US Perspective — 07.01.20
07/01/2020
www.themaxfieldreport.com
In spite of the holiday for New Year’s Day in the middle of the week packers did not appear as if they were in any hurry to offer last week and when offer lists were released they appeared as if they were roughly a carbon copy of the week prior. Many lists were dominated by offers of jumbo-weight steer selections, while offers of regular-weight steer hides and especially heifer selections are certainly dearer.
As to asking prices, sources also confirmed that they appear as if they are unchanged with the past few weeks as packers continue to be content to trade the market at their last traded levels. We suspect this has a lot to do with the fact packers recognise that beef demand remains strong. It is likely we will see larger-than-normal harvest levels continue. The noticeable change on offer lists are reports of shipping times, which appear to have moved out yet another week. This would certainly support the claims of packers that they enjoy decent sold-forward positions.
Reports from the cowhide trade claim producers entered last week full of confidence, buoyed by reports that most producers had enjoyed a decent month in December. Offer lists were not nearly as populated as those of two or three weeks ago, while shipping times for the hides offered were for at least a week or two further out. Many producers, ready to capitalise on the improved interest last week, were seeking slightly higher trading levels.
We suspect we will see harvest levels ease a bit this month, especially considering that packers’ margins have now dipped below $100 per head. That said, it is unusual for packers to enjoy positive margins at this time of year.
By-product values remain at depressed levels, following some of their lowest values seen in 2019 which reached levels not seen in more than a decade. According to USDA, by-product values averaged $8.88 per hundredweight last year, down from $9.60 per hundredweight in 2018; by-product values have been below $10 per hundredweight since the end of March 2018.
Popular opinion of pundits is that the primary reasons for the decline in values in recent years is an increase in the number of cattle harvested and a depressed global hide market as hides are competing with synthetic alternatives. The hide of the animal has traditionally accounted for roughly two-thirds of the total drop credit, but that figure is now closer to 30%. Those who like to count packers’ money claim the decline in values has cost beef packers a substantial amount of money over course of the past several years.
The next three weeks of trading could give a very important indication of what we can expect for the leather business in the first half of 2020 and if things continue along the same path as the second half of 2019 we have some guarded optimism that we might see hide prices reflect some incremental gains.
Share this story:
