US Perspective—31.05.16
31/05/2016
www.themaxfieldreport.com
A large percentage of the US trade set its sights on an early start to the long holiday weekend, meaning there was a quiet end to last week. Packers appeared buoyed with confidence and were unwilling to consider the ideas of buyers that were below last reported trading levels.
Some traders said they were disappointed as they only saw an minimal number of enquiries or bids, while speaking to other traders and packers, it appears that they enjoyed a decent amount of interest last week.
With regard to the numbers of hides changing hands, opinions appear mixed as to whether or not packers were able to liquidate their slaughter; we lean towards the opinion of pundits who believe there was a decent number of hides sold again this week. Meanwhile, as it pertains to prices, packers appear as if they were successful in improving upon their trading levels of the previous week, as several of the big packer selections registered increases of at least a dollar, and some were a couple of dollars higher.
Reports from overseas claim that tanners appear frustrated as well as confused. Tanners in general are struggling to understand the firm tone of the market; we have heard several reports of tanners who started the week with ideas $2-$3 under the asking prices of packers, but begrudgingly improved their ideas to full asking price to buy hides. This is leading to questions as to whether tanners were short of hides, or if perhaps the leather business might be better than tanners are willing to indicate. However, regardless of the reason, those who were looking to buy had little room to negotiate prices.
The big packer market continues to defy gravity, as well as most pundits. Currently, big packer prices are 4.5% higher than at the start of the year. Most pundits following the APLF exhibition in Hong Kong at the end of March were not calling for prices to be higher by the Memorial Day Holiday (May 30). Considering that slaughter levels have been on average 4% higher than a year ago in the past couple of months.
Meanwhile, cowhides remain difficult to move and producers report that they continue to meet their fair share of challenges attempting to keep product moving.
In the meantime, reports from the split trade claim that business is not easy; however, we have heard that there are some signs that prices may be stabilising; however, they are well below levels of a year ago.
We remain in a two-tiered market, as the big packer market is moving in the opposite direction of the cowhide market, resulting in the spread between big packer hides and cowhides to reach almost $30 per hide on a weighted basis, not seen since mid-January of 2015. As a result, from our perspective, cowhides appear rather inexpensive and lead us to wonder how long it will be until a few buyers of big packer hides, who have the flexibility to buy a few cowhides, enter the cowhide market in order to average down the cost of their raw material.
In the meantime, although tanners continue to insist that leather business is below levels of a year ago, the actions of tanners the past two or three weeks chasing big packer hides does not support this argument. In fact, China in particular has been very active in the past couple of weeks (according to the USDA Export Sales Report) and you have to go back to January 2015 to find the last time Chinese tanners bought more than 270,000 wet-salted hides in consecutive weeks.
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