export Report. As of this writing, it is still undetermined if this will result in a lower daily slaughter number. However, for those interested in our opinion, we believe that the impact of the closure will have a minimal effect on the slaughter as this will allow the packer to direct these cattle to other facilities and run those facilities at higher capacities and assist them in lowering some of their fixed costs.
Taking a moment to review trading for the week, although sellers were once again able to establish new record trading levels, we understand it was not easy. Of course, we recognise that there are still some tanners who need product and are chasing this market, but we are hearing from members of the trade whose opinions we value, that patience is growing thin for many tanners. As we have stated numerous times before, current trading levels are testing the limits of many tanners’ credit lines, as supported by claims that letters or credit are not being opened by some tanners as quickly as only a couple of months ago. In the meantime, we have heard from members of the chemical trade that they are encountering a handful of customers who share that their receivables are a bit larger than a few months ago, which is certainly understandable given current market conditions.
Looking ahead to the next couple of weeks, it is understandable that some tanners who have their raw material needs covered will likely move towards “holiday mode” with the Lunar New Year approaching (February 10) and given current trading levels. It is well known that for many years, there has been excess tanning capacity in Asia and it will be very interesting to see if some tanners, who are not as well financed, fail to open following the holidays. In the meantime, sellers continue to ride the wave of momentum. However, we remain of the opinion that the inability of tanners to open letters of credit, due to credit lines being exhausted following the Lunar New Year holiday, could be the demise of this lengthy firm market. The good news for those selling hides is that the expected reduction in slaughter levels in the first half of 2013 should prevent a major correction in prices.
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