US Perspective—02.07.13
02/07/2013
www.themaxfieldreport.com
The consensus amongst members of the big packer trade is that last week was a tough week for most. Poor economic news, coupled with a higher-than-expected slaughter number in the US, on the heels of beef demand that continues to surprise is resulting in more cattle coming to slaughter than most pundits had estimated. Packers’ ideas of holding prices in line with the week prior did not mix well with ideas from tanners that we should see lower prices.
Sources report it appeared to be an active week for traders with plenty of rumblings of sales accepted on HTS at levels of $103-$104 delivered and perhaps lower. Meanwhile, asking prices in the range of $106 delivered and higher on BBS made sales of this selection a challenge for most. Sales of HNS were at levels of $107-$108 delivered, while there are reports that HBH sold at levels of $90 delivered and possibly lower. Overall, popular opinion is that it is unlikely packers liquidated a week’s worth of slaughter, especially considering buys were sporadic at best and most buyers did not appear as if they had any serious interest in purchasing in volume.
Members of the cowhide trade also report a difficult week of sales, although we have heard isolated reports that demand appeared to pick up towards the end of the week. Overall, producers started the week with ideas to hold prices in line with levels of the week prior, while buyers, sensing some underlying pressure, were bidding prices lower from the start. By mid-week, popular opinion of the trade is that not a lot of hides had exchanged hands. As mentioned, it appears as we moved towards the end of the week, buyers and sellers were a bit more willing to try to find some common ground; however, popular opinion is that producers likely concluded a lot of this business direct with tanners, so it is difficult to get an accurate read on trading levels and volumes as well. At the end of the day, we could believe an argument that lower grades may be finding a bit more favour with tanners as we continue to hear reports of many of the major brands downgrading some of the leather they will be utilising this fall.
As to what we expect for this week, we could be in for another slow week of trading, especially with the US celebrating its Independence Holiday on July 4. It is likely we could see some members of the trade in the US extend their holiday to an extra-long weekend, especially with demand for hides stagnant.
In the meantime, we are now hearing reports of more-than-ample supplies of market-ready cattle and with beef demand affording packers margins that are in excess of $70 per head, it is likely that we will see more cattle slaughter in July than many pundits had been predicting. Meanwhile, policy makers in China continue to evaluate their economy and are looking for ways to stimulate what appears to be an economy that is labouring. This has more than a few tanners experiencing some liquidity problems, while the sluggish economy coincides with reports we have heard for a couple of months that Chinese domestic leather demand is not nearly as robust as at the beginning of the year, regardless of the fact we are in their usual slow season.
For now, it appears that buyers have seen momentum slowly shift in their favour; however, with the busy season right around the corner and forecasts that it is likely we will see slaughter levels fall well below seasonal levels closer to the All China Leather Exhibition in September, if we are to see any correction it is likely to be minimal.
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