US perspective – 13.08.13
13/08/2013
www.themaxfieldreport.com
Last week saw pressure in the big packer market again, as it appeared offer lists of packers exceeded most people’s expectations in terms of the number of hides offered. In turn, this resulted in a number of rumours rumbling through the trade making it difficult to determine what actually took place in the market and what was rumour.
Overall, most are calling prices of big packer hides down roughly $2 across the board last week. Sources quote trading levels on HTS at $98-$98.50 (or $92 FOB), while there are claims that some traders accepted business as low as $97 delivered for HTS in order to secure that L/C were opened timely for sales a month ago at levels of $104-$105 delivered. Meanwhile, we have heard of sales on BBS at levels of $102-$102.50 ($96 FOB) and HNS at levels roughly a dollar higher.
In the meantime, trading levels on heifers last week also reflected lower levels, with HNH at $85-$86 delivered and sales of HBH a couple of dollars back of this.
However, worth noting is it did not appear as if there were nearly as many heifers offered last week which lends support to arguments that producers are starting to retain heifers in an effort to rebuild the herd.
Cowhide prices also succumbed to pressure last week, as producers surprised the trade with offer lists that were larger than expectations. Overall, trading levels on HNDC was a touch softer, while there was a bit more pressure on HNC. However, it is worth noting that the pressure facing HBC last week paled in comparison as producers struggled to find interested buyers with rumblings that prices were down as much as a couple of dollars versus the week prior.
THE LOOK AHEAD
As to what we expect this week, as the week progresses, we will start to see various members of the trade depart for Asia in order to travel prior to the All China Leather Exhibition (September 4 to 6). This should give the trade a good idea of the sold forward positions of those travelling and will certainly be interest to see what “gifts” (special offers) they have for tanners they visit prior to the ALCE.
In regards to prices of big packer hides, we had a situation towards the end of last week where hides were trading at roughly $4 under “official” asking prices. We tend to suspect that packers may be inclined to adjust their asking prices this week in order to bring them back in line with actual trading levels.
In the meantime, there is no question that momentum has shifted and is back in favour of tanners and appears those with cash and willing to take relatively prompt delivery of new sales certainly have the upper hand when negotiating prices.
Meanwhile, we continue to hear claims by various packers insisting that tanners “have” or “need” to buy. As to the degree of accuracy of these opinions, we tend not to agree. For some time now, we have been talking about leather orders that although not terrible, are well short of levels of a year ago. In fact, we have heard reports from numerous members of the trade who have recently travelled Asia claiming that in their opinion, the leather pipeline from the tanners all the way to retailers appears full.
These sources claim that demand for the last three to four months (since March) has not been as brisk and members of the pipeline are attempting to deal with the aftermath of production levels that were “keyed in” to support demand at much higher levels.
That said, we contend that tanners are not “lying in the weeds” looking for a “magic” price. Rather, we insist that demand is simply lower than supply. The question now in our mind is how long tanners can allow prices to drift until they have leather buyers pressing for concessions on leather prices, as we are all aware of the strong efforts by tanners to raise prices.
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