Courtesy of The Maxfield Report
www.themaxfieldreport.com

Not much has changed, as the number of bids last week did not reflect much of an improvement compared to the previous week. According to reports, most prospective buyers were bidding prices $2 to $3 under the official asking prices of packers. Packers who raised asking prices on some of their more popular selections reported seeing little to no interest from buyers last week. 

Last week was not a particularly busy one of trading, as sources claim packers were countering bids at full asking prices and only a limited number of buyers appeared willing to improve their ideas, citing a combination of poor leather orders and rising harvest numbers. That said, we heard efforts to achieve higher trading levels were abandoned towards the end of the week; trading was limited, and unlikely packers cleared the harvest. 

As it pertains to last week’s trading levels, prices were unchanged from the prior week, although there is speculation by a handful of pundits that some of the packers appeared a bit more concerned about the lack of sales as the week progressed. 

Reports from members of the trade in Asia claim tanners are well aware of the fact that harvest levels in the US are on the rise, after bottoming four weeks earlier at 429,000 animals. Last week we were to see 555,000 head “knocked”. The higher harvest numbers, coupled with the fact that leather business for most tanners (especially export tanners) is not measuring up to levels of a year ago, mean most tanners are not optimistic about leather business for the next few months, while lending support to the argument that hide prices will likely come back under pressure in the near-term. 

Many members of the trade have been closely monitoring shipments of wet-salted hides to Chinese tanners. This followed a huge round of purchases by tanners the second half of March / first half of April. During this period, Chinese tanners purchased more than two million hides. According to shipments listed on the Export Sales Report the past several weeks, it does not appear as if tanners are as exuberant about taking delivery of their outstanding hides as they were when they were purchasing them. 

Keeping the above in mind, we have it on good authority that many tanners have been very active the past couple of weeks attempting to re-sell some of the hides that have been sitting at their warehouses and / or are loaded and on their way to China. Sources claim this is because tanners lack confidence about future leather business and are looking to liquidate some of their raw stocks. 

It is also believed that other tanners are doing this in an attempt to generate cash flows so they can rebuild their raw stocks at even lower prices, not to mention it would afford tanners an opportunity to “load up their warehouses” with cheap summer hides, as opposed to end of winter / spring hides. Not many tanners are boasting about enjoying decent leather business and, in fact, there are reports from various parts of the world of several tanners closing temporarily due to the shortage of leather orders. 

The good news is there are reports that some domestic tanners in China are seeing incremental signs of business improving, and export tanners continue to labour as their main markets (US and Europe) are now in the early stages of easing restrictions. Pundits are speculating the second half of 2020 will yield better demand than the first half of this year (easy prediction as the bar is not set too high); however, the majority of tanners appear reluctant to gamble on this as it is unclear how long it will take economies to return to levels prior to the pandemic. 

In the cowhide trade, sources claim that for the most part, offers appeared to be a carbon copy of the prior week, both in terms of selections offered, as well as asking prices. 

Cow producers are attempting to process as many cows as possible, resulting in a higher than normal percentage of cows / bulls in the weekly harvest mix. The reason for the large numbers is that demand for 50% lean is “off the chart” and in fact, demand is so good that several cow producers planned to work on Saturday and there were “rumblings” that one or two processors were considering “knocking” on Monday. 

As to interest, sources claim last week was not a particularly busy one for trading as the number of bids did not reflect any noticeable improvement compared to the previous week. Most buyers continued to bid prices lower, while producers were making their best effort to hold trading levels as close to steady as possible. 

The Look Ahead
As last week came to a close, there were early signs of hairline fractures developing in the armour of those selling hides. According to several pundits, increasing harvest numbers the past few weeks may have been slowly eroding the sold forward positions of producers, and there were comments by a number of producers that they may have a few more hides for sale this week. 

In the meantime, there simply is not enough leather demand to support the market, as the restrictions in numerous parts of the world have taken a huge toll on demand and tanners lack enough leather orders, forcing some tanners to temporarily close and other tanners to reduce soaking levels to levels many have never seen before. 

The good news for producers is this holiday-shortened week of harvest will offer a bit of a reprieve, as expectations are that we should see numbers close to 475,000 head. However, as we turn the calendar to the month of June, we suspect we will see harvest levels continue to improve weekly and would not be shocked to see numbers in the low 600,000 head level by the fourth of July. 

What can we expect for demand? Unfortunately, this is something that will not improve overnight. We have some heavily-populated states still in lockdown, some less-populated states easing restrictions – and some states ending restrictions entirely. This is all good news, as it will get some people back to work who have been unemployed since March. However, it will take some time until we see consumer demand improve enough to result in an improvement in leather orders; this is why June and July could be difficult months for those selling hides.

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