US Perspective - 8.7.14
Courtesy of The Maxfield Report
Members of the big packer trade are reporting a mixed bag of trading last week, as we have reports from a handful of people sharing that they were pleased with the number of bids they saw, while the rest of the trade we spoke with shared that they were disappointed with their interest. Overall, we are of the opinion based on our various conversations that there was not a tremendous amount of interest last week; however, with a slaughter that failed to exceed 500,000 animals last week, there certainly was no reason for packers to act hastily.
In regards to prices last week, sources share that there was not any shortage of buyers looking to pay less money, as ideas on HTS were ranging as low as $108-$109 delivered, and ideas on BS a dollar back. We heard ideas on BBS were as low as $112 delivered and HNS at $113 delivered. However, as far as trading levels were concerned, it appears most were holding out for $110 delivered and higher on HTS, $109 and higher for BS, $113 and higher for BBS and $115 and higher for HNS.
As far as how many hides exchanged hands last week, opinions vary considerably. However, we are leaning towards the opinion that there was a fair amount of direct business concluded last week and we would not be terribly surprised if this Thursday’s USDA Export Report did not indicate that sellers were able to liquidate their production, especially on wet salted hides.
In the meantime, regarding wet blue hides, there is a growing sentiment of the trade harbouring opinions that producers of wet blue are failing to liquidate their weekly production. By the accounts of numerous pundits, the weekly wet blue production in the US has been running at close to 200,000 hides since June 1, while sales over the course of the last five week has paled in comparison. This is leaving many of the opinion that we have a two-tiered market for big packer hides, the steady if not firm wet salted market and the wet blue market that appears under pressure.
Reports from members of the cowhide trade are also mixed. We heard from a couple of isolated producers laying claims to see a decent number of bids last week, while the many other members of the trade reported a sluggish week of interest. The good news for producers is that there were only 88,000 cows slaughtered last week and good likelihood producers were able to liquidate their slaughter.
As far as prices are concerned, we understand that sales on HNDC were reflecting levels equal to their previous trading levels, while efforts to sell HBC and HNC took much more time and effort to accomplish some limited trading at steady levels.
THE LOOK AHEAD
As to what we expect for this week, originally we were leaning with pundits of the opinion that we would see an increase in slaughter numbers in July and likely, the added volume would lend some pressure to prices. However, what was unexpected was that live cattle prices would move better than $10 per hundredweight over the course of the past couple of weeks, eroding any thoughts of larger slaughter levels as packers watched the majority of their margins eroded.
What we find interesting is that considering the all of the negative variables packers have faced over the course of the past couple of months, prices for the most part have been relatively steady, with the fluctuations plus or minus a dollar for wet salted hides that appear as if they remain in demand.
Meanwhile, the volatility in the marketplace appears as if it is coming from cowhides and wet blue hides. As it pertains to cowhides, we continue to hear that the number of cows in the slaughter mix the second half of 2014 will pale in comparisons we have seen the first half of 2014. Should this come to fruition, we would have to assume that producers would be able to manage accordingly.
As it pertains to wet blue, no doubt the pollution initiative could not come at a better time as the wet blue production in the US is on the rise. As of this writing, it still appears as if China is still sorting everything out and is yet to be determined if there is enough open capacity from contract tanners which would likely prevent tanners from considering US wet blue. However, as slaughter levels in general will continue to run well below seasonal levels for the next 15-18 months, it is likely only a matter of time until we see buyers of wet salted hides forced to consider wet blue.
