US Perspective—11.02.14
11/02/2014
www.themaxfieldreport.com
The consensus of both the big packer and cowhide trade is that last week was an uneventful week of trading due to Asian tanners still being on holiday for the lion’s share of the week celebrating Lunar New Year. We did hear about a few isolated bids throughout the week which we viewed as tanners submitting “test bids”, while sources share there was a bit more interest on buying towards the end of the week.
With the vast majority of tanners looking to pay no more than levels they paid prior to the holidays, it is widely agreed that it is unlikely that producers were able to clear even a reduced slaughter last week. Popular opinion of the trade is that prices for the most part were no worse than steady, with a few isolated incidents of incrementally higher trading levels.
What we found particularly interesting last week was the overall number of hides offered. The reason for our surprise is that we were of the opinion that producers entered January in possession of decent sold-forward positions. Then when you consider the reduction we saw in the slaughter, coupled with the strong sales most producers enjoyed in January, it left us thinking there were a few too many hides being offered, all things considered.
As to what we expect this week, the good news is that for the most part, all Asian tanners should be back in the office. What will be interesting to observe is how active tanners are this week bidding on hides, as the general perception amongst the various producers is that tanners collectively are under-bought and producers seem more than happy to continue to push prices even higher. Whether tanners are short-bought or not should play out over the course of the next couple of weeks. One would think that considering the next two or three months is the busiest time of the year for most tanners, it is logical that they would have to enter the market soon, especially considering many have not been too active over the past couple of weeks.
In the meantime, with current trading levels at all-time record levels, tanners certainly are not looking forward to participating in the market, and we suspect that if tanners can avoid buying hides, they may opt to remain on the sidelines.
At the end of the day, we still have some serious concerns that credit could very well be the downfall of this market. We tend to suspect, as we move closer to the end of this month and especially into March, that many tanners will experience issues with their cash-flows and we would not be surprised to see the rate at which letters of credit are opened slowing down. Should this come to pass, even though slaughter levels may be running well below levels of a year ago, producers are likely to find themselves having to sell the same hide a second or third time.
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