A view from America

March found many weeks where a combination of exports and domestic hide consumption surpassed weekly slaughter and still the market developed a softer tone on steers. The supply demand balance that had kept prices essentially steady month after month finally began to break out of that mould.

Heavy Texas steers that traded at $63 in early March declined to $62 by early April. Averages stayed at 60/62lb. The softness in Texas influenced the second most voluminous production, branded steers, to fall into the $60-$60.50 range by mid month. Colorado branded steers broke through the $60 level that had been seen since last year and sold between $58 and $59.

Heavy native steers that had been trading at $66 succumbed to bids of $65 in early April and were reported as low as $64.50 during the second week of the month. Butt branded steers decline as well, trading down to $62 in the first few weeks of April. Heifers that had been scarce since last fall became more available. Natives sold down to $58, off from their $60 top in February and early March. Branded heifers moved at $54-$55, down from sales reported as high as $57 a month and more ago.

Holstein prices were also softer since our last issue. Good processor and packer fleshed dairies sold down to $50 on 48/50lb averages in early April. Prices in Korea and China, the principal destination for this selection peaked at $55 c&f for the desirable origins. Premium packer dairies, as usual, sold for several dollars more. Native cow prices also fell from a high of $51 for the top end material to $49.50-$50 while ordinary processor productions sold at $47. This was down a dollar and more.

One of the few bright spots was branded cows that actually rose in price over the past 30 days. Western and Southwestern fleshed branded cows sold at $45, up from $43 and $44 a month earlier while northern processors attained $46. Low cow slaughter combined with abnormal demand by one large tanner buying an inordinate percentage of the kill attributed to the firmness.

Typically, traders tend to establish long positions in the weeks preceding the Hong Kong leather fair that pushes prices higher. This is so that they will have something to sell during tanner visits immediately before and following the show. This year was an exception as traders lacked any confidence in their ability to liquidate such purchases profitably. Prices fell as a result, instead of rising as they usually do.

American hide producers and traders who went to this year's APLF with hopes that tanners, who had been buying on what seemed like a hand to mouth basis, would come to Hong Kong with large appetites were disappointed. Fewer US hides changed hands during the show than would have normally been the case had everyone stayed home. A majority of large Korean and Taiwanese tanners also stayed away.

There is always buying interest, and some bids were seen on steers a dollar or two below last trades. However, producers were unwilling to acquiesce, at least during the fair and the end result, at least for Americans, was one of the quietest conclaves in the more than 20 year history of the show.

There was both positive and negative news in recent weeks about American efforts to be able to again export meat to Asian countries, led by Japan, and the reopening of the border with Canada to permit live cattle to enter into the southern 48 states. As reported last month, the USDA was all set to re open the border on March 7, only to be blocked in court by a group of cattle feeders.

Industry sources say that without the 75,000 or so Canadian cattle that used to be available to them each week, they have had to bid up the price of cattle in feedlots to historic highs and have, therefore, been losing money. The good news is that the administration is behind the border opening, but the American court system is notorious for delays and this issue is not likely to be positively resolved for a number of months.

When including increased slaughter in Canada by both US packers with facilities there and current as well as new slaughter facilities in the country, from a tanner perspective, there is not any concern of fewer American hides and or wet-blue. This is exacerbated by the on going trend of using lower cost, even if lower quality, Latin American hides in lieu of North Americans.

On the Asian front, Taiwan announced the resumption of the importation of American beef again, and made a large purchase early in April. There have also been more positive signs from the Japanese government, the single largest export market for US meat. Although preliminary indications were that this embargo would be lifted by July, any specific timeframe has not yet been acknowledged by the Japanese government that is under continued pressure by the Bush administration.

What all this means to hide prices is that weekly US slaughter has been hovering between approximately 560,000 and 590,000 since last fall and is running more than 4% below last year's already low slaughter. This is simply due to packers' inability to generate any profits without their lucrative export markets for their meat, and the normal supply of live cattle from Canada.

Size does matter, even though it has been shown time and time again that the hide market is regulated by tanner demand. At the time of the APLF last year, steer prices were about a dollar higher than this year. In the month following the 2004 Hong Kong show, prices on heavy Texas steers dropped to a low of $60 while weekly slaughter went from the 650,000 range up to 725 and 750,000 by mid May.

No one expects to see weekly slaughter surpass 700,000 this spring, unless there is an unforeseen break through in the Asian and Canadian border situation. However, numbers of market-ready cattle are expected to increase in the coming months regardless of embargoes and kills usually rise based on consumer demand in late April, May and into June.

We think that we will see the same situation again in the coming weeks which is more than likely to force producers to accept tanners lower bids. In our next report, we would be surprised if steers as well as most other selections were not at least a dollar if not two below the prices quoted above.

Don Ohsman

Hidenet.com

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