Don Ohsman's view from America

Heavy Texas steers of up to $65.50-$66 at the time of the Shanghai leather fair drifted to a low of $63 by the second week of October. This new level, however, stimulated buying both by traders covering short or building long positions as well as tanners with the end result of large quantities changing hands. By the third week of October, packers had pushed prices up to $63.25-$63.50 although as we go to press, buyer interest was beginning to wane.

Butt branded steers also drifted lower in the month, trading down to a low of $63 for 64/66lb averages. Both domestic automotive and, to a lesser extent, side leather tanners along with Asian interest helped producers to maintain forward sold positions and resist lower bids.

Branded steer prices eased accordingly. Most 64/66lb averages traded at a low of $62 in mid October but, towards month end, well sold producers were able to work buyers up to $62.50 with some even holding out for $63.

Prices on Colorado steers declined proportionately with branded steers. River area productions averaging 64/66 and up to 65/67lb sold as low as $60 in October but recovered to $60.50-$61 before the month came to a close.

Heavy native steers drifted towards $65.50 during the period. They traded at $66 as September began but fell to $65.50 by mid month for most packer productions. Origins with longer freight, or good processor material, traded down to $65 but here, again, producers managed to be well forward sold and were able to turn down domestic automotive tanners' attempts to push prices lower.

In heifers, heavy natives sold at $57-$58 through much of October on 50/52lb averages. Buying interest was commensurately low with producer offerings. Branded heifers were available in comparatively good quantities during the month. Trades took place between $54-$55 with the majority moving at $54.50 on 50/52lb averages.

The cow sector continued to struggle in October. One large producer summed up the situation by saying if cow slaughter (including bulls) had been at normal levels all summer and into fall, prices would be much lower. Fortunately for the market, cow and bull slaughter has been running at historically low levels most of the year and has prevented further declines.

Branded cow prices fell to as low as $36 since our last report on fleshed packer 50/52lb averages. Heavy native cows had trouble in even finding someone to bid and the few that changed hands did so at prices ranging between $44 and up to $49 this week for premium productions.

Holsteins also faced selling pressure but some decent volume was traded when producers became willing to take $44-$45 for good productions in the first part of October. This was down from $50 in August. Holstein steers, available in small numbers, sold between $64-$65 throughout the period.

The big news in the second half of October is the situation of an outbreak of Foot and Mouth disease in Brazil. This disrupted the hide market, not to mention cattle and meat prices. The disease has already cost the world's largest beef exporter 31 buyers and could cost up to a billion dollars.

The nations instituting bans include Argentina, Chile, Uruguay, Israel, the primary 25 European Union states, Russia and South Africa. This is already creating confusion and some sources allege that this contamination could have come from cattle that were brought from Paraguay.

If FMD continues to spread and Brazilian slaughter falls substantially, it is quite possible that Asian tanners, who have come to rely on the lower cost Brazilian option, could buy more American hides, even if they will be cost prohibitive.

There were other supply disruptions affecting the American hide market this month. The IBP division of Tyson Foods, Lakeside Packers beef plant in Alberta, Canada, continues to be faced with striking workers. Picketing workers prevented three buses carrying plant workers from entering on one day, despite an order from the Alberta Labor Relations Board limiting the picketers' numbers and actions. Tyson were able to bus in 400 management staff and workers the following morning via an alternative route across a field.

They processed cattle that had been at the plant prior to the start of the strike. The plant normally processes nearly 4,000 head per day and Tyson were reported as planning to try to kill as many as they could with non labour workers and management this coming week. The situation with the union remains volatile.

Packers had been hoping to see a lifting of the embargo permitting American meat to be sold to Japan. However, the Japanese government has been expert at stalling American efforts. Secretary of Agriculture Mike Johanns said he again pressed Japanese officials for a fixed date to reintroduce US beef to Japan's consumer market, but was rebuffed. Johanns said he told the Japanese minister of agriculture, forestry and fisheries, Mineichi Iwanaga, that 'a serious problem' exists with frustrated members of Congress, who are planning trade retaliation if the border does not reopen quickly. The time has long passed for me to ask Congress to show patience', Johanns said. 'They've run out of patience.'

Packers say that once the embargo is lifted, their profits can increase and along with it the number of cattle they can slaughter. At least, in theory, this should create more hides and, therefore, reduce prices. We repeat, this is theory only as previously larger or smaller kills have had little direct effect on hide prices.

Meanwhile the US is not a saint when it comes to trade regulations restricting the movement of cattle. In what could be termed a double standard, the Canadian Cattlemen's Association warned cattle producers that its talks with the USDA regarding a revision of the rule to reopen the border to include live cattle over 30 months of age were unsuccessful and that it is likely to take until 2007 for the border to fully reopen.

Reports were heard that the country had an over abundance of cull cattle which are normally in high demand in the US but could still not be imported. A group of industry and government leaders met with the USDA last month and reported that the reaction they received was 'don't hold your breath' in response to the question of when 30 month and older Canadian cattle can again enter the United States.

Our expectations for the market trend between now and December is that prices will more than likely remain in their narrow trading range. This is based on supply that will slow down during the Thanksgiving/Christmas period when meat consumption is at its seasonal low.

At the same time reports from tanners in Asia say that at present, the volume of leather orders are a good 20% below last year at this time. One reason is that the cost of leather is not competitive with the cost of substitutes and the consumer generally remains unaware of quality differences.

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