US Perspective—28.06.16
28/06/2016
www.themaxfieldreport.com
Last week in the big packer trade packers raised their asking prices, expecting buyers to follow suit as they had the past several weeks. However, early on, interest from buyers was slow to develop and by the middle of the week, it was clear that packers were meeting a considerable amount of resistance. Bids from buyers traditionally known to bid at several dollars under asking prices resurfaced again last week, after being absent for several weeks due to the firm tone of the big packer market.
Packers refused to follow the aggressive ideas of “bargain hunters”, while it appeared in the second half of the week that some of the traders and a couple of the packers were willing to consider booking additional volumes at steady levels.
Popular opinion among most market pundits is that prices last week did not reflect any substantial improvement and the only increases obtained were incremental. The consensus of the trade is that last week was not a particularly busy week of trading although one packer insisted it was able to sell more than 300 containers in the course of the week.
In the cowhide trade, producers started the week with their sights on raising asking prices. However, by the middle of the week, it was becoming apparent that obtaining more money than the week prior was not going to be an easy task here either.
Overall, interest last week was not nearly as brisk as the week prior and many pundits were already calling interest that week much slower than the previous few weeks. Overall, it is unlikely that producers were able to clear their weekly production, while the sentiment of the trade is that trading levels are for the most part steady with the week prior, with the few isolated trades at incrementally higher levels.
As to our initial thoughts for this week, we tend to believe packers’ previous mentality of raising prices by roughly a dollar a week are likely to slow this week, especially keeping in mind that packers have not liquidated their slaughter the last couple of weeks. However, we tend to believe buyers looking for packers to be willing to trade prices lower are likely to be disappointed, as we believe that packers still possess decent sold-forward positions. That said, slaughter levels have been running at their highest levels of the year. In fact, the last two weeks, we have seen an increase of 10% over levels of a year ago and with packers’ margins running at their highest levels of the year, it is likely we will see this continue to the short-term.
The larger numbers will require packers to see sales volumes increase, and should they mirror the last couple of weeks, it will not take much time at all until we see sold-forward positions erode.
In the meantime, as it pertains to cowhides, we have mixed emotions about this market. On the one hand, cowhide prices in relation to big packer hides appear as if they offer value to buyers, and we would tend to think tanners with the ability to blend cows in their product mix would be a bit more active in this market. However, the split market remains problematic and seasoned veterans of the trade insist that what happens in the split market, happens in the cowhide market too; we will have to wait and see how things play out this week, but initially we are of the opinion sellers with aspirations of raising asking prices will likely be disappointed.
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