US Perspective - 04.11.14
04/11/2014
www.themaxfieldreport.com
Last week in the big packer market saw sellers with ideas that they would push for higher prices, insisting higher prices were necessary in order to offset the substantial increase in live cattle prices packers were forced to pay. Although logical in theory it is, of course, not practical and by the mid-point of the week with few if any bids to consider, many of the packers reverted back to trading levels of the week prior.
Overall, we remain of the opinion it appears there is a ‘mini’ two-tiered market for big packer hides. Packers continue to have success commanding steady prices for HNS and BBS (to a slightly lesser degree), while prices of other big packer selections appear as if they are starting to face a bit more pressure to succumb to lower prices.
As far as sales concluded last week, popular opinion is that the number of bids was not plentiful and the pieces of business concluded even fewer. This is leaving the trade of the opinion that packers probably failed to clear the smallest non-holiday week slaughter on record, thus continuing a trend we have seen since the start of the third quarter: slaughter levels continue to exceed sales by a substantial margin.
We heard HNS could bring $114-$115 FOB depending on weight average and origins, while sales on BBS ranged from $113-$113.50. Trading on HTS on the surface was reported at $108.50-$109.50 FOB; however, a number of sources insisted packers would accept less depending on volume and delivery times. Elsewhere, there appeared to be some considerable discrepancies in the price of BS last week, as some were laying claims to selling BS as high as $109.50; however, this might contain a heavy content of natives. Meanwhile, we heard from others who reported selling BS at $107 and rumours of sales as low as $105 FOB.
Interest on cowhides remained sluggish again last week and the only real interest continue to be on heavier-weight material. In the meantime, it is believed that several producers are carrying larger than normal unsold inventories, leading to thoughts that we could see some producers become very aggressive in the near term, with popular opinion that all selections of cowhides appear under pressure.
Overall, sources confirm that the number of buyers willing to bid last week was limited, leading to thoughts it is unlikely producers were able to clear their slaughter, which continues to run about 20% under levels of a year ago.
Meanwhile, we are hearing more and more reports of producers struggling to obtain letters of credit openings; with the erosion we have seen on prices since the All China Leather Exhibition in Shanghai at the start of September we are starting to hear concern in the voices of several members of the trade as outstanding sales were at prices significantly higher than current trading levels.
As to what we expect this week, it is likely sellers will be in for a difficult week of trading with buyers attempting to push for lower prices. As mentioned above, packers may have some success fending off lower ideas for HNS or BBS; however, we tend to believe many of the packers will be interested in concluding business on other selections, likely at lower levels. The question outstanding is if there is enough demand to allow packers to shore up their ailing sold-forward positions.
Meanwhile, as it pertains to cowhides, we tend to believe there are more than a few producers who might be a bit more anxious for sales in the next couple of weeks. We suspect buyers who have money and the ability to take quick delivery could be afforded some buying opportunities at levels that we have not seen in quite some time.
In the meantime, the elephant in the room in our opinion is leather demand. Although automotive demand has been stellar and driving this market, we are hearing that demand from some of the luxury automotive tanners in Europe has slowed ever so slightly, while we are hearing tanners who have ties to some of the Japanese cars have orders not nearly as plentiful as a year ago.
Also worth noting, a sluggish real estate market in China has housing stats down by more than 10% compared to levels of a year ago (for January-September). This, coupled with reports that Chinese domestic leather demand is lower than levels of a year ago (10-15% depending on the source) it is understandable why the market in general appears as if it is facing some downward pressure.
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