US Perspective—19.11.13
19/11/2013
Courtesy of The Maxfield Report
www.themaxfieldreport.com
Last week saw interest in big packer cattle hides stall, as buyers appeared reluctant to follow the market higher, in spite of the fact packers only had limited offers.
Reports from numerous sources claim tanners are struggling with current trading levels and with no assurances that they will be able to sway leather buyers to accept increases on new leather orders, tanners needing coverage were only willing to “pick around the edges” and buy only limited quantities. Popular opinion in the trade is that after an impressive sprint higher the past six-to-eight weeks, big packer hide prices appear as if they are taking a bit of a break. It appears that leather orders have not quite developed as tanners had hoped (shoe-upper and bag tanners) and rather than gamble on business with hide prices at record levels, most tanners appear as if they are moving forward very cautiously.
Overall, it is unlikely packers sold a week’s worth of production last week and expectations are that this Thursday’s US Department of Agriculture (USDA) Export Report will definitely be lower than last week’s. While the trade appears in agreement, the few hides that did exchange hands did so at higher prices. HNS sold at levels as high as $106 FOB, while interest on BBS was only a couple of dollars back at $104 FOB. Meanwhile, sales on HTS reflect levels as high as $102 FOB, while packers sold BS at a dollar less than this, and CBS sold at levels as high as $99.
Trading levels of heifers still appear to be a bit of an enigma, as historical price relationships to steer prices appear “out of whack”, with HNH trading somewhere around $87 FOB and HBH at $85 FOB. Reports from members of the cowhide trade are very similar to those in the big packer trade.
US beef exports during September were up 9.1% compared to a year earlier with big increases in tonnage going to Hong Kong, Mexico, and Japan. September beef imports were up 10.2% due to more beef coming in from Canada and Australia. Worth noting, September beef exports equaled 10.2% of production; imports equaled 7.5% of production, while September was the fifth consecutive month with larger beef exports than imports. During the first nine months of 2013, US beef exports totalled 1.9 billion pounds (around 860,000 tonnes), up 3.9% compared to levels of a year ago with large increases in shipments to Japan, Hong Kong, Taiwan and Canada. January-September beef imports totalled 1.7 billion pounds (770,000 tonnes), which was down 1.8% compared to last year. The biggest decline in imports was beef from Canada and Australia.
During September, cattle imports from Mexico were down 2,960 head. Cattle imports from Canada were up by 32,165 head. USDA’s November outlook forecast has 2014 beef production down 5.9% from levels of a year ago. Popular opinion is that high feeder cattle prices will cause cow-calf producers to save more heifers for breeding and slow herd culling. Meanwhile, USDA is predicting 2014 slaughter steer prices will average between $126-$137 per hundredweight of live weight. In the meantime, to some outsiders, a look at beef consumption in the US and abroad paints a picture of beef falling out of favour with the public. The decline in beef consumption is unquestioned. Consumers are eating less because we are producing less, not because beef has fallen in popularity. Pundits believe that there are two primary factors driving the decrease in demand: extended drought in parts of the country combined with ethanol policies that have driven up the price of corn. Record-breaking prices in all segments of the beef production pipeline have signalled the need for more cattle. The market is responding and there will be more cattle in the future and with more cattle, a resumption of higher beef consumption.
Sources report that cow culling is on the decline this fall; replacement heifers are being held back for breeding and the herd is rebuilding, although it is a slow process.
Beef continues to holds the position as the preferred meat of the average consumer – however, it must be affordable. Making beef affordable requires reasonably priced feed cost. The price of cattle will come down as more are produced, while the price of feed also will come down providing Mother Nature resumes a more normalised weather pattern and legislation finally takes place to undo the current corn-based ethanol policy.
Considering the unseasonably low slaughters of the past couple of weeks and the fact most sellers continue to enjoy a strong sold-forward position, it is difficult to make an argument that we will see an real increase in the number of hides offered this week. Then, keeping in mind that we have the Thanksgiving Holiday next week (November 28), we could make a logical argument that the month of November could come and go with only a minimal amount of trading. In our opinion, the unseasonably low slaughter levels are only going to encourage those selling hides to keep prices firm and buyers looking for bargains are likely to be disappointed.
In the meantime, we are aware of some sellers who remain rather bullish, pontificating that we will see additional price increases; however, for the interim, our opinion is that until we see an increase in leather orders or an improvement in leather prices, those pushing for increases will have their work cut out for them. It appears as if meatpacker and tanners are in survival mode, as operating at a profitable level appears a difficult challenge. This is likely only to further encourage consolidation and mergers, while we are aware of those who are well financed attempting to integrate both forwards and backwards.
Last week’s cattle slaughter was only a meagre 599,000 head and this is 45,000 head lower than the four-year running average slaughter for last week. The reason for the unseasonably low slaughter is that available supplies of market-ready cattle are at a 60-year low in the US.
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