US Perspective—07.01.14
07/01/2014
www.themaxfieldreport.com
Last week was not a particularly busy week of trading. However, by the end of the week news that packers had paid as much as $139 per hundredweight for cattle resulted in all packers pulling their remaining hide offers as they slashed their slaughter plans for the next two or three weeks.
Without the benefit of a strong week of sales, popular opinion is that packers easily extended their sold-forward positions by at least a couple of weeks owing to these reductions; it is highly unlikely that we will see any offers this week. Reports from members of the trade in Asia appear as if they are confused by the market. Last week began with buyers appearing to negotiate prices, especially on heavier weight hides. However, by the middle of the week, packers’ posture started to firm on regular weights and buyers looking to conclude business a dollar lower were met with resistance from packers. Meanwhile, buyers looking to buy heavier-weight hides at lower levels were shocked towards the end of last week when packers announced they had no more hides to offer.
Members of the cowhide trade also report a sluggish week of trading. This is attributed to the holiday in the middle of last week for new year, coupled with the fact producers as a group did not have many offers, due to low slaughter levels in the fourth quarter of 2013, at about 8%-10% below levels of a year ago. In the meantime, buyers with ideas of buying hides cheaper last week quickly found that sellers had other ideas, and based on conversations we have had, popular opinion is that there were not many hides changing hands. What will be worth monitoring is the number of cows in the slaughter mix as we move forward in 2014. Forecasts from many analysts are calling for the number of cows coming to slaughter to be down as much as 10%-15% versus levels of a year ago as the US attempts to rebuild its cattle herd following a seven-year liquidation, which has reduced numbers by 25 million head.
As to what we look for this week, as mentioned above, we do not look for any of the packers to offer this week. In the meantime, this is the last week that producers will hold back from shipping to Asia due to the Lunar New Year holidays at the end of this month and the start of February. Once this passes, it will certainly ease things for producers. Meanwhile, there are still some lingering concerns as to leather orders for tanners the first quarter of 2014. According to some sources, orders are not as robust as a year ago and this is why a number of tanners in Asia have reduced their soaking levels for the next few weeks leading up to the time they take their Lunar New Year holiday. All of that said, we are not certain that sellers will be able to factor the reduction in slaughter into higher hide prices this week. However, we tend to suspect when buyers realise that the reduction in the slaughter is not just for this week, it is logical we could see a few panicked buyers in the market in the next couple of weeks and an opportunity for sellers to push prices a bit higher.
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