US Perspective - 03.10.17
03/10/2017
www.themaxfieldreport.com
Last week saw offer lists from packers in line with the past two or three weeks. Packers appeared intent on keeping prices steady. We did hear there were some packers who set their sights on trying to obtain an improvement in prices last week; however, it appears that they encountered a substantial amount of resistance. Sources also shared that there was a moderate amount of interest from tanners with price ideas $1-$2 lower than asking prices, with the majority of packers unwilling to succumb to lower levels.
The big news last week, (other than the USHSLA annual convention in Chicago on September 27 and 28) was the USDA Export Sales Report. The report released last Thursday, had marketing year highs for both sales as well as shipment of wet-salted hides, while sales and shipments of wet blue hides, although not marketing year highs, were some of the largest of the year as well. In addition, we saw marketing year highs for sales of wet-salted hides to China, South Korea, and Thailand, while also worth noting, last week was the fourth time in the last five weeks that we saw sales of wet-salted hides to China exceed the 300,000 hide mark.
Reports from members of the cowhide trade claim that the offer last week from producers was in line with offers from the past couple of weeks, while we were hearing “rumblings” that several producers may have had more cowhides for sale than they were willing to admit. Worth noting, this would make sense, as the number of cows in the harvest mix is following its seasonal trend and are on the rise.
Sales were difficult to conclude, as it appears there are more than ample offers of cowhides from European producers, in addition to plenty of offers of equivalent types of hides from Australia as well. We also continue to hear reports of substantial quantities of unsold wet blue from Brazil and this is all weighing on the market for US producers.
In regards to trading last week, producers made their best attempt to hold prices steady and appear as if they had some success selling HNDC and HNC close to the last traded levels. However, as it pertains to HBC, it appears there were more than a few producers looking for sales last week, leading to reports of trading at levels roughly a dollar lower. As to the number of hides changing hands last week, popular opinion of most members of the trade is producers likely struggled to sell their production.
We could see a lacklustre week of trading this week, especially with tanners in China, Vietnam and other parts of Asia observing the Mid-Autumn Festival all week. Expectations are that harvest levels will continue to run substantially higher than a year ago. This and a combination of lucrative margins for packers and thoughts by pundits that we will need to see harvest levels close to 650,000 head on a weekly basis in order to keep cattle “current”, will certainly keep those selling hides busy for the interim.
It continues to appear as if there is more supply than demand; however, the good news is that the next six months tend to be a busy period for tanners. The challenge for those producing hides is that we will need to see an improvement in leather orders versus a year ago in order to absorb the increase in production (we have harvested 1,314,000 more head of cattle than a year ago, an increase of 5.9%).
All indications are that we will continue to see large supplies of hides in the US. This, coupled with reports that producers in Europe and Brazil are pressing for sales to liquidate their substantial unsold inventories, means we remain of the opinion that for now, producers may want to focus on ensuring they remain well sold as opposed to pushing for price increases.
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