Don Oshman's view from America4 June 2008
The American market, that had been limping along for much of the year, came to life during the first week of March as Asian buyers found the need to step in and replenish depleted inventories.
By the end of the second week of the month, all selections advanced to some degree with those producers who wished to do so selling all they needed to re-establish comfortably forward sold positions.
Heavy Texas steers, the most widely produced selection advanced from lows of $64 at the beginning of March to $66. Fairly broad based tanner support was seen. Traders were active in pushing prices to the $66 level. On a c&f basis, prices went from $70.50 to $71.50 c&f by the beginning of the third week of March.
Branded steers came off their $63 lows and moved up to $64.50. Prices on a c&f basis were at $69.50-$70 c&f. Colorado steers sold between $62-$62.50 compared to lows of $60-$61 in the first days of March.
Butt branded steers that had sold as low as $64 found buyers willing to pay $65 by mid March. Domestic tanners supported the market but some producers were willing to take a dollar or so less if they could ship by truck as opposed to hoping containers would be available for their export sales.
After selling at the same price for more than a month, heavy native steers fell to $65.50 but then quickly bounced back to $66. There was some reasonably good export demand and the usual domestic tanners supported this selection as well. $66 was not universal as those with lower quality or longer freight points traded at $65-$65.50. On a c&f basis bids at $70 were typically countered between $71 and $72-$72.50.
Sparked by improved domestic demand, branded cows moved up between $0.50 and $1, much depending on average and origin in mid March. In the western areas, prices paid were between $44 and $45 while some of the most desirable productions were able to attain a little more. Lighter averages had trouble getting past $43. Natives sold between $50 and $53, depending on origin and average.
With Holsteins at averages between 50-52lb, traded was in and around $58-$59, although not up to some asking prices that were seen at $60 and higher. Holstein steers sold at $74.25. Native bull prices remained fairly steady and sales took place between $61.50-$62 on averages between 100-110lb.
The big news in the American market since our last report was the Brazilian Meat Packer JBS announcing their purchase of both National Beef Processors and then a day later, Smithfield Foods. In Australia, JBS also bought the Tasman meat packing group. Tim Klein, current president of NBP will become president and COO of the joint NBP/Swift operations.
There will certainly be ramifications affecting the hide trade and tanning industry but it is likely to take months before the combined company will decide who and by what method their hide production will be marketed.
It is estimated that on a global basis JBS will have a slaughter capacity of 79,200 head per day. They should certainly become a force to be reckoned with for world hide supply.
After what is assumed to be regulatory approval by the government, JBS SA's will also become the world's largest cattle feeder with its acquisition of Five Rivers Ranch Cattle Feeding. With their new ownership, JBS will go ahead of Cargill and Tyson in terms of daily slaughter capacity in the US and globally.
The acquisitions will leave the US meat packing industry with three major companies that will control 71% of slaughter. JBS said it has no plans to shut any of its plants in the US and is looking forward to operating them in a more efficient and profitable manner then is currently the case. JBS bought Swift last July.
The US Department of Justice's (DOJ) review of JBS SA's proposed acquisitions of National Beef Packing and Smithfield Beef Group is likely to look closely at the percentage of slaughter and feedlot capacity that JBS has bought.
The DOJ will also look closely at whether overlapping plants in two regions might hurt live cattle prices. First impressions are that JBS's plans will gain DOJ approval, say observers.
JBS will have a slaughter capability estimated at 42,500 head per day in the US if DOJ approves the deals with no plant divestitures. That will give it a 30% share of total industry capacity. Cargill Meat Solutions at 29,000 head will have 20.6% and Tyson Foods at 28,700 head will have 20.4%.
A breakdown of fed cattle slaughter capacity means JBS would have a 35.7% share, Tyson 25.6% and Cargill 23.2%. A breakdown of non-fed cattle slaughter capacity means JBS would have a 7.3% share and Cargill 10.8%.
Along with the pick up in prices, USDA statistics published on March 6 showed that the combined raw and wet-blue total of hides sold but still to be shipped were 5,582,800. This is up nearly 4% from the previous week and compares to 5,443,000 in late February.
Based on producer sales volume in the first half of March, we have to forecast at least incrementally higher prices between now and the APLF. Traders have been taking a noticeable percentage of packer sales.
These hides will no doubt be offered to tanners between now and the first half of April in face to face trader/tanner meetings in Asia before and after the Hong Kong Fair. This could take some of the demand away from packers.
It's hard to call the recent up tick in prices a genuine rally but producers are less eager to generate business now than they were at the end of February. For more years than we can remember, prices have gone up prior to the Hong Kong Leather Fair (APLF) and Shanghai Fair in September. This is just like it used to be before the fondly remembered and now defunct Parisian Semaine Du Cuir so many years ago.
Traders strove to travel with ‘hides in their pockets' to be able to sell whatever their customers wanted to buy during their visits. To a lesser extent, they still do. Although we frankly cannot see the rationale for this anymore, we think that the strength we've seen of late is, in part, because of this old trader syndrome that is combined with a seasonal pick up in leather business.
We would be surprised to not see a fall off in demand, as well as prices, during Hong Kong, or shortly thereafter, just like it typically was in the old days.
On a supply note, industry pundits predict that the cattle on feed report due out in the third week of March is expected to increase 3% over the same period a year ago. This would be one of the largest totals in more than ten years and assures packers of a more than ample supply of cattle to kill.