Don Ohsman’s view on the North American hide and steer market2 October 2017
The North American hide market continued to drift lower during most of May, but steer prices began to stabilise in the last part of the month. Additionally, Chinese demand for plump cows also improved to the extent that producers were able to build forward-sold positions for the first time this year.
One stimulus that helped the market was a USDA export report that showed improved foreign sales and decent shipments throughout the period. This erased much of the malaise that showed reduced buying interest, primarily from Asian destinations post-APLF.
By the same token, prices became relatively ‘cheap’ for the first time this year. For example, heavy native steers averaged $75 a piece (FOB) in January, but were down to around $70 by May. Benchmark heavy Texas steers were $72–73 in January and $63 for the most part in May, or about 15% less. At the same time, and especially since April, the cost of finished leather remained generally stagnant, enabling many tanners to buy at current levels and secure good profits to help offset still very low split prices.
Texas prices found the bottom and, in some cases, bounced. Averages of 62, 64lb for July/August shipment sold for as high as $64 and USDA export sales exceeded seasonally heavy slaughter significantly for two consecutive weeks. However, the price improvement on Texas and some other steers was not universal, as not all of the major four packers said they were able to trade at over $62 (FOB) on 60/64lb.
US export numbers up
In the first quarter of 2017, according to the US Hide Skin and Leather Association (USHSLA), the US exported 5.8 million salted skins, with revenues in excess of $380 million. Compared with the same period in 2016, there was an increase of 17% in volume and 19% in value, reflecting the increase in cattle slaughter. On average, during the first three months of 2016, US salted hides had an export price of $63.80. In the corresponding period of this year, the average price was $65.43, an increase of 2.5%.
Exports of wet-blue from the US were less positive. Between January and March 2017, importers bought just over 1.5 million skins, paying a total of $142 million, down 6% in volume and 5% in value compared with the same period in 2016.
During May, export sales and shipments shown each week to Thailand were larger than that country has been known to absorb. This caused much consternation, but it appears that the hides that were shipped there were being contract blued for sales into China and had little, if any, effect on US prices.
Joesley Batista resigned as chairman and member of the board of the world’s biggest meatpacker in May. JBS’s board of directors unanimously elected Tarek Farahat, formerly of Procotor & Gamble, as his replacement.
Company owners and brothers Joesley and Wesley Batista entered into a plea bargain deal that accused Brazil’s President Michel Temer of endorsing the bribing of a witness in the country’s largest meat scandal. Their testimony unleashed a political crisis, alleging that they bribed hundreds of politicians, Reuters reports. Both brothers resigned from their posts with immediate effect.
In the same meeting, José Batista Sobrinho was unanimously elected vice-chairman of the board. The board also ratified the creation of a governance committee that will be led by Farahat, the main objective of which will be to implement global best practices in governance and compliance at JBS.
“Governance is my utmost priority," stated Farahat. “JBS will work hard to restore trust with the market and protect the 235,000-plus families that are part of the firm. There is a significant amount of work to be done in order to regain the trust of stakeholders.
“JBS remains focused on offering consumers the highest quality products and services while maintaining a close partnership with suppliers and clients, while supporting our team members worldwide.”
JBS has been barred from receiving any loans or investment from Brazilian Development Bank at least until a leniency agreement has been signed with prosecutors.
Rosen Law Firm filed a suit on behalf of US investors over false or misleading statements, on the grounds that as JBS failed to disclose bribes to politicians and “suspicious trades that exhibit signs of possible insider trading prior to the revelation of a plea deal” by its top executives.
Temer, who has denied any wrongdoing, is fending off calls to resign. He stepped up his defence in a nationally televised speech at saying JBS made “millions and millions of dollars” in under 24 hours with currency trades because it was aware that the brothers’ testimony would lead the real to depreciate. Meanwhile, the conditions given to the outgoing chairman as part of the plea agreement reached with prosecutors will be questioned in the Supreme Court, newspaper O Estado de S. Paulo reported.
Moody’s downgraded JBS and its wholly owned subsidiary JBS USA to Ba3 from Ba2, citing increased risks related to potential future litigation cases, governance of the company, and liquidity, on which there was “currently limited visibility”.
Mexico scraps screw worm laws
Hides and skins no longer require a fumigation certificate in order to travel from the US to Mexico. A new HRZ import document issued by the Central American nation relaxed some of the measures put in place following the screw worm outbreak in Florida, though zero tolerance for manure was retained. USDA in Mexico City sent a letter to the Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA) opposing this new measure and requesting a stay in enforcement while the US and Mexican governments discussed the issue. No response had been made at press time.
Unexpectedly strong April placements pushed the 1 May feedlot inventories over 2016 levels. According to a report in Drovers, April placements were up 11% on last year, which was above the average trade guess but not outside the range of expectations. April marketings were up by 7%, also above expectations and a continuation of strong feedlot marketings. Slowly growing feedlot inventories reflected the increase in feeder supplies resulting from three years of herd expansion. The 1 May on-feed inventory is the highest monthly cattle on-feed total since February 2013 and the highest May total since 2012.
Overall, it’s hard to say what all this means for the market as a whole, but there is a sense that prices have finally hit bottom and now at least have a chance to improve over the summer.