US Perspective - 12.1.16
Courtesy of The Maxfield Report
www.themaxfieldreport.com
Last week we saw packers continue their efforts of only offering directly to tanners, while refraining from offering to traders. As the week progressed, there were numerous reports of tanners willing to share their price ideas, with the vast majority running $1-$2 below the official asking prices. According to sources, the first half of the week saw packers attempt to hold prices steady. However, towards the end of the week, they began to soften and a moderate amount of business was concluded at levels roughly a dollar under their last reported trading levels.
As to the number of hides exchanging hands, opinions are mixed to whether or not packers were able to liquidate an entire week of production. Some are of the opinion there may have been as much business not concluded as business booked last week and it will be interesting to see if packers continue to refrain from offering to traders this week.
The sold forward positions of packers is not nearly as strong as at the start of December. There is plenty of speculation that some of the wet-blue producers will be a bit more aggressive this week, attempting to book business, especially considering that sales over the course of the 4Q of 2015 fell roughly 50,000 hides per week short of production.
Members of the cowhide trade claim they did not see as much interest as the big packer trade. The majority of buyers interested in buying hides last week started the week with ideas $1-$2 under the last established trading levels; however, producers “dug in their heels” and the trading that was concluded was no worse than steady with the last traded levels.
Overall, the consensus is it is unlikely producers sold a week’s worth of production. What will be interesting is that we appear to be in the midst of a sizeable cow-run (last week’s percentage of cows in the slaughter mix reached 22.36% with 123,000 animals reaped, with pundits of the opinion this is likely to continue to a few more weeks).
THE LOOK AHEAD
As to our initial thoughts for this week, sooner or later, packers will have to start offering to traders, as combined sales over the course of the last nine weeks have exceed the slaughter only twice. This is leading a number of pundits to the opinion that packers have a few more hides for sale than they are willing to admit.
In the meantime, although prices finished the week slightly lower, we suspect packers will be reluctant to accept any further declines. Slaughter levels are poised to move higher, as packers have had a tremendous amount of success raising box beef prices and have seen margins return to profitable levels. That said, expectations are that packers will not want to add too many cattle to the slaughter line-up in order to ensure they do not lose their margin. Last week’s slaughter was higher than a year ago and many believe this trend will continue through the quarter and likely, we will see at least 2-3% more cattle harvested.
Elsewhere, many questions about China, its economy, and last week’s substantial decline in their stock market and devolution of the yuan are not deemed a positive to the market. Reports continue insisting that numerous side-leather tanners have order books lower than last year and will close longer than usual for their Lunar Holidays, which, will not be a positive to the market. Meanwhile, automotive demand and luxury demand remains decent; however, these two segments do not equal the shoe and handbag share of the market.
Also worth noting are continued reports out of Korea that a number of tanners are struggling with orders, while a large tanners is asking to delay shipments as they supposedly had a substantial amount of leather rejected. Meanwhile, tanners continue to struggle to sell lighter weight sided-splits and with oil dipping below the $40 mark and with other commodities under pressure, it is difficult to make a bullish argument at this time.
