US Perspective - 16.05.17
16/05/2017
www.themaxfieldreport.com
Reports from members of the big packer trade say last week’s interest was mixed. It appears packers may have enjoyed some decent direct sales during the second half of last week, while reports from traders say most only saw a limited amount of interest. The feeling of the trade is that packers made their best effort to hold prices steady; it appears they succeeded, as we are not aware of trading below the last reported trading levels. In fact, late last week there were claims by one packer that they were able to sell to a trader at higher levels.
Opinions are mixed as to whether packers were successful in liquidating their production last week, but we are leaning towards the opinion that they likely fell a bit short. We are calling prices unchanged, although there was not any shortage of opportunities to trade prices lower for those looking to move some volume. Elsewhere, we continue to believe that there are still more than ample supplies of wet blue for sale. If prices for wet-salted hides have found a temporary bottom, we could see a bit more interest in wet blue hides this week.
As for sales pending over the weekend, we were able to round up a few isolated reports on HTS. We have packers reporting they sold additional quantities of regular weights at $62, while processors sold at $60. The only other sale was a sale on Super-Jumbos (72 min) at $71.
Reports from the cowhide market claim producers started the week with the intention of trying to hold prices steady. As the week progressed, however, it became apparent that there were more than few producers anxious for sales and willing to negotiate prices. As a result, sources report that several producers were willing to trade at levels roughly $2 lower than the last reported trading levels. The consensus of the trade is that there was a decent volume of cowhides sold last week.
We tend to believe that packers enter this week feeling a little bit better about the market than in the past few weeks. Packers are likely to leave offers unchanged compared to last week, as we do not think any of the packers are yet in a position to force prices higher, especially with it appearing as if we will see a lot more cattle slaughtered in the coming weeks with packers’ margins back at rather lucrative levels.
Meanwhile, the question is if cowhide producers were able to sell enough volume last week in order to provide themselves with an opportunity to find a bottom to the market. It is worth noting that current trading levels are bordering on the levels at which producers have in the past decided they would rather hold inventory than sell any cheaper. This week, it is very likely we could see some producers with firmer backbones.
In other news, cattle weights continue to run well below levels of a year ago, with steer weights for the week ending April 29 at levels 20 pounds lower than a year ago, while heifer weights are down 15 pounds compared to a year ago. This is important as lighter weights force packers to slaughter more cattle in order to generate more tonnage. With packers’ margins moving back to lucrative levels, it is very likely that we will see packers challenge the largest slaughter of the year this week. This will not give packers much of a chance to rest after repairing their sold forward positions.
The question that is still unanswered is leather demand. There is no question that recent trading levels are well below the break-even for tanners and it will be interesting to see how long they wait before replenishing their inventories.
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