Don Ohsman's view from America

In a story posted on the CLIA website on July 7, China posted what they termed an adjustment on policy of importation of semi-finished leathers. The announcement said:

'The government of China has adjusted the import tax system of importation of semi-finished leather. It was summarised as follows: The importation of semi-finished leather (HTS4104-4106), where the inputs are subsequently converted to finished leather (HTS4107-4115), then to leather products (shoes, bags, leather garments, etc) and re-exported - customs duty and vat free.'

As prices fell to 18 month lows a relatively small number of tanners in China and some in Korea simply cancelled existing purchase contracts with their hide suppliers at prices that were $5-$15 above current levels.

Desperate to move product, a number of sellers were forced to re-negotiate and take the abuse heaped on them by these formerly valued customers.

There were few exporters who did not have to re-sell hides that had been sold at higher prices this past spring. One tanner in Korea even sent letters to his suppliers advising them that their existing contracts were now invalid.

These cancellations left those dishonorable tanners short of hides, and a good percentage of the huge volume of bids seen on Texas and branded steers seen at the market's bottom was from these same tanners who found new suppliers to buy from who were not involved in their cancellations.

Processors, packers and traders should now be able to have sweet revenge to those who reneged on their previous obligations by extracting either higher prices now or refusing to deal with them at all.

The majority of tanners in the Far East acted honorably but still found themselves under bought for the past month or more in the hopes of buying cheaper at some point. By late July, the upward trend in the market forced many to meet seller demands of higher prices.

By the third week in July, heavy Texas had risen to $66 and the last week of the month saw asking prices as high as $68. On a c&f basis, bids were turned down at $73 c&f with counters seen at $75. Packers and processors reported selling all they wished and postured themselves to hold out for further increases ahead.

Interest was fairly widespread on branded steers which encouraged producers to hold out for higher prices. Although some trading took place early on at $64, the majority of branded steers sold at $65 by the third week of July.

Sales on a c&f basis were seen between $71-$71.50 for the most part. Colorado steers moved fairly well as a low priced alternative to branded steers. Business was reported at $63.50 on heavier averages with $64 being passed down a little later.

Demand on butt branded steers was more than satisfactory. Most sales took place at $65.50, traded at $66 in late July and several dollars high by the first of August.

In Heavy native steers, most business was done at $68 for good packer material. Sellers trying to attain $69 were rebuffed by domestic tanners by month's end.

Depending on origin and average, prices on heavy native and branded cows moved higher. Most producers were sold far enough forward to only offer in comparatively limited quantities which helped the market on this selection as well.

Conventional native packer material sold between $46-$48 while good processors traded between $52-$53 in the second half of July. In the southwest, brands bids $52.50 c&f were not even seriously considered with prices moving up to $46-$47 and getting close to $50 for northern premium productions.

Holsteins producers remained resolute in only considering bids that were higher than last sales. Bids on packer and good processors at $63 c&f were quickly passed. On an fob basis, bids at $57-$58 were countered at $59.

In various types of skins, late July found fleshed sows selling at $9.50-$10 Laredo depending on origin and average with good demand.

Pigs were reported in the area of $6 and somewhat higher based on good Chinese interest. Over-weight kip went into hibernation as most European buyers began their summer holidays. However, indications were several dollars lower than early June levels.

Although prices dropped on small packers during the long downturn, they did not fall as far or fast as other selections. This resulted in less of a bounce as well.

Conventional natives as well as some productions with a small percentage of brands traded between $52-$54. Conventional, mostly native, steer/heifers sold at $48.50 Laredo on heavy averages. Fleshed heifers traded at $52 Laredo on averages below 50lb.

A small scandal hit the US trade in late July as the APHIS office (Veterinary) advised that they had discovered illegal health certificates issued by some hide exporters. The government agency said that 'China has now started sending US certificates (mainly for export of hides) to verify and we are finding fraudulent certificates. In some cases, exporters have admitted to fraud beyond the certificates that were initially brought to our attention. APHIS proceeded to prosecute those involved.

In and around August 1, manufacturers, brands and most importantly, most of the retailers of footwear and furniture will convene in Las Vegas for the WSA shoe show and Furniture World.

The two semi-annual events are coincidently held at about the same time, but their significance on leather prices is a factor that affects hide prices.

If retailers report good back-to- school traffic in footwear, and furniture chains display optimism about their sales for the coming season in leather, they are inclined to posture themselves to place significant orders with their suppliers during and shortly thereafter the shows.

By the same token, manufacturers/brands, testing customer reaction to new styles and the retailers ability to take on fresh merchandise for late winter and next spring will determine the volume of leather orders they will soon be placing with tanners. These orders are typically placed to cover their needs for the next six months.

We think that tanners will be receiving a good volume of orders (second half blanket orders are normally less than the first six months of the year) at prices favourable to their raw material costs.

This is based on the economies of the developed and, for that matter, some of the under-developed countries in the world, combined with the very good fashion demand for leather.

If tanners are receiving orders at prices that allow good operating margins, they will be active buyers of hides to cover these orders.

The Shanghai leather fair in early September will be another indicator. Bottom line: We expect to see very good tanner demand leading up to Shanghai that should push hide prices higher.

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