US perspective - 23.07.13
23/07/2013
www.themaxfieldreport.com
Last week saw big packer hides succumb to underlying pressure, while we are also of the opinion that we saw a further widening of the two-tiered market that has been developing over the course of the past few weeks. Packers started last week with offer lists that saw prices unchanged are merely fifty cents lower than the week prior, even though it was widely recognised that many packers had accepted prices lower than their asking prices the week prior.
According to sources, interest started off sluggish at the beginning of the week; however, by mid-week it became apparent that packers were willing to negotiate prices, countering bids they deemed “reasonable” and trading levels on HTS and BS were reflecting levels $1-$2 lower than their last reported trading level from the week prior.
As far as trading levels, we were aware of a few isolated sales to start the week as high as $103 delivered; however, it did not appear as if there was any volume attached to these ideas. Meanwhile, trading levels of $102 delivered soon developed by the middle of the week, with both packers and traders supposedly trading at this level. By the end of the week, there were plenty of unconfirmed rumours insisting of sales at even lower levels ranging from $100-$101 delivered; however, we were not able to confirm these levels.
Meanwhile, interest on HNS and BBS remains decent as buyers continue to report that grading on these selections is decidedly better than HTS and those packers with offers of these selections found that they could obtain some decent premiums over trading levels obtained for HTS and BS. According to sources, buyers were willing to pay as much as $105-$106 delivered for BBS, and sales on HNS (if offered) a dollar higher.
Overall, prices of big packer hides reflected a decrease on a weighted basis of about $1.50 / hide. Meanwhile, in terms of volume sold last week, we are encountering a wide range of opinions as to whether or not packers were able to liquidate their slaughter last week; however, we tend to suspect those packers who accepted less money last week likely did so only if volume was attached.
In regards to interest on cowhides last week, producers started the week with offer lists not much different from the week prior, as asking prices were unchanged. Interest to start the week was a bit sluggish; however, those interested in buying quickly discovered producers did not intend to accept any less money for HBC or HNC, while there is still strong interest in buying HNDC and those with interest found sellers with absolutely no interest in accepting less money, or selling in quantity even at asking prices.
Popular opinion is that sales concluded last week were minimal at best. However, with the number of cows in the slaughter mix now trailing levels of a year ago for the past several weeks, producers appear as if they possess a strong enough sold-forward positions that they will be able to wait for buyers to concede to their trading levels.
THE LOOK AHEAD
We have a very interesting market developing, as it appears we have a two-tiered market for big packer hides, while interest on lower grade hides (cows) seems to be improving. Overall, we still have plenty of questions as to the actual sold-forward positions of packers in general, as the last two to three months, producers have failed to sell their weekly production on a consistent basis. Now, with the credit crunch in China and tanners slow in opening L/Cs we continue to hear of several of the packers pressing customers to take delivery of their wet-salted hides earlier than contracted.
In the meantime, we continue to find interesting claims by members of the leather trade who share that the product mix for the second half of 2013 appears as if it is changing towards lower grade material and we believe this is a result of retailers refusing to sacrifice any of their margins. In many cases, we have heard of leather downgraded in many items, while for other items we have heard of brands de-emphasising leather, or eliminating it altogether, claiming that they simply cannot afford some of the prices tanners are requiring in order to offset the recent run-up in hide prices.
To support these claims, we see that interest on Brazilian wet-blue / crust / finished leather is up more than 23% for the first six months of 2013 and it is likely, considering information we are hearing, that this trend is likely to continue.
As far as offers this week, we suspect packers will likely have to adjust their asking prices to reflect the lower levels they accepted last week, while it will certainly be interesting to see how many hides are offered and the shipping timeframes attached to offers. Meanwhile, we would not be surprised if those marketing cowhides do not try to push for an increase in asking prices as sellers appear in a better position.
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