US Perspective – 21.3.14
25/03/2014
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Report advisory: Due to bereavement, we will not publish a US hide report on March 24.
THE COMMENTARY
Members of the big packer trade report that interest failed to pick up towards the end of this week and the consensus of the trade is that business was not nearly as robust when compared to the past couple of weeks. Sources report that there were still a decent number of tanners interested in buying; however, we also heard a number of tanners did not appear as interested, as they indicated they wished to review the offers their numerous visitors would be bringing.
Overall, prices were no worse than steady with last week, while there were a few selections where packers were successful in eking out additional increases this week. Meanwhile, we continue to hear that there are noticeably more offers of wet blue hides this week and popular opinion of the trade was that there might be a chance for interested buyers to negotiate prices.
As far as sales today, the sluggish activity resulted in fewer than normal sales for a Friday as we have sales on BBS at $111, while regular weight BS reflect levels of $106. Meanwhile, we have a couple of sales on heifers with HNH at $98 and HBH at $96, while we also have a trade on HNS at $112. The only other sale is a trade on regular weight HTS checking in at $106.
Our weekly TMR Big Packer Hide Index comes in 55 cents higher this week, setting a new all-time record at $103.50. As a comparison, today’s index is $9.85 or 10.52% higher than where we stood a year ago, while we are $8.55 or 9% higher than where we started the year.
In the cowhide trade reports are mixed this week, as we have heard comments from producers who have representatives travelling Asia laying claims to enjoying a decent week of sales, while we heard from many others who without question shared that interest was not nearly as brisk as the past couple of weeks.
Overall popular opinion of the trade is that as far as trading levels are concerned, there have been some isolated incidents were producers were able to squeeze a bit more for their hides this week, while all attempts to push prices lower from buyers were dismissed across the board from sellers.
As far as sales are concerned, we were able to muster a handful of sales as we have a couple of sales on HBC with material in the South at $72 and in the North at $75. Other sales are pegging HNDC at $91, while we also have a couple of processor steers sales with both HTS reflecting $104 and BS at $103.
Our weekly TMR Cowhide Index comes 50 cents higher at $81.00, and establishes a new all-time high. Compared to a year ago, our index is up $10.75 or 15.30% higher, while for the calendar year, our index is up $6.25 or 8.36%.
THE LOOK AHEAD
We pull the curtain on another week of trading and as we go to press, it appears as if sellers remain in full control of the market. What we find impressive is since the first of the year, sellers have been in control of the market with prices no worse than steady, while establishing new record prices along the way. As we are quickly moving towards the end of the 1Q and the APLF in Hong Kong, the question on everyone’s mind is how long this upward trend can continue. We are already starting to see slaughter levels inch their way higher, as the weekly average slaughter for March is 562,000 head versus a 552,000 head average in February, while the traditional busy season for most tanners tends to wrap up early in the 2Q.
On the other side of the argument, many of the producers will point to the fact that they have extended their sold forward positions in anticipation of larger slaughter levels. In addition, producers acknowledge that slaughter levels will increase as we move forward; however, they will continue to remain below seasonal levels, trailing levels of a year ago with most guesses ranging from 3-5% lower.
The wild card in the equation as we see it is the price of leather. We continue to hear rumblings that tanners may have finally succeeded in the last few weeks in achieving some appreciable increases on new leather orders. If this argument proves true, then one could make a logical argument that are now on the brink of a new paradigm for hide prices and the days of big packer steer prices under $100 delivered could be a thing of the past.
One potential obstacle we see for those selling hides is there are unsold inventories of wet blue starting to build again. What is interesting is that year-to-date, sales of w/b hides are 100,000 hides or 6.38% higher than a year ago. However, sales of wet blue have stalled considerably since beginning of February with weekly average sales just barely exceeding 100,000 hides on a weekly basis. Keep in mind one of the producers increased their production by 5,000 hides / week, also at the start of February, leaving some pundits to guess there is roughly 165,000-170,000 wet-blue produced every week in the US.
As to what we expect for next week, we look for few offers if any, due to most of the major producers having representatives travelling. Meanwhile, it will certainly be interesting to hear the opinions of those travelling as to tanners’ inventories of raw stock, as well as perceptions as to how the leather business is for their respective customers.
We look for trading to be difficult to come by next week, especially on the surface as the business that is concluded will most likely be direct and it always takes a few days for these trades to surface. That said, it will also be interesting to see what is offered next week when sellers meet with buyers face-to-face, as we tend to suspect those selling hides might find themselves with a difficult challenge on their hands if they have aspirations of raising prices.
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