Don Ohsman’s view from America

The pace of activity remained on the slow side going into the second half of September. Demand appeared to be generally apathetic on the part of tanners. Meanwhile, most producers maintained that they were far from desperate to make sales and were only interested if bids were within close proximity to asking prices. The end result was poor volume with a softer undertone prevailing in the market by mid September.

Texas steer prices weakened on a c&f basis with about the only sales obtainable at $72 c&f. Even then the number of hides sold appeared to be less than those that were produced. This compared to offers seen in the area of $74.50-$75 which were attempted in Shanghai and which resulted in minimal business being concluded.

On an fob basis, initial packer offering levels of $68 or even $69 were ignored by buyers. By the third week of September, there were willing sellers at $67 but no buyers at this level. More than one packer admitted that bids at any price were few and far between.

As in the case of Texas, there seemed to be more offerings of branded steers than there were buyers. Some sales were posted at $66 fob and even an unconfirmed report at $66.50. The third week of September saw sales recorded at $65.50. Heavy western averages attained as high as $68 earlier in the month but at mid month $67 was more prevalent.

On a c&f basis, sales were recorded on heavy averages at $73-$74 depending on origin and average. Colorado steers were offered as high as $65 but buyers’ ideas were between $63-$64 fob.

Butts found difficultly in maintaining previous sales levels. Although offerings were mostly seen at $68, sales were recorded $67 and lately at $66.50. The highest price on a c&f basis was heard at $72 c&f. Producers continued to be well sold with relatively few offerings seen, which was the case all summer.

Most sales of heavy native steers were at prices steady earlier in the month. Export interest was only moderate but domestic upholstery tanners kept the market steady and bought between $67-$68. Good processor material also sold reasonably well to export interests at $72 c&f .

Although tanner interest was fairly good, there was a great deal of resistance to matching prices paid in late August and early September on branded cows. Volume interest was seen from Asia at prices as low as $46.50 c&f against asking prices of $49.50-$50 fob. Heavy native cows, after selling for as much as $53, were bid at $52 and countered at $55 which were ignored by buyers.

Well sold producers of Holstein cows, offered better productions at $61-$62, rejected bids that were any lower. As in the case of plump cows, however, buyer resistance to previous levels generally prevented any increase in price, and sellers resisted any bids that were lower.

In pigs and sows, demand from both China and Mexico brought buyers out of the woodwork seeking additional supplies. At one auction, some quantities of fleshed packer pigs traded between $8-$8.25 fob. Fleshed packer sows saw bids around $13 delivered Laredo as well as Shanghai and oversold producers had to pass and hold out for even more money.

An embargo that has limited imports into China to only seven countries has created a shortage of porcine production and good leather orders created the demand for available supplies.

Asian interest continued to compete with Mexico for a relatively small supply of both branded and native bulls. Natives were bid at $71 c&f and countered by the seller. Offerings were seen mostly at $66 fob. By week’s end, prices heard in the Far East were at $74 c&f.

In small packers, fleshed natives traded at steady to somewhat lower prices during much of September. Fleshed natives sold at $62 c&f on 58/60lb. Most producers’ offer lists were for lighter averages. 48/52lb averages were offered at $53 on 48/50lb averages while 45/47 brands appeared at $45. Conventional steers traded at $49 on averages over 70lb.

Demand, especially from China, remained quite good on low grades. Bids were plentiful but producers held to levels close to asking prices. Fleshed renderer 3s were bid at $34 and countered at $38. One offer of fleshed 3s was bid at $36.50 and countered at $39. Bids at $41 c&f were seen and promptly passed by sellers. Fleshed small packer 3s were bid at $47.50 and passed.

Slowing furniture sales in the US and elsewhere came to the surface in September as Natuzzi, the world leader in leather upholstery, announced that second quarter sales dropped 17% compared to the same quarter last year. The company said that business conditions were weak in all of their markets but especially so in the US.

Sales for the quarter ended in June were $219 million compared to $246 million in last year’s 2nd quarter. The loss for the quarter was $5.7 million compared to a profit of $12.5 million last year. Sales fell 17.6% for the first half and unit sales dropped 20.6% in the latest quarter and off 18.9% for the first six months of the year.

Other footwear and accessory companies also announced lower profits and in some cases, lower sales for the quarter ending at the end of September.

Looking ahead, in our view, supply is exceeding demand and, thus, the scales of supply and demand are out of balance.

Are we ready for a severe price drop in hides? Very few will argue that this is about to occur and we agree. Leather business has not dried up and producers do not seem in any urgent position to liquidate their inventory.

As can be seen in the supply situation vis a vis a lack of packer margins, kills are not about to match the first eight months of the year if for no other reason than consumers eat less of it between Thanksgiving and New Year. Add to this very high retail prices (been to the meat counter lately at your local grocery store?) and tight cattle supply and little relief is in sight for supply to increase in the near term However, hide prices have always been predicated far more on demand than supply and we think that current conditions are not an exception. Leather prices are falling, in some cases by as much as 10 cts/sq ft compared to spring and the quantities being bought are not as much as they were a year ago.

Split prices are also down, cutting tanner margins and forcing them to only buy hides at lower prices.Retail sales,while not disastrous, are not as robust as 2006. This leads us to conclude that there is a better than even chance that the highest hide as well as leather prices of 2007 have already been seen.

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