Market Intelligence

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Market Report

Only a limited number of hides changed hands this week, with one of the few exceptions being seen in the cow sector. Demand for steers of all types was minimal at best, and traveling hide salesmen visiting Asian customers were discouraged by the lack of bids. As always, some business was concluded, and at lower levels on steers, but offering lists coming into the Hong Kong Leather Fair on Monday, should be more than ample.

Most large producers of heavy Texas steer hides refrained from making their normal range of offerings this week, although making it clear to potential customers, that they would welcome bids. This had little if any affect on Asian tanners, who received ample offerings during visits in their offices by packers, processors and traders. Few bids were made, and then only in the area of $68.00-$69.00 c&f at the top end. Fob bids to packers were equally sparse, perhaps more being placed by traders interested in covering shorts than by tanners. The highest levels bid on 60/62 lb. averages were at $64.00, but volume was relatively light. Even at $62.00 and $63.00, packers were not overwhelmed with interest. Meanwhile, this afternoon limited orders at $64.00 were begrudgingly accepted.

Branded steer trading was as light as on Texas with what few sales that took place being booked at $62.00-$62.50 on 60/62 lb. averages. One packer reported that rejected bids of $62.00 and $62.50 on branded steers Wednesday night were withdrawn on Thursday morning and considerably fewer hides in this category, again, were sold than produced.

Heavy western Canadian branded steers attracted bids between $63.00 and as high as $64.00, but were rebuffed. This equated to $68.00 c&f. Colorado steers saw little interest with bids made closer to $60.00 than asking prices that ranged between $63.00 and $64.00. We were unable to detect any trading in this selection.

Heavy native steers languished as well. Unconfirmed reports were heard of business being concluded at $65.00 and as high as $66.00 but all that were offered were not sold.Butt branded steer sales ranged between $63.00 and up to $64.00 depending on average and origin with more being placed at $63.00 and $63.50 than at the higher level.

As noted, the cow segment fared considerably better than steers. Fleshed southwestern and western branded cows sold at $42.00 up a dollar from last week. Other packer branded cows were bid at $42.00 and countered at $44.50. Most producers sold all they cared to. In Holsteins, one producer rejected a bid of $51.00 on seasonal averages equating to several bids seen late in the week from Asian tanners at $57.00 and $57.50 c&f. One report was heard of fleshed dairies selling at $53.00 while another noted sales of packer fleshed Holstein’s c&f Asia $57.50. which was likely trader positioning.

In small packers, fleshed 54/56 lb. steer/heifers sold at $46.00 Laredo with small brand content. Fleshed native small packer steer/heifers at 58/62 lb. averages moved at $48.50 Laredo while lighter equivalent averages in the upper 50 lb. range sold at $45.00 fob. As in the case of their big packer brethren, more small packers were produced than were sold this week. Low grades failed to stimulate much interest as well. Fleshed 1&2 renderers were available at $32.00-34.000 Laredo but we did not hear of any sales. Equivalent thirds were offered at $24.00 Laredo with the same lack of result. Conventional 1&2’s were offered at $27.00 fob and comparable thirds at $21.00 fob but buyer idea’s several dollars lower were rejected.

Branded bulls sold at $52.50 on seasonal averages fob. Others brought between $53.50 and $54.50 Laredo, or, about steady with last week. Over weight kip traded between $51.50 and $52.00, down from last week, but splits were fully firm in spite of the continuing crack down by customs and tax officials in the leading center of split tanning in Southern China

Exports:
Total rawhides sold for export for the period ending March 18th were 445,900 pieces. This is 6% more than last week but 26% below the previous four week average. Korea was the largest single destination with 202,600 being reported. 122,200 went to tanners in China, 42,800 in Taiwan, and 26,600 to Mexico. Importers in Japan took 23,400 hides and 20,100 went to Hong Kong. Thailand managed 3,700, Turkey 3,600 and Italy 1,400. Weekly exports totaled 389,200 hides and outstanding sales were 4,151,000. This compares to 4,094,300 last week and 4,073,500 two weeks ago.

Wet blue hides sold for export totaled 142,700 pieces. Largest destinations were China which reported 46,300,Hong Kong with 27,400, Taiwan at 26,000, and
Thailand which took 14,100 wet blue hides. Other destinations were Italy with 8,800, Korea at 7,700, Mexico with 7,100, and Indonesia at 3,600. Germany reported 1,200. Weekly exports against previous sales totaled 110,800. Outstanding sales were 509,100 wet blue hides. This compares to 477,200 pieces one week ago and 491,300 two weeks ago.

Wet blue splits sold for export totaled 1,199,100 lbs. Mexico bought almost all of the total taking 1,148,900 lbs. 50,000 lbs. went to Taiwan and 44,200 lbs. to Hong Kong. Weekly exports were 1,181,600 lbs. and outstanding sales totaled 13,940,400 lbs. one week ago, the outstanding total was 13,922,900 lbs. and a week earlier 13,201,400 lbs.

Industry News:
Stride Rite announced this week that their first quarter sales fell 11%. One of the leading manufacturers of children’s footwear, the Company said that a large part of the decline was due to the bankruptcy of Footstar, a major customer. Children’s group wholesale sales fell 13% and Keds sales fell 24% as did their Tommy Hilfilger footwear that fell 18%. Other divisions did well however. The Children’s group company-owned retail stores had sales increases of 14% for the first quarter compared to last year and comparable store gains were up 11.8%. Its Sperry Topsider brand increased 3% for the quarter and international sales rose 8% compared to last year.

Good reports were heard from athletic shoe retailer Finish Line. The company announced fourth quarter sales gains of 19% in stores open at least a year, and 30% over-all. The firm operates 531 stores.

Shoe retailer Footstar, that filed for bankruptcy protection earlier this month, said it would sell it’s remaining shoe stores as quickly as possible and would focus on it’s Meldisco division that operates about 2,496 licensed footwear sections in department stores such as K Mart. Meldisco also offers it’s own Thom McAn brand and private labels thru K Mart, Wal-Mart and other retail outlets. Amongst retail outlets to be closed, are 353 Footaction stores. Footstar listed its largest creditors as Nike with $19.4 million in claims, Rebook with $4 million and New Balance with about $3 million.

In February, we reported that an Alabama jury had ruled against Tyson, parent of IBP, and awarded the class action plaintiff’s $1.28 billion on grounds that of IBP “conspired to lower cattle prices by shifting away from buying cattle on the cash market and increasingly entering into supply contracts with big producers.” A federal judge overturned the jury’s decision this week saying that it was un-just. The suit was originally filed by 6 ranchers against IBP in 1996.

In further packer news this week, Canadian Prime Minister Ralph Klein came away from a meeting with congressional leaders in Washington D.C. saying that he is confident the US border will reopen for live cattle imports from Canada by the end of June. Sources advised that if indeed the border is opened again, cattle over 30 months old, primarily cows, will not be allowed in.

Forecast:
Anyone has to be impressed at the lack of sales this week by producers and traders who were visiting their customers in the Far East. Rumors were heard late Friday that at least one and perhaps two packers dropped prices more than two dollars from last sales in order to move some volume. This would not be surprising, but cannot be confirmed. Regardless, more producers did not take this aggressive approach than did and this should make for comparatively eager sellers in Hong Kong. We cannot help but feel that had tanners needed to buy, bidding would have been more active. Slaughter numbers were about the same this week as last, but we see this as a temporary phenomenon. Larger kills in coming weeks are forecast by all industry sources, as elaborated on in our last issue.

Although there could be a number of shorts needing to be covered, we would be surprised if they are large enough to halt further declines by themselves. We deem the supply/demand situation continuing as a buyers market. It is hard to believe that any surge in leather orders, at steady or higher prices is imminent, and unless sellers reduce prices in Hong Kong more than incrementally, the trade will return home even more anxious to sell than before. We don’t think this will happen.

Specifically, we expect to see Texas steers trade down to $63.00 during the Fair, Butts to move at $63.00-$64.00, natives at $65.00 and branded steers at $61.50-$62.00. As noted, a good clean up of cow supplies should keep these selections on the firm side next week with possible advances of a dollar on branded, native and dairy cows at least within the real of possibility. We think that based on the lack of small packers and even low grades sold this week, that prices should fall at least a dollar on most offerings in Hong Kong. Bulls should remain fully firm as well as splits.

Although we are confident in predicting lower prices in Hong Kong, we are at a loss to forecast when the current trend will come to an end. If it doesn’t happen by the last part of April, steers trading at less than $60.00 by May could be seen.

Slaughter:
Total slaughter for the period ending Saturday March 27th totaled 620,000 head. Last week, 619,000 head were killed and one year ago, FIS was, 625,000. For the year to date, FIS is 8.6% below last year.

[ultimatetables 1 /]

Europe

Italy April 19th – April 25th

Selection Weight PER PC FOB Last Week Last Year
Heavy Native Steers 62/64 $65.00-66.00 $66.00-67.00 $69.00-70.00
Butt Branded Steers 62/64 $63.00-63.50 $65.00 $64.50-65.00
Branded Steers 60/62 $62.00-62.50 $62.00-62.50 $63.00-63.50
Colorado Steers 62/64 $61.00-61.50 $61.00-61.50 $60.00-61.00
Heavy Texas Steers 60/62 $63.00-64.00 $64.00 $65.50-66.00
Heavy Native Heifers 50/52 $53.50-54.50 n $55.50-56.50 $50
Branded Heifers 50/52 $51.00-52.00 $62.00-62.50 $56.00-56.50
Spready Dairy Cows 50/52 $51.50-52.50 $50.00-51.00 $59.00-50.00
Native Bulls 100/110 $55.00-56.00 n $55.00-56.00 n $56.50-57.50 n

The above prices are indicated in Euro per kg green weight for wet-salted hides.
Cash Ex-Works / 100% machine flayed.

IN GENERAL
Killing is under seasonal average on all categories.

CALVES: Stable.
21/32: Stable.
33/40: Stable.
41+: Stable.
COWS: Stable.

Germany

What happened this week: It was one of the strange weeks which don’t really deliver a clear story. Until Thursday activity was slow. Asia was not really showing up and in Europe one was busy to lock the regular repetition of contracts in. Most of the interest and activity was consequently focussed on bullhides and only patchy interest for cows was seen from the major markets in Asia and Italy. From Thursday onwards activity started to pick up. Bids were placed, but under the market and were not acceptable considering that our purchasing prices had gone up. When negotiations came to a positive end, prices were mostly unchanged vs. the previous weeks and on the export side the exchange rate was offering again a helping hand to at least obtain fractional increases in € terms. All in all however, we would call the market steady for the week. Various of our colleagues and competitors are more optimistic than we are and expect firmer prices in the near future. Well, we fail to understand their analysis, but it may also be wishful thinking as a result of various strategical desires. As usual, players with more of a traders mind are not particularly happy with the great stability we have had for a long time in our market. They want and need volatility to justify their existence and business strategy. Well, we believe that the times were one could be a market mover are over for long. With the growing importance of the mass producers markets are made more than ever by the purchasing power – until, until raw material is really getting short. And this is – on a global scale – not the case at the moment. Supply is presently enough to satisfy the demand of the tanning industry. Consequently are price variations more fine tuning between markets, qualities and currency fluctuation rather than a significant and fundamental imbalance between supply and demand of hides at the present time. Most price variations on the international market in the recent past have more been an adjustment to get the price/quality ratio back and a reflection of the massive price pressure on finished products rather than a surplus or lack of raw material. Any attempt for many month to achieve a sustained and significantly increased level of raw hide prices was always answered by a decline in demand and a shift of interest to other, more attractive origins. A clear sign, that enough raw material at adequate prices is still available and we do not see any change in this fundamental situation. For the moment this means, that resistance against the present price levels is again mounting and it will be tough to fight this as only the argument of lower slaughter is on the side of the seller. The kill: The kill continues to ease into the low season. Not spectacular but remarkably are numbers sliding. This is however, neither surprising nor the real problem at the moment. Much more hurting is the sudden slump of hide weights. Avg. weights have fallen by up to 2 kgs what is not good for the hide calculation at all and no fun when one considers the increase price levels at the abattoirs which need correction. What do we expect: We still don’t expect the market to move. For higher prices demand isn’t good enough, for lower prices not enough inventories are burdening the warehouses. A higher USD rate and good news from the economy in the US help to defend against tanners attempts to drive European prices lower. However, we have to watch the US market now closely as the prices are starting to get close to ours and the price shelter we had for such a long time is starting to fade quickly. Europeans have to be aware, that world prices are still not made here. Next weeks show in Italy, might give us a bit more feel for the demand, fashion and market trend.

Selection Weight PER PC FOB Last Week Last Year
Heavy Native Steers 62/64 $65.00-66.00 $66.00-67.00 $69.00-70.00
Butt Branded Steers 62/64 $63.00-63.50 $65.00 $64.50-65.00
Branded Steers 60/62 $62.00-62.50 $62.00-62.50 $63.00-63.50
Colorado Steers 62/64 $61.00-61.50 $61.00-61.50 $60.00-61.00
Heavy Texas Steers 60/62 $63.00-64.00 $64.00 $65.50-66.00
Heavy Native Heifers 50/52 $53.50-54.50 n $55.50-56.50 $50
Branded Heifers 50/52 $51.00-52.00 $62.00-62.50 $56.00-56.50
Spready Dairy Cows 50/52 $51.50-52.50 $50.00-51.00 $59.00-50.00
Native Bulls 100/110 $55.00-56.00 n $55.00-56.00 n $56.50-57.50 n

UK

Sales remained poor with little interest shown from tanners. Most bids that were made were at levels that sellers could not find profitable. Buyers in the Far East did not want to pay more than last purchases and in fact expected prices to be lower. Even at steady USD levels, the bids in Sterling are much lower since the USD weakened from USD1.66=GBP1 in mid-October to about USD1.755 currently having tipped USD1.77 at one time. For the most part fresh prices have been holding at high levels (compared to sales) and so sellers have been reluctant to look at bids and so on little trade we can only call the market as steady. The kill remains very good as does the OTMS scheme. GBP ender the week at USD1.755 (spot bank buy). GBP was steady against the Euro at €1.4226 (mid-rate), which finished well against USD at €1.225. The 3-month GBP/USD graph looks like:

graph1

In our book Poor Sales + Good Supply + Poor Leather Business = Weak Market but is this a good bet? The one thing we are certain of is that the hides market often defies logic. UK hides are at unprofitable levels for sellers so either sales prices must go up or abattoir prices must fall. Neither appears to be forthcoming in the next couple of weeks. We expect January kill in the UK to remain good but some people forecast Irish slaughter to start falling in the next week. After January the UK kill usually drops towards the summer. We often see a first quarter rise in UK prices up to Hong Kong fair and even in years of poor business this has been the case as low supplies take the upper hand. We feel the market signs show that we are set for a fall in January and many tanners say this also but perhaps as demand has been so quiet there will be a New Year round of buying and give the market the push it needs. We do wonder that if we have not been able to get hide prices down whilst the kills have been very good, what chance is there after January when we can expect slaughter rates to fall.  However, for the coming week we see no activity forthcoming and so the forecast is:

Prices steady.

graph2