US perspective – 21.05.13
21/05/2013
www.themaxfieldreport.com
Last week saw big packer prices come under pressure again. At the start of the week, packers published offer lists continuing various selections of hides with asking prices that appeared unchanged from the week prior. In the meantime, buyers had some different ideas and with many of the packers experiencing a gradual erosion of their sold forward position over the course of the past couple of weeks, by the middle of last week packers appeared were willing to negotiate prices.
The consensus of the trade is that prices across the board were roughly a dollar lower than last week’s trading levels, while the sentiment is that there were a fair number of hides ex-changing hands and it is very likely packers sold a week’s worth of inventory. What we found very interesting is that in spite perceptions of decent sales, packers appeared as if they were still willing sellers towards the end of the week. The bad news for packers is that bids late in the week that were countered appear as if they vast majority of sellers walked away, as we suspect buyers believe they will buy hides cheaper again this week.
In the meantime, reports from overseas to start the week claim tanners appear as if they are of the opinion that momentum has shifted in their favour. Many tanners are very surprised by last week’s slaughter numbers that were significantly higher than packers had been telling tanners around the time of the Asia Pacific Leather Fair [at the end of March] and this, coupled with the slow season, has many tanners believing they have the ability to negotiate prices.
Meanwhile, many tanners continue to insist they have reduced soaking levels the last six weeks due to a combination of record hide prices and in anticipation of their slow season. The variable many had not expected are reports that Chinese domestic demand is slowing compared to levels in the 1Q of 2013 and this has many tanners moving forward cautiously.
We were fortunate enough to have a few sales reported that were pending over the weekend as we have sales of both light and heavier weight BBS at $98, while we also have sales of regular weight BS at $97. Other sales include a trade on Jumbo HNS at $108, while the only other sale is a report on Super-Jumbo HTS at $107.
The look ahead
As to what we expect for this week, as mentioned in earlier commentary, we are of the opinion that although sellers collectively as a group sold a decent number of hides last week, we were not aware of any sellers withdrawing offers by week’s end. In fact, we are aware of a decent number of bids towards the end of last week that were countered; however, it appears the vast majority of buyers simply walked away when unable to buy at their ideas.
In the meantime, it is likely we will see another strong week of slaughter and with packer’s margins at their highest levels of the year and the Memorial Day Holiday pending at the start of next week, we look for packers to likely exceed last week’s slaughter levels. This is obviously a stark contrast to what packers were telling the trade when travelling in Asia prior to the start of the APLF. This surprising increase in volume is likely to weigh heavy on the sold forward positions of sellers that have been gradually eroding over the course of the few weeks.
That said, we tend to lean towards the opinion that buyers will more than likely be able to negotiate prices with sellers this week and those buyers with cash and the ability to take shipment at the direction of sellers may very well be the winners.
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