US Perspective - 5.12.17
05/12/2017
www.themaxfieldreport.com
Packers started last week with mixed offers. A couple either opted not to offer or only had a few isolated selections for sale, while other packers appeared to have offer lists in line with the week prior.
Packers willing to show offers left asking prices unchanged with the week prior; however, asking prices were anywhere from $1-$3 higher than a couple of weeks ago, depending on the packer and the selection.
Most sources we spoke with claimed there were a moderate number of buyers “looking” to buy last week but who remained on the sidelines when they found packers continued to harbour very firm price ideas.
Although packers might have sold some hides last week at full asking prices, it is becoming clear that the number of buyers at the higher trading levels is dwindling. The consensus is the number of hides exchanging hands at these higher asking prices was well short of a week’s harvest, especially keeping in mind that last week’s harvest was one of the largest of the year.
Elsewhere, members of the cowhide trade report producers started the week with offer lists that for the most part were unchanged from the past two to three weeks. The sentiment is that cowhide producers are struggling to conclude business, leading to thoughts that cowhides remain under pressure. There seem to be a number of producers who have more hides for sale than they are willing to admit.
Another problem plaguing producers is the fact that the number of cows in the harvest mix continues to run at some of their highest levels of the year, as the weekly average harvest for the quarter is hovering around the 125,000 head mark. This, coupled with reports there are still cowhides for sale in Europe and plenty of Brazilian wet-blue for sale, is weighing on producers.
Sales were difficult to come by last week, especially with sellers reluctant to concede. We think some producers are hopeful that the recent firm trend in the big packer market would lend some sympathy support to the cowhide market; however, this has yet to transpire, while there is speculation building that the big packer market is exhibiting signs of being over-cooked.
THE LOOK AHEAD
As to some initial ideas for this week, we look for packers to continue their efforts conveying a firm tone to the market, in spite of the fact that sales the last three weeks have fallen well short of their production. Sold-forward positions, although still decent, are not nearly as strong as they were at the beginning of last month.
In the meantime, several of the packers have been accused of spreading “fake news” with claims of selling some of their popular selections at prices $2-$3 higher than prices reported on our price guide. There are also fingers pointing in the direction of one of the packers, accusing them of selling some substantial quantities to some of their “old friends” at prices that would be several dollars lower than the last prices printed on our price guide.
We also saw some of the producers “playing with numbers” on last week’s USDA Export Sales report as it pertains to wet-blue sales, as there were roughly 350,000 hides sold for delivery in 2018, with reports from reliable sources these sales were sold to ship over the course of the next year. However, regardless of whether this is correct or not, it certainly sends an “encrypted” message to the trade with packers desperately attempting to keep momentum in their favour, in spite of dwindling sales the past 2-3 weeks.
The good news for those selling hides is this time of the year is traditionally much more active for leather production, as we usually see an increase in global leather production only interrupted by Christmas, New Year and the Chinese New Year holidays in Asia. However, as we head into the busy season, there appears to be plenty of questions about leather business and especially shoe demand, while even automotive leather is exhibiting signs of slowing down.
In addition, it appears as if quite a bit of the lower-end leather business is now competing with alternative types of material, and this does not bode well for business in general when one considers the harvest in the US is up almost 6% this year and estimated to be up another 1-2% next year, while globally, pundits are expecting the global slaughter to be roughly 3 million higher next year.
In the meantime, we continue to see reduction in capacity in China, especially in the northern part of the country due to the government’s new rules on pollution. This, coupled with rising labour costs, is making it much more expensive to produce leather and many tanners who pursued lower-end leather orders have fallen by the wayside.
Our long-term view of the market is that we will continue to see large supplies of hides, leaving us to suspect producers will likely have their hands full liquidating this production. That said, although we have never thrown away a hide yet, those thinking this market has sizeable upside potential are likely to be disappointed, in our humble opinion.
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