US Perspective—19.02.13
19/02/2013
www.themaxfieldreport.com
Interest on big packer hides slowed as we moved toward the end of last week. The majority of sources we spoke with claimed it appeared the lion’s share of business had already concluded and only a few isolated pieces of business remained. The consensus of the trade is that as expected, it is doubtful packers sold a week’s worth of production last week, especially with most of Asia still observing the Lunar New Year holiday. The good news for packers is that after ending the previous week on a somewhat softer tone and initial thoughts we would see lower prices again this past week, packers “rolled up their sleeves” and were able to re-establish their previous trading levels. Sales reports claim packers were able to move additional volumes of regular-weight HTS at $94, while also moving regular-weight BS $93 and Jumbo BS at $98. We also have a couple of sales on BBS with both lighter-weight and heavier-weight material reflecting a slight increase with trading reported at $95.
As we drew the curtains on another week of trading, we have to admit to having come through two of the most confusing weeks of trading we have seen in some time. Packers, who have been laying claims to strong sold forward positions and backing this up with limited offers the past couple of months, have more than ample offers, coupled with shipping times that are noticeably sooner than they had been advertising, all in light of slaughter levels that had finally fallen below the 600,000 head level.
Normally, this would not be such an issue; however, considering that this occurred during the Lunar New Year holiday, packer’s timing could not have been any worse. The lack of buyers in the market resulted in some rumours and it appears packers may have panicked a bit and taken on business at levels a dollar lower than their last established levels. This led to opinions at the start of the week that the tide of momentum sellers had been riding for the last several months was slowly starting to turn in the favour of buyers. However, this appeared to be a false alarm, as by the middle of last week, there were numerous reports of some modest interest from buyers at last week’s trading levels and when packers countered these bids, they succeeded in retracing their steps from the week prior.
Looking ahead to this week, it will certainly be interesting to gauge the reaction of Chinese tanners when they return to their offices. We expect packers to continue to use the slaughter as a strong talking point, as we now have seen two consecutive weeks of slaughter below the 600,000 head level and initial forecasts are that this is likely to continue at least through the rest of February. Meanwhile, we are still not clear as to why the shipping times on offer lists of packers suddenly moved forward. Looking at the most recent US Department of Agriculture export report and the outstanding sales of wet-salted hides, perhaps packers had been anticipating slaughter levels to drop sooner than they actually did.
With regard to the buy side, we continue to hear of slow payments from tanners. This is not surprising considering all of the hides outstanding. In the meantime, in conversations with some of the largest tanners in Asia, they share they will exercise emergency clauses in their contracts. These clauses will allow tanners to request an increase in leather prices. Sources share these increases could be as much as $0.20 per square-foot in order to restore profitability; it will be interesting to see if the brands accept or choose to take their business elsewhere.
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