US Perspective – 27.03.18
27/03/2018
www.themaxfieldreport.com
Reports from the big packer trade last week claimed packers had offer lists that still appeared fairly populated. For the most part, asking prices were unchanged compared to the previous week. The only exception to this were some of packers’ less popular selections; sources shared that asking prices on these selections were $1 lower than the previous week.
Reports from traders claimed interest last week was much slower than they had expected, while the limited number of bids they did see had buyers chasing lower prices. According to sources, when passing these lower ideas on to packers, counters from packers were at full asking prices. Meanwhile, some of the packers shared that they were fortunate and had seen a decent amount of interest last week. Overall, packers continue to insist they are well sold and are laying claims to trading very close to the last reported levels.
In the meantime, there were plenty of unconfirmed rumours swirling around the trade last week accusing several packers of trading direct to tanners “behind the scenes” at trading levels well below the levels they are telling members of the trade. As to some of the prices attached to the rumours, there are accusations of CBS/BRS trading below $55, BBS at $64 and HTS at $57.
With regards to sales last week, most pundits feel it is unlikely there was a large round of business concluded. When the USDA Export Sales Report is released on Thursday it is likely we will see that packers failed to liquidate their production. The sentiment of the trade is that sellers made their best effort to hold trading levels as close to steady as possible.
Meanwhile, reports from the cowhide trade at the start of the week had many members of the trade believing rumours from APLF that several producers became aggressive during the fair and sold a decent number of hides at levels well below their official asking prices. However, at the start of the week producers’ offer lists still appeared well populated, while asking prices were unchanged.
As to interest last week, things started off early with some buyers indicating they would be willing to consider buying additional quantities at some of the levels heard in Hong Kong. However, it appeared producers were unwilling to consider such levels. As a result, many members of the trade started to lean towards the opinion that the cowhide market may have finally found a bottom. When USDA released its weekly Export Sales Report, sales during APLF were uneventful, leaving members of the trade to question if the rumoured volumes were inaccurate or if we would perhaps see these sales reported this week.
Overall, the consensus of the trade is that interest last week on cowhides was lacklustre. Trading levels were less clear, as there were a number of reports that some producers were still attempting to negotiate prices. This led to thoughts that trading levels were lower than the previous week and the lowest of the year. It is highly unlikely that producers sold a week’s worth of production, especially given that production levels are running close to full capacity.
Elsewhere, reports from South Korea claim one of the well-known fashion brands is causing a number of problems for tanners. According to reliable sources, the brand in question is not sending inspectors to tanners in order to inspect leather, so some tanners are running out of storage with no place to stack current production. In addition, there are rumours some tanners are now attempting to undercut other tanners on new business. Reports suggest some tanners are advertising they will take $0.10 per square foot less on orders for shrunken cow leather.
THE LOOK AHEAD
As to some initial thoughts for this week, we are leaning towards the opinion that this is a critical week for producers, especially considering that combined sales in 2018 are averaging only 380,000 hides on a weekly basis. In the meantime, with the Easter Holiday on Sunday this week, reports that the number of cattle on feed from last Friday’s Cattle on Feed Reports is 9% higher than a year ago, and packers pocketing lucrative margins, it is very likely we will start to see harvest levels move closer to 620,000 head on a weekly basis.
In the meantime, many members of the trade are very concerned about the possibility of a trade war with China and this is understandable. In 2017, China imported US hides, skins and leather products with a value of more than $1 billion, which represents more than 50% of the total export value of these products for the year. It also accounts for roughly 75% of all hides produced in the United States.
Meanwhile, we are of the opinion that the next two to three weeks are critical for tanners. If they fail to see any sizeable leather orders placed in the next few weeks, thoughts by some that we will see a short busy season will likely come to fruition and producers could be in for a very long summer. At the end of the day, our opinion of the market remains the same; if prices are to change moving forward, we believe there is a much better chance they will go lower before they go higher.
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