US Perspective—31.03.20
Courtesy of The Maxfield Report
www.themaxfieldreport.com
Last week, most of the packers lowered their ideas anywhere form a dollar or two, to as much as $5 lower. Many members of the trade claimed that even with this reduction, asking prices were still higher than where trading was taking place towards the end of the week prior.
The majority of hides are available to ship promptly. Sources share a combination of cancelled leather orders resulting in requests to delay shipments, issues with equipment availability and the fact that sales have not been keeping pace with the harvest the past couple of months as the main reasons.
We are not aware of many sellers laying claim to a busy week of trading last week, leading to doubts that packers were able to clear the largest harvest of the year, 676,000 head. In addition, we continue to hear numerous complaints about logistical problems, which are keeping a number of tanners on the sidelines. Many tanners are also questioning future leather orders owing to the economic impact of Covid-19.
Most if not all cowhides were available for prompt shipment, owing to many of the same reasons as those affecting big packer hides. Producers were reported to have lowered their ideas by a dollar or two, while it is worth noting that the price of some lower-grade selections are approaching levels that are close to making them not worth collecting.
We are starting a new week of trading. However, it does not appear as if the fundamentals of the market are any different from the past few weeks. It continues to appear as if there are more hides being produced than there is demand for. The good news is we suspect after last week’s largest harvest of the year there is a good probability that we will see harvest number ease a bit. We have heard a number of reports that business at grocery stores and butcher shops was finally starting to ease last week.
Now, retailers and their packer suppliers face a dilemma for the next two months, especially if reports are correct that consumers who had been hoarding beef in their refrigerators and freezers (sometimes buying an additional one) will now start dipping into their stocks, which means they will be buying less fresh beef at the grocery store. If this should come to fruition, this will slow beef sales in volume terms and might eventually cause beef supplies destined for retail to become clogged. Retailers normally plan shipments, volumes and types of cuts at least six weeks in advance of delivery.
Packers largely base their production levels on retail orders. Therefore, they might be forced to lower production levels suddenly from current levels, which as of this writing, have been running at levels normally seen in June, July and August.
There is still a sizeable overhang of unsold hides, not only in the US, but in several other areas around the world too. With many tanners in Europe, and especially Italy, still closed it will force the trade to sell the majority of the hides produced this week to tanners in Asia.
Although this is not an ideal situation, under normal circumstances sellers could make this work. However, with many of the brands cancelling outstanding orders due to poor sales at retail, resulting in substantial unsold inventories, it is only increasing the degree of difficulty. We are of the opinion the overall situation remains unchanged and the best thing those selling hides can do is to continue selling into this market to customers they have familiarity with.
