Prices are on the up again

By November 1, heavy Texas sold as high as $57 with producers talking higher prices later in the month. In the Far East, sales were recorded at $63-$64 c&f.
Branded steers rose as well, gaining $2-$3 before the first of November with $56 being paid against $57-$58 asking prices. $61-$62 c&f were paid early in the new month.
Long neglected heavy native and branded cows found better interest at the end of October with prices rising 5-10% by the month’s end.
As we go to press, the conditions of well-sold packers/ processors still exists, if not even more so than it did even before the sharp run up in prices. This should set the stage for similar price increases in early November. However, we have our doubts as at current levels tanners claim they are unable to operate profitably, even when factoring earlier purchases and a lower average cost.
Another factor is a combination of Chinese New Year closuress in February and concern by some tanners of avoiding winter grains. This means that hides that could be delivered in November and, to a lesser extent, December fared much better than those for January.
Cows are still a different matter. We see them as still being undervalued compared to steers. The vibes from the important High Point Furniture Fair a few weeks ago, and somewhat better news in housing, could prompt further increases.
A confounding question is why did, for example, heavy Texas steers, jump from $50-$51 in early August to a peak of $58-$59 by the first of September? By the same token, why did prices drop sharply down to $52.50-$53 and less than a month later back down to $50-$52 again?
In our view, the key is packer and, to a somewhat lesser degree, processor forward sales positions. When producers can keep their order books extended to their normal 3-8 weeks, depending on the policy of each, there is no pressure to accept lower bids to maintain those positions. If, on the other hand, a majority of tanners stay out of the market, or producers hold out too long for higher prices, then the following weeks finds them having to force sales and accept the best prices obtainable.
Looking back on the late July/August period leading up to the Shanghai leather fair in the first week of September, it appears that producers, as well as traders, were hoping to force prices higher by holding out for higher prices each week.
This worked fine until at the Shanghai Leather Fair. There were far more hides offered for sale than there were tanners to take them at the prices asked.
It’s not all producers’ positions either. Tanners also operate on a position, or inventory plan, that allows them to be sure they have adequate inventory to run their factories. However, tanners are far more price sensitive as they have to sell their leather, typically six months at a time, and then buy their hides to meet their future delivery dates. Their price is locked in. Not so for producers.
So why the large fluctuation in prices in a quite short period of time around July  to September and why now?
In our view, the same reason as before. Producers have well forward positions. In some cases, far more than they are comfortable with and this results in a hesitancy to offer significant quantities.
But Tanners don’t have much flexibility. There’s a limit to what they can or will pay.

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