US Perspective—03.06.14
03/06/2014
www.themaxfieldreport.com
The consensus of members in the big packer trade is that last week was an uneventful week of trading. This came as a surprise to packers who thought they “bottomed” the market the week prior and with a holiday-shortened week of slaughter last week, packers collectively had thoughts of trying to push prices higher. In the meantime, there were a few isolated reports of some packers who were successful in trading hides at $1 higher than the lowest levels accepted the week prior; while sources also note that Korean tanners in particular were more active last week than Chinese buyers.
Overall, the consensus in the trade is that it is unlikely packers liquidated their slaughter last week. As far as trading is concerned, some packers were boasting of levels on HTS in the range of $105-$106 FOB; however, we tend to be of the opinion that if these levels were obtained, it was for very minimal volumes and proved extremely difficult to repeat in multiple directions.
We continue to hear the majority of HTS sold were at levels closer to $102-$103 FOB. Meanwhile, sales on BS reflected levels $0.50-$1.00 back of HTS, sales on BBS reflected levels of $105-$106, and HNS sold roughly a dollar higher.
Also worth noting is that there were still a number of heifer offerings last week (more so HBH). Popular opinion in the trade is that the number of heifers in the slaughter mix is slowly subsiding and it’s likely we will see offers dwindle in the near term. Meanwhile, buyers of Jumbos and Super-Jumbos are finding offers minimal at best and we look for this trend to continue for the next couple of months.
As it pertains to cowhides, new reports of pollution problems in the the Hebei and Jiangsu areas of China have made trading difficult at best. Sellers entered the week with thoughts that perhaps the worst of the problems were behind them but were met with a general lack of interest from buyers. Overall, sources contend the few hides that were sold traded at steady levels equal to the week prior, while we are aware of a few isolated trades at levels perhaps a dollar higher than sellers’ lowest traded levels. Aspirations of sellers of obtaining higher prices appear as if they were squashed by reports of additional problems due to pollution.
As to what we expect for this week, we suspect sellers will continue in their efforts to convey a firmer tone to the market, while touting strong sold-forward positions. We also look for sellers to boast of receiving more money for their hides; however, we are leaning toward the opinion that this “good news” for sellers is nothing more than a temporary “dead-cat bounce” and we will soon find sellers under pressure to sell again.
We advise our readers to keep an eye on the slaughter, as packer margins are running close to their highest levels of the year. We understand that May-August is “prime-time” for packers to make money and this, in turn, encourages more cattle to be slaughtered. Pundits, including your editor, are looking for slaughter levels in June to average 620,000 head on a weekly basis and it will be interesting to see how sellers deal with the added volume. We tend to agree with other members of the trade that we have only scratched the surface.
As we move closer to the date of July 1 when all tanners in China will be required to be in compliance with new pollution standards, problems with tanners unable to soak hides and take delivery of their outstanding contracts will only worsen. In our opinion, we will see producers struggle to ship hides to China and with European summer vacations around the corner, customers willing and able to take delivery of product will be at a premium.
What will be interesting moving forward is the effect this will have on the Chinese economy. Sources share with us that 60%-70% of the adult working population in Wuji, a county in Hebei province, are employed in the tanning industry. These people are now at least temporarily out of work and other tanning areas in China likely to suffer a similar fate. We could certainly understand a slow-down in the demand for leathergoods and overall, not a very optimistic outlook for the second half of 2014.
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