Don Ohsman's view from America

The cost increases to be imposed on tanners who import raw material and re-export it in one form or another, appeared to have caused tanners to reduce bidding. The ongoing high prices being asked along with abnormally extended shipping dates by well sold packers also acted as a deterrent to buyers. These factors were evidenced by a drop off in US export sales.

Outstanding raw and wet-blue sales contracts still to be shipped have fallen from their historic high of 6,620,400 pieces in mid-June to 4,723,300 in mid-October, or nearly 30% in four months.

Many attribute both the rise and decline in the combined numbers of outstanding pieces (traditionally these fluctuate between 3,500,000-4,500,000) to extraordinary Chinese buying in the first half of the year to utilise hand books before expiry. One theory is that the current decline in buying is due to the expiry of hand books. Another factors to be considered is the normal reduction in new leather business in the second half of the year.

There is always another side to every story. In this case, if you are a hide seller, this can be interpreted to mean that Asian hide and blue inventories are now too low and will have to be replenished soon. Others seeking the bright side say the slowdown is due to tanners in Taiwan and China already planning to schedule arrivals before or after Lunar holidays which could lead to a pick up in buyer interest in November and December.

It should be noted that not all hides, wet-blue, splits etc that are brought into China are re-exported. A significant percentage are consumed domestically. Those tanners and finished goods manufacturers also have to pay an import tax but this has traditionally been passed on to the end user.

Regardless of Chinese VAT/customs issues, hides continued to be produced and sold. Texas steer asking prices and, ultimately, trading levels remained consistent with previous weeks in late October. $70 offers generally translated into $69 sales. Bids were seen in good volume since late September at $68 and even $68.50. On a c&f basis, the highest prices heard were at $74.50 but $74 was accepted on more than one occasion.

Tanner activity improved on branded steers in mid-October but despite purported well extended forward sales positions, sellers were unable to surpass last week's levels of $68. There was some business reported of lighter than seasonal averages at $67-67.50.

Colorado steers traded at $66.50, generally down from $67 that had been achieved earlier in the month. Most butt branded steers sold at $69, holding on to the gains obtained in recent weeks. The majority of export sales were at $74 c&f and domestic tanners, for the most part, paid $69 fob, maintaining butts parity with Texas.

Heavy native steer prices remained steady after rising from $69.50 for better productions in late September to $70 in early October. Export interest was less than voluminous but domestic tanners took up the bulk of what packers needed to move.

This is not to say that some natives did not sell at $69.50, or in a case or two, even at $69 but depending on origin and average, we would have to call this selection $70 for major productions. Domestic consumption of natives has fallen as there is now only one sizeable automotive tannery soaking natives left in the US. The other upholstery tanners are doing a little contract tanning here and there.

As has been the case for quite some time, offerings and the resultant sales of both native and branded heifers have been scant. Small quantities of natives have changed hands each week between $60-61. Heifers have remained strong if for no other reason than their lack of availability at this time of year when steer weights are in their current range.

What might be explained as Chinese upholstery demand cleaned up the majority of branded and native cows in late September/October. Heavy western and southwestern productions sold as high as $47 with other producers selling out quickly at $45-48. Heavy native cows sold rapidly as well with prices seen between $54.50-56. Conventional packer natives saw bids in the area of $50-51 which were generally countered at $52-53.

Dairy cows did not participate in the relative euphoria surrounding plump cows. Producers were unable to muster any bids much beyond $57-58 for the better fleshed material. It appears that possibly more Holsteins were produced of late than sold. Conventional packer material traded sparingly in and around $52-53.

Buyers sought a somewhat depleted supply of both native and branded bulls, firming prices for those who were still willing to make sales. Seasonal average branded bulls cleaned up at $50 fob with other sales reported at $51.50 Laredo. Natives were scarce with a few lots reported as high as $54 on 105/115lb averages. On a c&f basis, Chinese bids were seen between $61 on brands and $63 on natives, which were typically rejected by well forward producers.

Small packer interest remained good while supply continued to be small. Low grade offerings were also scant and, when available, sold fairy quickly at fully steady if not incrementally stronger prices. Major packers have been faced with eroding or negative profit margins as the cost of live cattle has proportionally exceeded what chain stores are willing to pay them. As a result and in an attempt to get live prices lower, Tyson Foods, National Beef and Swift said in mid-October that they will cut back production hours at their beef plants for the next six-to-eight weeks.

In the case of Tyson, this is estimated to mean about 12,000 cattle per week. NBP president, Tim Klein, said: 'The move was made because of continuing bad market conditions in the beef industry'. Swift said that high cattle prices and low demand, including less-than-expected sales in key export markets, had made the gross margin unsustainable.

Meanwhile, for the year to date, federally inspected slaughter is running nearly 4% more than 2006 and industry sources say that the supply cycle has been changed for more than a year meaning that more cattle will be available in the next 4-5 years than since 2000.

The United States Department of Agriculture announced in the second half of October that cattle on Feed as of October 1 was 9% ahead of October 1, 2005. The nations packers are certainly not about to run out of cattle to kill, nor are there any concerns about future supplies of hides. In fact, the report said that US cattle inventory is at the highest levels since statistics began being tabulated in 1996.

Diminishing forward sold positions, ongoing ample supplies of hides, and the quandary over what appears to be significant increases in costs for the Chinese, all point to eventual declines from current highs in US hide prices. It could also mean increases on the cost of finished leather manufactured goods on a worldwide basis.

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