Don Ohsman's view from America

This resulted in major packers increasing their asking prices on their Texas steers but buyers were not impressed. The higher asking prices seemed to deter the number of bids but producers found that at $68 a good volume of Texas could be booked had they wished to sell at that level. Instead, major packers sold some quantities at the highest bids obtainable ($68.50).

The pace of trading in branded steers was less than voluminous when August began as a number of buyers and sellers remained too far apart on price to conclude much business. Some sales were concluded at $67 while one producer rejected bids at $67.50 at one point.

Good processor steers were bid at $66.50, countered at $67.50 and traded in between. Colorado steers traded between $66.50-$67 in limited volume. Butt branded steers sold in late July at $67 but, by the first week in August, producers were able to force prices up to $68.

What appeared to be a prevalence of supply, as well as a lack of domestic interest for natives, put a crimp in seller attempts to raise prices as August began. The majority of producers were able to obtain $68.50 and up to $69 for the most desirable packer material.

One of the largest automotive upholstery tanners noted recently that their industry segment is anticipating a slowdown in leather orders from various brands who produce large quantities of leather seats for SUVs and other large formerly popular vehicles. These models have been the largest single segment for leather seating per vehicle but there has been a sharp drop off in sales for this type of car.

A handful of tanners in China created good demand for branded cows with the end result that packers and processors who had been carrying inventory in late June and July were able to unload what they needed and build normal forward sales positions in August. Western and southwestern productions sold as low as $38 from longer freight points and lighter averages. Other trades from western origins on heavier averages were recorded at $41. Bids on good northern and river productions as high as $44 were passed and countered between $45-$46.

Trading in bulls was generally quiet. Others with a high percentage of dairies were available at $57 but we were unable to confirm any sales. Southwestern branded bulls sold at $45.

The largest shoe show in North America took place during the first week of August. This show is held bi-annually and attracts every major brand from the US and many from overseas but, more importantly, thousands of retailers throughout the US and Canada.

The lack of power in China is starting to significantly affect fall shipments. There is also talk about companies in China shutting down their factories for one week a month instead of one or two days because they don't have the power supply. Also, the increase of a 'middle class' work force is shifting major brands to invest more heavily in alternative locations.

Major brands agreed that the challenge is that these new factories don't have the technology or the certifications to build products using waterproofing, cushion technology etc that are becoming more necessary in the building of shoes.

In a general sense, the entire show generally seemed a little slow. There wasn't any true 'buzz' about a certain line or any big news. Everything has begun to look the same. There is massive duplication, which is not new but just seems more obvious than ever.

On the plus side for the tanning and associated industries lots of leather was seen in the various styles on display.

Since about 80-90% of total North American hide production is exported, we found it interesting to note the following: the combined outstanding total of raw and wet blue hides still to be shipped declined from 5,939,300 in mid July to 5,861,200 as of July 27. This is down from the record 6,620,400 for the reporting week ending June 15 but is still historically high when compared to previous years.

The numbers indicate a trend that is now in its sixth week. The huge forward sold positions of producers have been gradually returning to more typical numbers which have ranged in the area of 4.5 million in previous years.

There are few, if any, who believe that the price for any selection is about to go down. By the same token, we have to be impressed by the inability of steers to obtain increases over last levels. The majority of all producers are only interested in selling at the latest highs if not more. However, at current market asking prices, there appear to be less buyers willing to go along, with the exception of branded cows and small packers.

Regardless of several packers being very well forward sold, they were unable to push tanners to pay more than $73.50 this week on a c&f basis for heavy Texas steers. The same holds true for $72.50 on branded steers which, combined, represent the majority of US hide production. On a c&f basis, most calculate these prices back to $68.50 and $67.50 respectively fob.

Texas have not really gone beyond $69 since a short lived BSE panic in early 2004. Even then, when $69-$69.50 was paid for a brief period in May, producers were forced to accept lower bids (while professing to be extremely well forward sold) in order to keep hides moving.

Given the current situation, our sense is that we are within $0.50 of a top on Texas as well as branded steers for the simple reason that leather prices have not advanced since Spring. Until higher prices are paid, if indeed they will be, in our view, tanners will simply not pay anymore than a basic $69 on Texas or possibly $68 on branded steers. .

Producers of heavy native and butt branded steers are not positioned well enough to force prices higher. Not until demand improves and sales increase as they become more attractive compared to heavy Texas and branded steers, will sellers have a chance to force increases. Given the narrowing disparity between these selections, we would expect to see both natives and butts advance in the near term on increased demand from export interests.

We believe that branded cow producers, especially after sales in recent weeks, will be able to push tanners higher in the near term and that small packers and low grades have a better than even chance to advance as well. There is no reason not to expect higher prices for Holsteins..

Based on the information with regard to fashion trends from the WSA leather demand seems to be gaining on synthetics, regardless of price. Synthetics costs have risen due to the cost of the raw material used to produce non leather footwear along with rising production costs for everything be it in China or elsewhere. Inflation is a fact. The only thing debatable is how much or fast will it increase.

As long as the economy stays in decent shape, and leather footwear as well as upholstery remains in fashion, we think there's a reasonable chance for at least incremental advances for the most desirable shoe upper prices before the end of the year. Should this occur, then $70 Texas should not surprise anyone by November or December.

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