Don Ohsman's view from America

Another factor is that at the same time, tanner demand increased due to concern that adequate supplies of Brazilian wet-blue would not be available when news of foot and mouth disease broke in that country. This encouraged some Asian tanners to make 'insurance' purchases of American material, with cows making up the bulk of this. Finally, there seemed to be a pick up in leather business for Asian tanners who found themselves under bought and had to pay what far forward US packers demanded.

Heavy Texas steers, the most voluminous grade of hide produced in the country, moved up to as high as $64.50 this past week or prices as high as $69.75 c&f. This is up from a low of $63 in the first week of October. Astute buying by traders added to the increases.

The second most voluminous selection, North America branded steers, advanced as well but not to the same degree as heavy Texas. Prices rose from $62 in early October to $63 by late November with Chinese demand that normally supports this selection waning due to potential increased tanners' costs which was, in turn, caused by customs uncertainties in the region.

Heavy native steers managed to break out of their trading range during the period with some export business combined with regular domestic automotive tanner demand. Prices rose to as high as $66.50 in late November, compared with $65 in late September and early October.

Heifers were firmer if for no other reason than a lack of supply. This is not a-typical in the cold winter weather as heifers usually get heavy enough for a number of producers to include them in their steer shipments. Heavy native heifers traded in modest volume at $58 and their branded equivalents mostly sold at $55-$56.

Butt branded steers have traded on a par with heavy Texas throughout the year, but in November, Texas prices rose while butts did not. Butts were unable to surpass $63.50 through November and only moved to within $0.50 of Texas as the month came to an end. Much of this was likely caused by trader positioning that is usually concentrated on Texas steers more than any other selection and certainly more than butts.

The entire cow sector fared much better since our last report. Branded cows in the west and south-west that had sold as low as $36 in October advanced to as high as $37.50 and even $38 in November. This was due to the aforementioned increase in demand over tanner concerns of a lack of alternative low cost material. Premium type northern branded cows sold for as high as $40 and $41 just before Thanksgiving in late November.

Heavy native cows also strengthened. This selection had been under extreme difficulty in September and October but in November demand perked up as did prices. Averages between 48-52lb sold at $43 and $44, up about 5%. More importantly, producers were able to move their accumulations. Italy was a significant buyer.

Holstein prices advanced as well, off the lows of October when sales took place for the better origins at $44. By mid-November, $46 had been paid which equated to prices between $51- $52 c&f. This enables producers of dairy cows as well as branded and native cows to find themselves in well forward sold positions and able to turn down bids that did not result in increases over previous sales.

Keen demand from both Europe and Asia for over weight kip pushed prices of

this relatively limited production higher since our last report. Prices advanced from $47-48 a month ago to $48-49 in recent weeks with producers very well forward sold.

Small packers and low grade selections were fully firm since our last report, although supplies were relatively tight. Buying interest was seen from Asia, and Mexico, traditional consumers of these grades. Fleshed native 58/62lb small packer (knife flayed) steer heifers sold between $48-49. Fleshed renderer thirds traded at $25-27 much depending on origin and average.

There are many imponderables about the future trend of American hide prices as we go to press. The Chinese situation is very much up in the air. In a worst case scenario, the cost of converting raw hides into wet-blue in China could increase by more than 50% due to potential customs collections.

In a best case scenario, nothing will happen. There won't be any changes, or the country's tanners who are affected will find a way to circumvent any increased costs.

Furthermore, an announcement of the Japanese again allowing American meat to be exported to Japan could occur before the end of the year. At least in theory, this could increase packer profit margins and as a result increase slaughter and along with it, of course, hide supply.

Speaking of hide supply, cattle on feed supplies as of November 1 were up 1% giving further proof that the cattle cycle in North America has seen it's bottom and supplies of market ready cattle available to packers are now on a multi-year increase.

Finally, there is serious talk about the United States Department of Agriculture allowing Canadian cows (animals more than 30 months of age) to be imported into the country again. This was halted with all cattle at the discovery of one Canadian cow with BSE several years ago. Young cattle have been permitted since summer but if this new permit, expected to be issued in late spring, should take place, it will increase the (currently) short supply of cows in America and create an additional supply of branded, native and to a lesser extent Holstein hides in the market.

Two things are almost certain amongst all the unknowns. Even though retail sales of leather products are growing with stores reporting better profits, there is little hope of leather prices to tanners on upholstery, footwear and accessories increasing. This should continue to limit and cap any significant upward price movement on American hides for sometime to come. The second thing is the continuing, if not still growing, over-capacity amongst shoe manufacturing and tanning facilities in Asia and elsewhere. This takes away any pricing power on the part of mainstream tanners and their customers. This is the key reason why it is almost impossible for hide prices to break out of the established trading range, especially in steers, seen for so long.

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