US Perspective - 12.11.19
12/11/2019
www.themaxfieldreport.com
Reports from big packer trade members claim that interest did not seem as plentiful as last week and, although it appears that packers enjoyed a decent round of business again, it is likely there were not as many hides sold. Earlier interest followed its usual trend and was fairly uneventful, with bids picking up during the second half of the week. It is worth noting that a number of buyers started with price ideas below the last established trading levels, but, discovering packers had no tolerance for lower prices, were quickly countered at full asking prices.
Regarding weekly sales, popular opinion is that packers saw another decent round of business; however, it is likely there were not as many hides sold as last week. If this is true, it will be the third consecutive week decent sales fell short of the harvest and packers will need to be careful moving forward, to not allow their newfound sold forward positions to slowly erode.
Overseas trade members claim interest this week from Asian tanners was decent once again; however, the consensus of trade members is that there were not as many bids. Meanwhile, in terms of prices, sources share that most tanners continued to test the wills of sellers, offering price ideas lower than the last reported trading, while packers refused to negotiate and countered bids at full asking prices. That said, sources also share that attempts from packers to eke out incremental price increases is refused by tanners.
With regards to leather business, automotive tanners continue to report that leather orders are not measuring up to the previous year.
Tanners point to declining automotive sales in many countries, in addition to many automakers utilising more synthetic materials. This leads to claims that business is off, anywhere from 5-10%, depending on the tanner and the brands they represent. Meanwhile, good news in the upholstery trade is that furniture tanners continue to enjoy decent business, with improved market optimism now that the threat of increased tariffs on December 15 appears to be off-the-table.
Elsewhere, reports from the side leather segment are conflicting. According to some tanners, leather orders are not measuring up to the previous year; however, for trade members who follow the USDA Export Sales Report, purchases by tanners in China over the past 6-8 weeks are painting a different picture. The good news for US big packers is that it appears the lion’s share of leather orders this fall are requiring better quality leather, resulting in better than expected demand for big packer hides.
In other news, sources share that interest/demand for lower quality hides has improved substantially over the past couple of weeks. Popular trade opinion is that the increase in demand is due to the problems associated with the ASF outbreak in China, that has now spread to most of Southeast Asia and parts of Europe.
This outbreak has resulted in millions of hogs being destroyed, leading to a shortage of pig skins that would be destined for the lining leather trade. Sources claim tanners who produce lining leather were short of material and the next logical choice was lower quality bovine hides. More good trade news is that demand for splits remains decent, and this has prices of splits on the rise, reporting increases around 800 RMB/MT.
Reports from the cowhide trade claim the week started with offer lists that appeared as if some producers still had a full complement of selections to offer. In the meantime there are mixed reports regarding asking prices. Sources claim some producers opted to leave their asking prices unchanged, while a handful of isolated reports claim some producers attempted to raise asking prices on some of their more popular selections.
Regarding bids this week, things got off to a slow start as usual; however, reports claim interest for some producers picked up considerably during the second half of the week. It is worth noting that most buyers continue to bid lower than the last reported trading levels of producers when sharing their initial price ideas, while producers continue to counter at full asking prices.
The look ahead
It certainly appears as though sellers remain in control of the market. The good news for those selling hides is that prices of big packer hides ended the week at steady levels, while prices for cowhides are steady to incrementally higher. The only concern is that it appears this is the third consecutive week we have seen sales fall slightly lower than harvest levels, and with packers harvesting roughly 640,000 to 650,000 head every week, it does not take a long time at these levels to erode a sold forward position.
In the meantime, leather business is better than a year ago and we support this opinion as combined sales continue to exceed the previous year’s levels by almost 35,000 hides/week. In addition, shipments are also higher than a year ago by 19,000 hides, while harvest numbers are also higher by almost 8,000 animals.
Of course, we recognise that not all trade segments are enjoying better business, as automotive tanners continue to appear as if they are struggling. However, we need to remember that automotive leather business only accounts for roughly 20% of overall leather business.
Looking ahead, we do not expect packers to ease harvest numbers anytime soon, especially laying to claims that packers’ margins are well over $300/head. That said, it will be interesting to see if packers remain satisfied to sell at steady levels, or will we see a bit more of a commitment to achieve higher prices, especially considering sources claims that recent trading at steady levels appears to be an easy task.
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