Don Ohsman's view from America

The incredible buying pace of China that began earlier this year continued to book hides at a rate that was more than 50% up on a year ago. Since January, heavy Texas steers have traded at, or incrementally close to $66 on 60/62lb averages against asking prices mostly at $67.

This has been regardless of higher or lower kills, incredibly strong Asian buying and historically extended shipping terms.

On a c&f basis, the highest prices heard in early and mid April were $72. Most tanner bids were at $71.50 which no longer seemed appetizing to sellers.

It's not clear if as many Texas were sold since the Hong Kong fair as were produced but this is of no concern to packers.

Their forward sold positions enabled them to disregard bids below $66.

As in the case of Texas, packer offering levels have been steady since February. However, advances of $0.50 were obtained in mid April in a few cases, as much due to June/July shipping dates rather than other packers who could only offer for August up through September.

Butt branded steers that could be shipped before July appealed to tanners enough to obtain higher prices. In addition, offerings were less than plentiful. This led to butts also moving $0.50 higher in mid April with most trading taking place at $67 compared to $66.50 earlier in the month.

Heavy native steers moved as high as $68 around Easter after staying steady since our last report in and around $67.

A surprising surge in automotive tanner demand, regardless of a somewhat larger than normal percentage of natives in the river area slaughter mix, forced tanners to generally pay higher prices in order to fill their buying needs.

Prices on branded heifers were somewhat firmer. This was irrespective of the fact that more offerings were available, although still not in any great abundance. Light average western origins sold at $58, up a dollar from past sales. Southwestern packer productions sold at $59, also on averages below 50lb. River branded heifers traded at $55.

Native heifers became almost plentiful during April. Sales were mostly at $59-$59.50,down from $60 on averages that were mostly 48/52lb.

Due to the large volumes of branded cows sold during weeks up to and around the APLF in Hong Kong, the majority of producers offered only sparingly in mid April at prices typically at $2 over last sales.

Attempts to obtain increases over $41-$42 in the west and $43-$44 from northern processors deterred buyers.

Little if any trading took place in heavy native cows either. Offerings were seen between $49-$53 for good packer/processor material but buyers showed a lack of interest at these prices with the result that few traded.

As was the case with plump cows, Holsteins were very quiet.

Better origin offerings were seen mostly at $54. This was generally about $2 over previous sales which failed to entice buyers. However, as in the case with so many selections, over-sold producers didn't mind. Holstein steers inched higher trading up to $67 compared to $66-$66.50 earlier in the month.

There were ample offerings of branded bulls in April, but at seller price ideas that exceeded what buyers were willing to pay. Previous demand seen from Asia was absent and Mexican tanners showed little interest at asking prices that ranged between $49.50-$52 Laredo.

Native producers were well enough forward to mostly not even offer. Native bulls with a large dairy content traded at $54 on 100/110lb averages.

In recent reports regarding heavy Texas, butt branded, branded and Colorado steers, the two tier market that is currently in place should continue to be so for the near term.

With regard to both plump natives and branded cows, along with dairies, after the huge round of business that was booked in late February and early March, the need to sell on the part of producers and the necessity to buy on the part of tanners has dissipated. For sellers, they've sold more than they imagined and at continually rising prices.

Asking prices now appear to be beyond the ability of tanners. These same tanners, however, have bought equally in substantial quantity and can now, in many cases, afford to sit and wait in the hopes of lower prices in the near future.

Raw hide and wet-blue exports taken together amounted to 8,592,800 pieces in the first quarter of the year. Add to this a conservative estimate of 125,000 raw hides/week consumed by US tanners and the total is 10,217,800. This compares to a total slaughter of 8,931,000 hides or a difference of 1,286,800 fewer hides produced than sold. Before one goes out and buys all the hides they can find, it should be noted that it is normal for more hides to be sold forward than produced so that packers and processors always have orders to fill as the hides are generated.

However, outstanding combined export sales of raw and wet-blue hides totalled 5,431,700 pieces as of March 30th. The outstanding total now stands at 5,569,200 pieces, the first time this total has surpassed 5,500,000 since June/July 2004.

It is interesting to note that during that period two years ago, hide prices were coming off the artificial highs caused by the December 2003 discovery of a BSE infected cow in Washington that pushed Texas prices into the $72.50 strata during the first few weeks of 2004. This created an incentive for wise members of the trade to take advantage of what they realised would be a short-lived phenomenon and sell all the hides they could during those weeks.

In our view this leads us to conclude that this unusually large forward sold position amongst producers is primarily based on two factors. One is that sellers realise that current levels are very good and that they should sell all of the hides they can at these prices.

We see a similarity to the same rationale as was seen in the first weeks of 2004.Why are hides at their current price levels? Although leather business has certainly been very good, and better than has been seen in recent years, it is not that much better that it warrant an increase in exports to China alone that exceeds 50% of last year.

The bottom line: Anticipatory buying by tanners in China and those who ship their hides to China for contract bluing have created and sustained the current market.

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