US Perspective - 6.6.17
06/06/2017
Courtesy of The Maxfield Report
After a few weeks of decent sales, packers started last week with intentions of holding asking prices steady, although the majority were slightly higher than the week prior. The week got off to a bit of a slow start as China was celebrating its Dragon Boat Festival and the US had Memorial Day. However, by the middle of the week, buyers were looking to repeat their last sales and found packers’ posture much more rigid, while buyers with lower prices ideas discovered packers did not intend to trade the market lower.
As we reached the second half of the week, it appeared buyers resigned themselves to the fact that packers were possessing stronger sold-forward positions than they were expecting, and some buyers decided it was time to step-up and pay packers their asking prices. This appears to have started a chain reaction and packers were able to sell at levels $1-$2 higher than their lowest trading levels of the year.
With regards to how many hides exchanged hands last week, opinions are mixed as to whether or not packers were able to liquidate a week’s worth of production. However, considering packers have liquidated the slaughter four times in the past six weeks, we believe packers enter this week as well sold as they have been in the past 2-3 months.
Meanwhile, producers of wet blue hides enjoyed their best two weeks of sales in recent memory, with sales totalling over 565,000 hides, or roughly three and a half weeks of production (assuming weekly production of 160,000 hides). As a result, producers of wet blue hold their largest outstanding sales of the year entering this week at 734,330 hides, or approximately 4.5 weeks.
Elsewhere, some were able to trade a few loads over the weekend, as we have sales of packer HTS checking in at $64, while processors share they sold again at $61. Elsewhere, we had a sale on BBS reported at $65, while the only other sale reported is a HNDC reflecting levels of $56.
Reports from the cowhide trade claim interest was not nearly as brisk as the past 2-3 weeks; however, it appears as if producers had sold enough hides and were in possession of strong sold-forward positions and were able to take advantage of prices higher than the bottom of the market a couple of weeks ago. There appeared to be decent interest for HBC from Korean tanners and better-than-expected interest from Asia in general for HNDC, which allowed producers to register prices that were up $1-$2 versus the week prior.
As mentioned above, the consensus of the trade is that there were not as many hides exchanging hands as the previous weeks. However, we are not aware of anyone saying last week was a quiet week of trading, leading to thoughts that we likely could see producers attempt to raise their asking prices this week.
THE LOOK AHEAD
Producers enter this week enjoying one of their strongest sold-forward positions in the last few months, with it appearing that sellers have been able to shift some momentum back into their favour. It will be interesting to see if they are able to parlay this into higher prices this week.
In the meantime, producers will need to be aware that producers in Europe appear as if they have some unsold stocks they are attempting to liquidate, while we are also hearing there are unsold stocks of wet blue and crust hanging around in Brazil. Producers of wet-blue in the States appear as if they have had a couple of strong week of sales and, considering a substantial amount was sold to Italy, the challenge will be shipping with the holidays just around the corner.
Elsewhere, slaughter weights in the US continue to run at unseasonably low levels with reports released for the week of May 20 claiming steer carcass weights were flat at 836 pounds, 26 pounds under a year ago, while heifer carcass weights were 26 pounds under levels of a year ago. This is important as June and July are known as two very strong beef demand months, and this will likely require packers to slaughter more animals to generate their necessary tonnage – leading some pundits to speculate we could see slaughter levels 5-6% higher than a year ago.
The other challenge facing sellers is that June and July are not known as strong demand month for tanners, as this is the typical slow season. This, coupled with upcoming holidays in Europe, makes it difficult to forecast that we will see an improvement in prices; however, at least for the interim, it appears as if producers in the US are in much better shape and we doubt we will see prices lower in the near future.
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