US Perspective—18.02.20
Courtesy of The Maxfield Report
Maxfield report
The big packer trade claims packers were much more aggressive this week, reaching out to old friends who they knew could handle voluminous business. The number one focus of packers was to first find business for which the buyer could confirm taking delivery; once confirmed, discussions about prices followed.
At the end of last week, sellers were reluctant to admit they were already trading the market lower (roughly $1 to $2), opting to leave reported trading levels unchanged. Eager for sales, packers closed some voluminous business at prices that were down a couple of dollars from those unreported trading levels.
With most sellers opting to leave prices unchanged, trading levels this week are now reflecting levels down anywhere from $3 to $5, depending on the producers and the selection.
As it pertains to pricing, we believe this is a moving target. There very well could be several different prices agreed to by packers on the same selections, based on the packer, the buyer, the selection, how many loads are involved and how quickly the buyer can take possession of the hides.
In regards to the number of hides changing hands this week, popular opinion of the trade is that although last week was not a particularly busy week of trading, it appears there were even fewer sales this week.
Reports from members of the trade in China claim interest this week was basically a repeat of last week as there are only a handful of tanneries back to work. There are “rumblings” that we will see a few more tanneries resume work this Monday; however, given the recent updated numbers of new outbreaks of COVID-19, we wonder if these resumptions will take place as planned.
China’s Wenzhou and Guangzhou areas remain in lock down with sources saying that quarantines will last at least until the end of this month. Unfortunately for the hide and leather industries, these are two major shoe upper production areas.
In other news, rumblings and complaints about the unavailability of empty containers continue to rise. Sources share there are containers stuck at origin ports without payments and at destination ports due to a lack of payments and/or a lack of logistics operations.
This problem is compounded by larger than expected harvest numbers in the US and other areas around the globe. As a result, producers are being forced to accept lower trading levels from buyers who can take delivery in order to keep product moving. Also weighing on the market are concerns over the closure of finished leather manufacturers and questions as to when they will open.
In addition, we need to keep in mind how much domestic consumption in China has not taken place so far this year, as the period of the Lunar New Year is a huge retail season there. We will have to see how this impacts future leather orders.
We are also hearing numerous reports of buyers outside of China requesting to delay their outstanding shipments. We suspect these are some of the “bad actors” attempting to take advantage of the situation as they are receiving special offers of hides substantially cheaper than their existing outstanding sales.
We were able to finally round up some reports of sales, despite sellers reportedly instructing buyers to not share their numbers. Sales shared include regular weight BBS at $33, while Jumbos were sold at $37 and packer regular weight BRS at $24. Other trading has CBS in a range of $22 to $23.50, while HNS were sold at $34 and Jumbos at $40. The only other sale is a regular weight HTS at $25.
Reports from members of the cowhide trade are not much different from those in the big packer trade. Overall, producers entered the week with offer lists much more populated than last week, while sellers started the week much more anxious to conclude business. Both remain focused on prompt shipment in order to keep product moving.
Meanwhile, similar to reports in the big packer trade, buyers willing to submit their price ideas this week were bidding much lower than the last reported trading levels. That said, like the big packer trade, producers appeared to first ensure a prospective buyer was able to take prompt delivery before price negotiations could start.
The consensus of pundits is there were not enough hides sold this week. With harvest volumes continuing at larger than normal levels for this time of year (this week was 620,000 head versus 608,000 head last year) and China having no plans to reopen anytime in the immediate future, most members of the trade feel we are in for more misery next week.
In more positive news, we understand that the Chinese Government is willing to accept assistance from the World Health Organization. The US is sending members of its Infectious Disease Control unit to China to assist Chinese officials in their effort to control new outbreaks of the disease.
Regarding next week’s harvest numbers, we could see numbers slip slightly lower. All the uncertainty surrounding COVID-19, coupled with the Lenten season only a week and a half away, will likely slow demand for beef slightly. In addition, the packer’s cutout value is running well below levels of the past couple of years and we would not be surprised if we saw harvest numbers adjusted lower in an effort to try and raise beef prices.
As for those selling hides, it is difficult not to believe that most producers have more than ample number of hides for sales. With most producers freely trading the market lower this week, it will certainly be interesting to see if they are willing to show how many loads they hope to sell and what will be their starting asking prices. We believe those selling hides have their work cut out for them and sellers will continue to struggle to liquidate their weekly production.
