US Perspective - 03.02.15
03/02/2015
www.themaxfieldreport.com
Last week was likely the slowest sales week of the new year. Numerous sources reported they did not enjoy as many bids as the week prior, while the consensus in the trade is that the amount of interest in the second half of January paled in comparison to the first half; it is highly unlikely that packers were able to liquidate their harvest last week.
As far as trading levels are concerned, for the most part, prices were unchanged with the week prior, while we did see some appreciation on heifer prices; however, we believe that this was a function of us lagging the market with so few heifers produced this time of year. In the meantime, we started hearing rumours towards the second half of last week of buyers being able to buy at prices under the last reported trading level. However, the caveat was that they had to take prompt delivery of the product, as it is evident that the problems at the west coast seaports are taking a heavy toll on producers, traders, and tanners.
In addition, the situation on the west coast has a number of market participants testing the limit of their working capital. We have heard from several sources who have shared that they are being asked to load some more of their outstanding orders with various packers; however, with many unable to draw against the letters of credit for prior shipments, we doubt packers are willing to finance the transaction in order to keep product moving.
Reports from overseas claim interest from tanners was much more subdued last week. Sources share that a number of tanners who would normally have shown interest in buying hides were reluctant to consider additional purchases from the US because of a lack of official offers from packers coupled with an inability to take delivery of product that is sitting on the dock at various west coast seaports.
We have heard that many tanners have stated that until the ports situation is resolved, they will focus their purchases on material from Europe, Australia and Brazil.
Towards the end of last week some hairline fractures appeared to be developing around some of the big packers, in spite of claims they are well sold forward on paper. We tend to believe that a large portion of the blame is the situation on the west coast. However, we continue to maintain there really has not been any real change to market fundamentally and the fact of the matter is that although we have a very small number of cattle being harvested, demand continues to fall short of supply, similar to the second half of 2014.
There continues to be more-than-ample unsold inventory of wet blue hides that has not been addressed, although we did see a strong round of business one week last month, it was not nearly enough to clean producers’ warehouses.
In regards to cows, it certainly appears as if this market has a much better feel to it, evident in some higher prices last week. However, we are a bit guarded in our enthusiasm, for two reasons. We will need to keep an eye on the big packer market and should we start to see prices slide lower, it is likely cows will be swept along. The second reason, and a bit premature, is that we saw slaughter levels last week exceed levels of a year ago for the first time in thirteen months. Is this a one-week occurrence, or is this possibly a new trend? We will have to see how this plays out.
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