US Perspective - 15.3.16
15/03/2016
www.themaxfieldreport.com
The consensus amongst members of the big packer trade is that interest slowed considerably last week compared with the past couple of weeks. However, packers armed with strong sold-forward positions, coupled with slaughter levels that continue to run at unseasonably low levels, allowed packers to register slight increases over their last established trading levels.
Sources report HNS trading as high as $84 FOB and BBS as high as $83 FOB towards the end of last week, while sales on CBS reached as high as $60. Meanwhile, sales on regular-weight HTS remained unchanged at $66, while it appears packers were able to re-establish some premiums for heavier hides with Jumbo HTS at $69 and Super-Jumbos at$72. Trading on regular-weight BRS reached as high as $66, while Jumbos also moved higher to $68 and Super-Jumbos at $71.
Overall, the trade is leaning towards the opinion that packers likely did not clear their slaughter last week even though current levels are running at unseasonably low levels. This may be a blessing in disguise for packers, as many will be departing for Asia throughout the week, prior to the Asia Pacific Leather Fair (March 1 to 3) and this will likely afford them a few more hides to offer.
It did not appear as if those attempting to sell cowhides enjoyed the market last week as much as their big-packer counterparts. Numerous sources reported like big packer hides, there were not nearly as many buyers indicating they were interested in buying compared with the past couple of weeks, while sources also shared that several producers appeared as if they were pressing a bit harder for sales.
In the meantime, producers are dealing with slaughter levels that are running at incrementally higher levels than last year and there are reports that numerous producers in Europe and Australia are also looking to conclude voluminous-type business. In addition, continued reports from the Wuji (China) area that tanners there are operating at a much slower pace than 4-6 weeks ago and all of the above is leading to some difficulties.
As it pertains to trading levels, HBC appear to be suffering the largest declines last week with sales concluded in the North as low as #33 FOB, while trading on HNC was also lower, with sales as low as $42 FOB. Trading on HNDC was in a wider range, as we had sales reported in the range of $56-$57, while there are rumours some producers were insisting that they are still able to achieve levels in the upper $50s.
THE LOOK AHEAD
As to our initial thoughts for this week, as members of the US trade will start departing for Asia to meet and greet customers prior to the APLF, it is very likely that many producers will refrain from offering this week. Instead, we suspect producers with representatives travelling Asia will reserve offers for customers they are meeting, especially considering most packers continue to insist they are well sold, coupled with slaughter levels that continue to run at unseasonably low levels.
The two wild cards worth keeping an eye on in our opinion are 1) leather orders 2) slaughter levels. As it pertains to leather orders, reports from overseas claim that tanners continue to suffer from a general lack of leather orders, with numerous tanners insisting that their order books are well below levels of a year ago. That said, it will certainly be interesting to visit members of the trade who travel prior to the APLF when we meet up in Hong Kong to see how close to reality these reports actually are.
Even more interesting in our opinion are slaughter levels in April and May. This Friday, the USDA will release its monthly Cattle on Feed Report and various pundits are looking at double-digit increases for placements (last year was a meagre 1.52 million head). In fact, guesses we have seen range anywhere from 10-12% to some pundits calling for 15% and even as much as 20% higher than a year ago. Why this is important is the added availability of cattle is likely to place some pressure on live prices and packers historically pay the most for live cattle in April.
Should packers be able to “break” the live market sometime next month, they will be able to restore margins back in their favour. In fact, we would assume once positive margins return to the packing house, it is feasible that we will see packers look to increase slaughter volumes quickly, as many packing houses have been running well below capacity the last several months.
In our opinion, we could see slaughter levels quickly move to the 575,000-595,000 head levels, which would reflect a weekly increase of 40,000-60,000 head and would certainly erode sold-forward positions that are based on current levels of 535,000 head. That is why we remain of the opinion that although the big packer market is on firm ground as of this writing, we have some real concerns following the APLF.
Share this story:
