The US perspective - 15.10.13
15/10/2013
www.themaxfieldreport.com
THE COMMENTARY
Members of the big packer trade continue to report more than adequate unsolicited interest and in fact, some packers found enough interest this week that they pulled their offer lists last night. Overall, popular opinion of the trade is that there was by far more interest this week than hides offered and although packers may not have sold a week’s worth of production this week, the hides sold were selections that allowed packers to fortify their sold-forward positions.
Overseas claim tanners who returned from their holidays were surprised to find the market so firm. In fact, many tanners questioned the firm tone of the market, and started the week with some test bids several dollars under asking prices. However, tanners quickly found out just how serious packers were about their asking prices and by the middle of the week even tanners who are notorious for bidding well under the market were improving their ideas in hopes of buying.
Meanwhile, sources in Asia report leather orders for October are improving over last month, with automotive tanners appearing as if they enjoy the most business. Sources also share some of the luxury brands have increased their orders, while domestic shoe tanners continue to insist that orders are down close to 10% versus levels of a year ago. In the meantime, tanners now appear as if they favour BBS over HTS and we continue to hear that there are simply not enough offers of BBS to appease all the buyers who are requesting offers.
As far as trading, we have a decent number of sales reported today led by reports of BBS selling as high as $96, while we have sales of regular weight packer BS reflecting levels of $92, while sales of Jumbo BS check in at $102. Other trading is calling CBS worth as much as $89, while interest on heifers have HNH reflecting levels of $85, while sales of HBH were registered at $83. The only other trading is a sale on HNS at $98, while a couple of sales on HTS are calling regular weight packer material $93 and Super-Jumbos $106.
Our weekly TMR Big Packer Hide Index comes in a dollar and a half higher than last week, checking in at $90.20. This week’s index is $7.60 or 9.20% higher than levels of a year ago, while for the calendar year, our index is up $1.00 for the year or down $0.016%.
Reports from members of the cowhide trade claim that sellers saw a strong round of interest this week, with most of the interest unsolicited. According to sources, there were numerous buyers in search of HNC and HNDC and producers with these selections to offer had their pick of the litter as to which offers they would entertain. Meanwhile, although interest on HBC was also reported as decent, it pales in comparison to interest seen on HNC / HNDC.
Overall, popular opinion of the trade is that producers easily strengthened their sold-forward positions this week. This, coupled with reports that the number of cows in the slaughter mix was well below seasonal levels, is lending support to arguments that sellers remain in full control of the market and those looking for cowhides over the course of the next several weeks will be unlikely to be able to negotiate prices.
In regards to sales, we have processors selling HTS at $91 and BS at $90. We also have sales on HNDC at $84, while sales on HNC check in at $77. The other trading we can report is a couple of sales on HBC with material in the North at $63 and in the South at $59.
Our weekly TMR Cowhide Index comes $1.25 higher than levels of a week ago at $71.75. Today’s index is $10.62 or 17.37% higher than levels of a year ago, while for the calendar year, our index is up $7.00 or 10.81%.
THE LOOK AHEAD
We are at the end of another week of trading and the market appears as if it is poised to revisit trading levels that we saw earlier this year. Collectively as a group, sellers appear as if they have regained a strong sold-forward position. This, coupled with slaughter likely to run well below seasonal levels due to tight cattle supplies and substantially negative margins for packers, has many pundits believing it is highly likely we could see hide prices challenge their record highs we saw earlier this year.
The good news for sellers is that interest is broad based and coming from several different countries around the world. Even better news is that although US hide prices are on the rise, compared to recent trading levels in Europe, US hides are still a relative bargain. That is why we are seeing such strong interest on HNS from European automotive tanners, which is even spilling into BBS.
As prices are progressing to levels we experienced during the 1Q of this year, it is going to require more money for every container shipped and without a doubt stretch the credit limits of those buying hides. In our opinion, credit limits are similar to rubber bands as you can stretch the quite a bit without breaking them; however, stretch them too far for too long of time and SNAP!
That said, we believe the largest challenge moving forward will be issue with credit. Tanners are already on record laying claims to losing substantial amounts of money earlier this year with record hide prices and with leather buyers pressing tanners for concessions on leather prices leading up to the ACLE due to the drift in prices we experienced, we see the potential for credit issues ahead.
At the end of the day, those selling cattle hides are without a doubt are seasoned veterans of the trade. However, looking forward we would certainly want to be careful as to whom we are selling to.
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