US Perspective – 14.05.19
14/05/2019
www.themaxfieldreport.com
Last week in the big packer trade, packers entered the week with offer lists that were more populated than the previous week. Most packers also had a full complement of selections, with most offered for prompt shipment. Most packers lowered their asking prices again last week, by between $1 and $2, depending on the packer and the selection. Even with the reduction in asking prices, they were still higher than members of the trade had secured through direct business with tanners the week before.
As to interest last week, there appeared to be more bids around in the middle of the week. Most buyers willing to share their price ideas were taking aim at prices well below the official asking prices of packers. This forced packers to be careful when countering bids, as with harvest levels running at their highest levels in nearly a decade, they could ill afford not to book business.
Unfortunately for packers, most tanners were reluctant to improve their price ideas. When it became clear the US would move forward with increased tariffs on products from China, tanners withdrew the majority of their bids, preferring to wait and see how the trade would play out. When the USDA Export Sales Report is released this week, it will likely be substantially lower than last week, with packers unlikely to have cleared their production. We would call prices at least $1-2 lower than the previous week. Over the weekend, we had a couple of sales on HNS, reflecting a range of $38 all the way up to $41.
Reports from members of the cowhide trade were a carbon copy of those from the big packer trade. Producers entered the week with more populated offer lists and many had a full complement of selections. They lowered their asking prices by roughly a dollar and there are a number of lower grade selections that are approaching levels where they will only offer processors the opportunity to break even. A number of producers have hides that are available in volume and for immediate shipment.
With regards to interest last week, there were more bids to consider in the first half of last week than in the previous week, while the price ideas of buyers were considerably lower than asking prices. The second half of the week saw the number of bids decrease, with sources blaming the trade war between the US and China, which caused concern within the trade about what would happen to hide and leather prices once they are enforced.
Overall, last week was not a busy week of trading. It is very likely we did not see producers clear their production. As to trading levels, they were roughly a dollar down compared to the previous week. It is worth nothing that as harvest numbers are increasing, the number of cows in the harvest mix continues at a steady pace. This means the extra 30,000 head we have seen the past couple of weeks have been all fat cattle.
The look ahead
We are starting out on a new week of trading and it going to be a challenge to write anything that we have not written several times before. We look for another strong week of harvest (over 1,300 animals reaped the past couple of weeks) and we suspect we will see more than 2,000 animals knocked in three weeks once this week is over.
We expect producers to enter the week with one of the poorest sold positions we have seen in some time. Unfortunately, we question if there is enough global leather demand to absorb all the unsold hides sitting in warehouses around the world. In the meantime, packers continue to enjoy spectacular margins, in spite of a poor drop credit return. This is why we continue to see packers pushing volume through their facilities.
Of course, the increased tariffs are on everyone’s mind this week, but it is much too early to determine what impact these will have on the trade. That being said, we do not view the increased tariffs as a positive for the trade and it will likely be yet another obstacle for those selling hides to navigate as we move forward.
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