US Perspective—23.05.17
23/05/2017
www.themaxfieldreport.com
Last week in the big packer trade, the week began with packers attempting to convey a message that they had sold more than enough hides in the previous couple of weeks. This in turn led to boasts from packers that a “bottom” to the market had been reached. As to offers from packers last week, sources report that for the most part offer lists were unchanged compared to the previous week. Sources also reported that selections offered by packers the previous week were still available for sales, while there were a couple of the packers that added a selection or two to their offer lists. Asking prices appeared to be unchanged from the previous week.
With regards to business last week, the consensus of the trade was that there were not as many buyers willing to share ideas, reducing the number of bids for sellers to consider. Meanwhile, it appears the majority of tanners were content to remain on the sidelines while they assessed the market. The popular opinion of the trade is that sellers had to work a little harder to conclude sales last week, especially at steady levels. Several pundits commented that if packers had been more willing to negotiate prices, there could have been more business concluded. The sentiment of the trade is that it was unlikely that packers cleared their slaughter last week.
Elsewhere, reports from the cowhide trade claim that several producers started last week with offer lists that contained a few less selections, while we heard of isolated reports of producers with only one or two selections on their offer lists. These actions were supposedly fuelled by claims from producers that they had sold a considerable number of hides the previous week, leading to their own claims that the market had reached a “bottom”.
Producers appeared to be willing sellers on hides offered at steady levels, while sources claim there were not as many buyers willing to share their price ideas last week. Overall, the consensus of the trade is that the business concluded last week was at steady to incrementally lower levels, while the popular opinion among pundits is that sales last week likely paled in comparison to the previous week.
As to our initial thoughts for this week, this is the last full week of slaughter for the month of May as the Memorial Day Holiday is next Monday (May 29). We are looking for packers to likely try to run a few more head of cattle through their facilities; the only opportunity to make up for the loss of production on Monday is to slaughter on the Saturdays before and after the holiday.
In addition, the fact that packers have been able to make substantial inroads into the live cattle market bodes well for a large harvest this week. Over the course of the past couple of weeks, packers have seen live cattle prices fall by $12 per hundredweight, allowing them to advance their profit to lucrative levels. According to some of the reporting services that count the packers’ money, claim margins last week were close to triple digits.
We are of the opinion that this could be an interesting week of trading. We are very interested to gauge the actions of sellers, as we are not convinced that they possess the sold forward positions that they have been advertising. If our suspicions are correct, we believe we may see a few sellers being a bit more aggressive this week.
As mentioned above, the nation’s slaughter is not going to work in the favour of those selling hides, although sellers will get a small reprieve next week due to the national holiday on Monday. Following the holiday, we look for numbers consistently above 610,000 head throughout June. With temperatures likely to follow their seasonal trend (higher), it is not a good time for producers to be holding any unsold inventories.
The unknown variable is leather business. According to many pundits, leather orders for many tanners are being reported as disappointing, especially given the lack of enthusiasm we have seen from tanners for buying additional quantities during their slow season, as well as for taking delivery of outstanding sales. This leads us to believe that we are in the middle of a very flat period of demand.
We remain of the opinion that if we were a producer, we would continue to sell into this market, attempting to sell to customers with whom we have long-standing relationships and who have a proven track record of taking delivery of their outstanding sales.
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