US Perspective - 28.11.17
28/11/2017
www.themaxfieldreport.com
Packers entered last week buoyed with confidence after decent sales. This left most members of the trade of the opinion that the momentum was slowly turning in favour of packers. As a result, several packers appeared as if they were not in a hurry to offer last week. The majority of packers believed they were in possession of sold forward positions that would not be impacted by a lacklustre week of sales.
As to offers last week, packers that offered were reported to only have a limited number of selections, while quantities tied to offers also appeared to be limited. With regards to asking prices, packers were certainty not bashful with their price ideas; most were looking for no worse than steady to a dollar higher than their last trade levels.
We find it interesting that many packers were not discouraging buyers from sharing unsolicited price ideas on selections not being offered. Sources report that indications provided by packers on these selections were at least a couple of dollars higher than the last reported trading levels.
Overall, popular opinion of the trade is that buyers looking to purchase HNS/BBS had little choice but to pay the full asking prices of packers last week. Buyers interested in less popular selections, such as HTS/BRS/CBS, were able to buy at levels steady with the previous week.
As we were closed Thursday and Friday for the Thanksgiving holiday, it is hard to get an accurate read on the number of hides changing hands last week. However, on the basis of conversations we had with the trade on Monday, we are of the opinion that there were not nearly as many opportunities to sell last week. We will likely see smaller sales when USDA releases its weekly Export Sales Report on Thursday.
With regards to trading levels, we would call prices mixed. We are leaning towards the opinion that packers were able to register higher trading levels of sales of HNS/BBS. Sales of other steer selections appear to have been steady with the previous week, slightly higher at best.
In the cowhide trade, it continues to appear that producers are not enjoying the same good fortunes as their big packer counterparts. Overall, producers entered the week with offer lists which appeared to be in line with the previous couple of week. Members of the trade are of the opinion that producers do not possess the same strong sold forward positions as big packers.
As to interest last week, most are calling it lacklustre. It appears that the combination of the Thanksgiving holiday, the continuing problems for tanners in China’s Hebei province, and competition from comparable hides from Europe and Brazil is weighing heavily on the market. In addition, the number of cows in the harvest mix continues to be at its highest level of the year. This is only increasing how difficult producers are finding it to liquidate their production.
The look ahead
As to our thoughts for this week, we believe packers are of the opinion that they are in control of the market as the majority of them appear to be enjoying decent sold forward positions. That being said, we are approaching the busy season for most tanners. This, coupled with the fact that there are only three full harvest weeks left this year, leads us to believe that packers are prepared to continue their efforts to hold prices as firm as possible. They will seek increases when and where possible.
The downside to packers’ plans is that harvest levels are likely to continue at levels 5-6% higher than a year ago. Meanwhile, reports from reliable sources suggest leather orders for the upcoming busy season are unlikely to exceed the levels of a year ago. In addition, several pundits are claiming that the recent interest we have seen from China is an attempt by tanners to acquire hides before the US winter season and that most tanners intend on taking delivery of these hides prior to the shutdown for Chinese New Year.
As to the upside potential of the market, there appears to still be decent demand for HNS/BBS. We would not be surprised if this led to some instances of higher trading levels on these selections. However, we remain of the opinion that the upside potential is limited at best, especially given that we are going to see the harvest levels continue to be 5-6% higher than a year ago.
For the record, our expectations are that we will see weekly harvest levels somewhere around 625,000 head in January and 615,000 in February, although some pundits are looking for higher levels. We are of the opinion that packers will have their work cut out to keep product moving.
In the meantime, it appears that cowhide producers continue to struggle for sales. This is leading to thoughts that this market is still in search of a bottom as producers do not possess strong sold forward positions. In the meantime, a combination of large harvest volumes and competition from unsold quantities of comparable types of hides is likely to keep the pressure on producers to continue selling into this market.
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