US Perspective - 21.08.18
21/08/2018
www.themaxfieldreport.com
Last week in the big packer trade sources shared that there was only a limited number of offers from packers. Several of them opted not to publish offer lists, claiming to be sold through the month of October. The few hides offered were at higher asking prices and this, coupled with the general lack of offers from packers, was met with considerable scepticism by most members of the trade.
As to interest last week, most sources we spoke with said they did not see much interest from tanners. However, we did speak to a couple of larger traders who claimed to have seen decent interest last week. There is speculation that they had an ownership position on the hides they were offering and were able to offer several popular selections last week. This was accompanied by rumblings that they were able to secure higher prices on the hides they offered.
Overall, last week was not a particularly busy week of trading, with most blaming the lack of offers. The consensus of the trade is that it is highly unlikely packers cleared their production, especially considering last week saw the second largest harvest of the year, with 660,000 head reaped. In terms of trading levels, the limited number of hides sold were traded at slightly higher levels. We have sales shared last week of HNS at $56, BBS at $45 and CBS at $35.
Reports from members of the cowhide trade were very similar to those from the big packer trade. Offer lists were smaller than the past several weeks, while there were reports of some producers opting not to offer, claiming they were sold well forward. The few offers that were seen last week suggested producers were making their best effort to obtain higher prices. We understand these attempts were met with considerable resistance from potential buyers.
Overall, popular opinion of the trade is that there were not as many hides changing hands last week, with most pundits blaming the general lack of offers. The sentiment of the trade is that the limited number of sales concluded last week took place at steady to slightly higher trading levels. Some sellers would like the trade to believe they were able to achieve higher trading levels.
The look ahead
As to our thoughts for this week, we are just over a week away from the start of ACLE in Shanghai. With several members of the trade set to depart for Asia, we suspect there could be even fewer offers this week. That being said, we fully expect those traveling to have offers for the customers they will be visiting. With most producers making their best effort to convey a firm tone to the market, it will be interesting to see if they are able to convince prospective buyers that they must pay more for hides.
In the meantime, last week we saw 660,000 head knocked, which ties for the second largest week of the year. Packers continue to experience unprecedented beef demand and, coupled with lucrative margins, it is very likely we will see another large harvest this week. Meanwhile, most of the packers are conveying the message that they possess sold forward positions through the end of October.
We should note that packers are playing a dangerous game of chicken in our opinion, as they are banking on tanners being short-bought and looking to capitalise on higher prices. However, there is considerable scepticism about whether packers have the sold forward position they are advertising. Should those travelling discover that there are not many tanners short-bought and no substantial signs of leather business improving, this manoeuvre could see packers painting themselves into a corner.
In the meantime, it appears most producers continue to try to get a much “bang for their buck” on the million-plus hide Export Sales Report from a couple of weeks ago. However, if one takes the first six weeks of the third quarter into consideration we see harvest numbers are averaging 626,800 head, combined sales are averaging 596,900 hides and shipment numbers are averaging 535,200 hides. Needless to say, these are not numbers that indicate producers being well sold. It is also worth keeping in mind that year-to-date numbers suggest an even greater discrepancy between the harvest and sales.
At the end of the day, our opinion of the market has not changed as we do not believe we have seen any fundamental change in leather business. If we had, most sellers would be seeing widespread LC openings on their outstanding orders. Our argument is that in the first half of August tanners viewed prices to be a bargain and, considering these are some of the best hides of the year, took advantage to replenish their stocks and further decrease the cost of their goods.
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