Don Ohsman's view from America

Benchmark heavy Texas steers, the most voluminous selection produced in North America climbed more than $2 since our last issue and, as we go to press, odds are that $69, or a gain of $3 since mid April is about to be paid by buyers. On a c&f basis, tanners in Asia are already at $74 c&f and there are few who would bet against $75 c&f becoming possible in the near future.

These are the highest levels, short lived BSE panics not withstanding, seen since 2001.

The same holds true for branded steers, the second most populous selection produced each week. Here prices have also risen commensurately with Texas and are about to show a $3 increase in the near term as well. Current trading levels are at $67.50 with most expecting $68 to be paid imminently on seasonal averages of 60/62lb.

Heavy western Canadian steers remain in excellent demand for heavy leather orders, especially at this time of year when other selections in the 48 states are lighter. Major packers were able to achieve $68.50 and $69 or $74 if not more c&f on steers averaging 66/68lb.

Packers, however, are extremely forward sold so that even when paying current prices, tanners will have to wait until fall before they will see the hides they bought in May.

Butt branded steers also rose along with other steer selections since our last view. Butts normally sell on a par with heavy Texas and this time is not an exception. Sales by mid May took place at $68.50 with most expecting to see $69 if not higher by months end.

Heavy native steers were not to be left out of the equation, with advances in the past 30 days of nearly $2 per piece registered. With not only good US automotive tanner demand but also additional support by buyers in Europe and elsewhere, it is quite likely that heavy natives have a chance to reach $70 before the end of May.

Tanner interest for cows was especially keen in mid May based on what appeared to be a new round of upholstery leather orders placed to tanners in China. Being already as far forward sold as they dared, sellers were reluctant to even offer in some cases and, in others, were only tempted with higher prices.

Mid month prices for branded cows advanced to $45 in the west and southwest and as much as $47 from good northern processors. Heavy native cows were in small supply with some sales reaching as high as $53 from better origins. Traditional Mexican demand added fuel to the fire in cows.

As was the case in plump cows, Holstein prices advanced as well. Prices rose from $52-$52.50 in April. Very well forward sold producers were able to push prices as high as $54-$56 by the third week in May.

As we go to press, it would seem that there will be no end to the current market strength. However, from experience, everyone knows that sooner or later the market will change direction and turn down. But, there are few if any pundits who are willing to seriously predict when this will occur.

We, as well as most others in the trade, do not expect to see any decline in May. This is simply because there is hardly a producer, enabled by their forward sold positions, that is willing to sell at prices lower than last achieved.

US slaughter normally increases in summer during barbecue season but as experience has shown, unless too extreme, American slaughter normally has little effect if any on hide prices. We feel that this time will not be an exception.

What is more important, and confirms producer claims of being so well forward sold, are the record breaking number of raw and wet-blue hides contracted for export between now and fall. The combined outstanding raw and wet-blue total is now at 6,534,900 which surpasses the record set last week at 5,912,700 and is the highest number since records have been kept.

As we've also noted before, supply is the key. Most producers simply don't need to sell and, in fact, are concerned about being over-sold. Their main impetus to extend their positions and keep taking orders, if higher prices can be achieved, is to cash in while current levels can be obtained.

Meanwhile, tanners for whatever reason, still have a good appetite to cover themselves with hides, even for late summer and early fall shipment. This translates to deliveries approaching year end. Bottom line: tight supply + good demand = higher prices, regardless of the commodity involved.

Many in the US trade wonder how tanner demand can be so good for so long? From a seasonal point of view, tanners' leather business should have begun to slow last month and yet still continues unabated, while higher prices are paid for hides. In researching the situation in the industry we find three key factors:

First are the expiring Chinese import books that do not all expire at the same time, with some able to be used for much of the year. In many, if not all cases, hides have to be received before the permits expire, thus the demand by some to only buy for certain delivery dates.

Secondly, leather and leather product business is very good and better than has been seen in many years. Leather at retail is fully in fashion. The economies are better this year compared to previous years in many parts of the world where leather consumer goods are sold. There's simply more business around.

Thirdly, based on the second reason, leather price increases have to be not only higher than tanners would like to admit, but also more widespread. Little is heard these days from tanners in Asia and even Italy about how much money they are losing due to higher hide prices. Instead, most remain extremely busy.

Tight supply (far forward producers) will take a long time to dissipate but demand could slow much faster. The million dollar question is, when? The answer? When the trade least expects it!

The trade is in new territory in that these outstanding numbers are a new phenomenon. Many display concern about what will happen should leather orders slow or retail sales ease and buyers find excuses like late delivery or quality issues to cancel orders.

This could be not only at retail, but at the manufacturing and leather sales level. Hide contracts would of course then also be affected. Meanwhile, the industry is enjoying comparatively good times as spring turns to summer which we hope, will not become a bummer!

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