US Perspective - 08.01.19
08/01/2019
www.themaxfieldreport.com
Reports from the big packer trade were mixed on Friday. Many sources continued to report lacklustre interest last week, resulting in only a small number of bids. A handful of sources shared that they saw an improvement in the number of bids on Thursday evening. Better yet, this was accompanied by reports that many of the buyers submitting bids did not have price ideas that were aggressively lower than the asking prices of packers.
Overall, popular opinion is that last week was not a busy week of trading. There were also comments from those with bids that they were still working to see if they could get packers and buyers on the same page in terms of prices. That being said, the consensus of the trade is that the limited number of hides changing hands last week likely sold at levels close to the last traded levels. It is highly unlikely that packers were able to liquidate their production last week.
Although many members of the trade are of the opinion that it was a sluggish week of trading, there is a growing feeling that packers might be able to do more business if they were willing to negotiate prices. It appears a few tanners are exploring hides that would be available for delivery after their Chinese New Year celebrations and before March 1. Tanners are concerned that the trade truce between the US and China will end, resulting in higher tariffs.
Reports from Asia suggest a number of tanners are concerned that tariffs might increase on March 1 as the governments of China and US have not yet resolved their trade dispute. As a result, many Chinese tanners appear to be very focused on deliveries arriving before this date. It is worth noting that the number of leather orders for most Chinese tanners continues to fall short of last year’s levels. Tanners appear to be opening lines of credit on time.
Reports from the automotive tanners suggest many are starting to complain about a downturn in business in recent months. It appears declining global automotive sales in the last quarter of 2018 have resulted in requirements for numerous tanners being reduced. Reports from side-leather tanners are pessimistic, with most reporting that orders continue to fall short of the levels of a year ago. In addition, there are numerous reports of leather buyers having to press hard for price concessions on the limited amount of new business they have.
With regards to trading, we were able to round up a handful of sales, led by regular weight BBS selling at $39. Jumbos sold at $45. There were a couple of sales on HNS, with sales on regular weights at $42 and up to $47 for Jumbos.
Reports from members of the US cowhide trade mirror those in the big packer trade. Overall, we are not aware of too many sources laying claims to seeing a large number of bids last week, although we have spoken to one of the larger producers who shared that they had seen a decent number of bids. However, they also shared that a large number of the bids were at levels deemed unworkable due to the aggressive price ideas of prospective buyers.
We have heard comments from a few different members of the cowhide trade that producers attempted to firm up their position last week, insisting they will refuse to accept any business lower than their last traded levels. Producers are reportedly frustrated with current trading levels and are threatening to put hides in warehouses. There are even some rumblings about disposing of hides, as producers insist they will refuse to operate at a loss.
Overall, last week was not a busy week of trading and it is very likely that producers did not clear their production. Due to the lack of trading and producers’ insistence on holding prices steady, we will call prices unchanged with thoughts we could have seen more business passed this week than was booked.
The look ahead
We have come to the end of the first week of trading for 2019 and it does not appear this year started any better than last year ended. We continue to have a market where producers “fight the tape” (refuse to the sell into the market) despite the fact that harvest levels have and will continue to exceed last year’s levels. It is clear that leather business is simply not measuring up to the levels of a year ago. When we take into consideration the declines in requirements for many automotive tanners due to falling global automotive sales, it leads us to suspect that those trying to sell hides will continue to face a difficult situation.
The end of last week marked the second consecutive week of holiday-shortened harvest. We are looking for this week’s harvest to be around 635,000 head. If our guess is correct, this will be around 20,000-head higher than a year ago. We continue to hear plenty of complaints from tanners who claim this is one of their poorest busy seasons of the year.
The Chinese New Year is pending (February 5) and we are hearing that a number of tanners will close their tanneries at the end of the week beginning January 21, not reopening until the week of February 11. The good news is those selling hides have already navigated the problematic logistics of this time frame. However, another obstacle now facing those looking to ship hides is whether the US and China solve their trade dispute, which could see tariffs increase on March 1.
We suspect we will see producers with a full complement of offers this week, likely dominated by heavier weight hides and with few, if any, heifer hides. We are hearing rumours that some wet-blue producers do not possess the sold forward positions that they had a couple of months ago. It will be interesting to see if these producers continue to load their tanneries to maximum capacity.
At the end of the day, our opinion of the market has not changed. We continue to believe that if we are to see prices change, there is a much better likelihood that prices will go lower before they go higher.
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