US Perspective—12.12.17
12/12/2017
www.themaxfieldreport.com
Last week in the big packer trade started with some packers not making their offers public, although some of these packers were not discouraging prospective buyers from making unsolicited bids. Meanwhile, packers who made their offer lists public were reported to have offer lists unchanged with the week prior but to have only a limited number of selections on offer. Asking prices remained unchanged as well, with packers seeking prices $1-$2 higher than their last reported trading levels.
The sentiment is that packers continued to meet a considerable amount of resistance to their efforts to push prices higher, while it is also widely agreed that buyers attempting to “tempt” packers by bidding prices lower, found packers with no tolerance for lower prices.
Trading levels were unchanged with the week prior.
In the cowhide trade, offers last week from producers appeared in line with the last couple of weeks, while popular opinion amongst many veterans of the trade was that producers entered the week appearing a bit more confident after enjoying some decent business the week prior. Producers were not too patient with prospective buyers trying to bid prices lower than the last reported trading level.
The number of cows in the harvest mix continues at the highest levels of the year, with last week’s 135,000 head easily the largest number of 2017. As of this writing, expectations are that we will likely see another large number this week, while the couple of weeks following will be reduced due to the holidays; we will have to see if these larger numbers continue into early 2018.
When checking with sources around the globe, we continue to hear reports claiming that the slowdown in demand for the majority of shoe tanners continues. For the record, half of the world’s bovine harvest finds its way into the shoe trade and there is no other segment of the marketplace that is even a close second to using this number of hides.
Unfortunately, over the course of the past couple of years, demand for bovine hides from the shoe trade continues to decline, with many pundits blaming the downturn on hide prices spiking in 2014, reaching all-time record levels, forcing many of the brands to seek less expensive alternatives. This, coupled with cheap oil prices, offered shoe brands substitute materials that offered a greater assurance in price stability and improved profit margins.
In addition, a combination of millennials who prefer casual attire and many businesses moving away from formal business attire towards business casual attire has also taken a sizeable chunk of demand for leather shoes out of the workplace. As a result, we have seen hide prices fall to levels not seen since the crash of the market of 2009.
Meanwhile, automotive demand, which had been one of the positives in the market in the past couple of years, is exhibiting signs of slowing in the US and Europe, while sales in China this year are only indicating minimal growth. As a result, we are already hearing rumblings that some automotive tanners are warning their suppliers that they will be reducing requirements for the first six months of 2018.
The number of hides is on the rise. Harvest levels in the US are up 5.5% and we are on track to see 2.5 million more head reaped this year compared to 2016, while forecasts for 2018 are looking for number to be up by a further 1.5% or approximately 600,000 head. In the meantime, forecast are for increases in harvest levels in 2018 for Australia, Brazil, China, and India, with the total expected to be close to an extra 3 million head next year.
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