Don Ohsmans view from America6 June 2007
Lunar Holidays in Asia contributed to a relatively slow pace of hide sales during the last part of February. However, early March saw buyer interest improving, but at lower prices. Most producers elected to reject bids under previous levels or to only sell in smaller quantities. Regardless of packers' initial asking prices of $77 and even $78 on heavy Texas steers in early March the best bids obtainable were in the area of $76-$76.50. Asian interest was seen in reasonably good volume when compared to February. Those packers who were still well forward sold, turned down anything under $76.50 and in some cases held out for $77 where some business was ultimately accomplished. Although there has been a decent amount of demand for branded steers, buyers were as stubborn as sellers in coming together at prices acceptable to both sides. Most trading took place during the first half of March at $75, which was steady, or in some cases, down $0.50 from late February. As in the case of heavy Texas, had packers been willing to take bids that were a dollar down, or in the area of $74, large volumes could have been sold. There was a somewhat better movement in Colorado steers but with few exceptions, sellers had to acquiesce to lower bids in order to affect sales. A large volume sold as low as $73, down $2 from several weeks earlier but subsequently, when the packers had sold their excess inventory, they raised prices back up to $75. Supply and demand enabled sellers of heavy native steers to keep prices on an even keel in recent weeks. For the moment, the general slaughter mix has fewer than normal heavy natives and an abundance of Colorados. This forced domestic automotive tanners, who rely on heavy native steers, to pay steady prices in order to secure their supplies. The majority of butt branded steers sold at $77 so far in March, which was steady to late February. As in the case of Texas steers, export interest was no better but domestic tanners supported the market with their buying. As is normally the case this time of year, heifer trade has been slow. Southwestern trades took place in the first part of March at $69 on averages below 50lb. Sales on a c&f basis were between $72-$73. There were a few reports heard of heavy native heifers changing hands at $68 which was steady with previous sales. The plump cow trade has been comparatively slow due to less than active Asian interest and a number of well forward producers who were less than anxious to sell. In the west and southwest, bids have been seen on heavy averages at $50 which were countered at $52 and passed. Fed branded cows saw bids at $67-$68 c&f. Offerings on heavy native cows were seen as high as $62 with buyer ideas considerably lower. Some sales took place at $59. In the southeast, conventional packer material sold at $54. Buyer interested in dairies was generally only seen at prices below last sales. Bids on good fleshed cows were seen mostly at $58-$59 and the volume traded was less than produced. Holstein steers traded steady, at $75. Bull prices remained steady in late February and early March, with a limited number of offers finding good interest, especially in Mexico. Packer natives with a small brand percentage traded at $63 fob while others were reported at $61 with longer freight. In looking back over the past two months, price movement in steers, which are the most voluminous types of hides produced in the country, have been remarkably steady. Although the first half of March has seen some lower prices on selections where producers were anxious to re-build forward positions (as in the case of Colorado steers) and accepted lower prices as a result, any declines in other selections were small. Heavy Texas steers have traded between $76.50-$77.50 since the second week of January, and have not gone below $76 or generally $76.50-$77 since then. This is regardless of multi-week Asian holidays and slaughter that is up more than 4% from the same time a year ago. Texas and other steers have also been able to maintain the 5% price gain established late last year. In our view, seller positioning has enabled prices to stay at or very close to their current peak. Major producers have been far forward enough, to resist lower bids throughout a sustained period where production has exceeded sales. Even with the position erosion that has taken place, many sellers are still comfortable. This situation will not go on forever. At some point, tanners are going to have to step up their purchases for May-July shipment, as indicated by the quantities recently bid. By the same token, packers are going to have to sell quantities at the best bids obtainable. The balance of supply and demand that has been in place so far this year has a better than even chance of tilting one way or the other in the near future. Most tanners in the Far East have bought all of the American hides they will need to soak between now and May. This means their need to buy in large volume is not as great as it was during the winter. There are also stories heard from tanners in China who, during negotiations, like to mention their use of Chinese hides which have improved in both quantity and quality. Still the numbers are only a small percentage of what they require and don't compare with North American material with respect to filling leather orders specifying hide origins. It seems to all boil down to who can wait out the other? Sellers or buyers? It's a difficult call. However, if forced to guess, we would have to side with tanners who are constricted in what they will pay by the price of the leather they sell and they have no chance to go higher until summer if not beyond. In other words, tanners will find an alternative to buying hides that will assure them of a loss. At $75-$77 for Colorados, branded, butts and heavy Texas steers, most cannot make money. 'It's the economy stupid!' This was the catch phrase of advisors to then President Clinton during his years in office. As long as the economy was good, regardless of what ever else the administration did or didn't do, people would keep those in charge in power. The hide market is somewhat analogous. As long as leather remains in fashion, and as long as the economy remains at its current pace worldwide, and especially in China which absorbs increasing amounts of finished leathergoods, hide prices are destined to maintain their recent trading range. Nothing lasts forever, and neither will these two contributing factors to hide prices, but there is nothing on the horizon that indicates any changes in the coming months.