US Perspective - 19.1.16
20/01/2016
www.themaxfieldreport.com
It appears packers resigned themselves to the fact that they would have to accept less money in order to sell hides last week. Overall, there appears to have been a modest number of hides sold the second half, while trading levels on hides sold reflect prices that are $1-$2 under the previous week, depending on the selection.
There continues to be a number of reports accusing packers of pressing hard for new business on heavyweight steer hides, and this is leading to speculation that some packers may be possibly under-sold on these selections. We are also hearing a number of wet blue producers were pushing much harder to conclude business.
Members of the trade in Asia report that letter of credit openings / deposits have slowed noticeably since the New Year. In addition, there are rumours that a number of smaller tanners in China took the decision to close at the end of the week for Chinese New Year (CNY) and will not reopen until the second half of February. Other tanners are insisting that they too will take additional time off for the holidays, due to leather orders that are falling short of levels of a year ago.
Reports from members of the cowhide trade claim that buyers are well aware of the softer tone of the big packer market and continue to take aim at lower prices. Many buyers continue to bid prices $1-$2 under the last reported trading levels and most producers had been insisting on steady prices.
As it pertains to trading levels, we were able to round up a few isolated reports of trading as we have HNDC reflecting levels of $56.50, while sales on HNC check in at $45. The only other trading is a couple of processor sales with HTS at $58 and BRS at $57.
THE LOOK AHEAD
At the end of last week it is appeared as if speculation that prices were likely to come under pressure is coming to fruition. One could argue that the big packers’ market is a two-tiered market, as many members of the trade insist that there is still decent demand for HNS / BBS. However, prices of other big packer selections are drifting lower. Producers of cowhides have been making their best effort to hold prices steady; however, many pundits are questioning how long they can continue, believing it is only a matter of time until they follow big packer hides prices lower.
As to what we expect, the news on the global economic front is not positive. Wal-Mart will be closing 269 stores globally (154 in the US), resulting in more than 16,000 people out of work (10,000 in the US). In our opinion this news confirms what many pundits have been saying for a while, that demand for consumer goods is not strong, which only support claims by tanners that they do not have as many leather orders as a year ago.
In the meantime, crude oil fell below $30 / barrel by the close of trading and as we have mentioned before, we subscribe to the theory that cheap crude prices do not bode well for hide prices, as it makes competing alternatives that much more cheaper.
It will be interesting to see if packers continue their efforts of not offering to traders, as it is widely speculated that most packers’ sold-forward positions are not nearly as strong as they were back in November. Some of the processors are also starting to feel the effect of larger-than-expected numbers of cows in the slaughter mix and would not be surprised if we saw producers a bit more aggressive next week.
Looking back over the course of the past four to six weeks, we have yet to see a huge week of shipments in advance of the CNY. This makes us wonder if many producers are carrying larger-than-normal inventories for this time of year and with slaughter levels running 3% above levels of a year ago, may make things a bit “dicey” for those selling hides as we creep up on the CNY in a couple of weeks.
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