A view from America

During the last week of 2003, a small quantity of heavy Texas changed hands at $70 on 62/64 lb averages. During the first regular trading week of 2004, and after the BSE discovery, packers were able to sell as high as $72.50 and raise asking prices a dollar more by mid month.

Branded steers, as usual, reacted accordingly, with 62/64lb averages sold at $71 by the first trading week of January and were offered at $72-$73 by mid month on 62/64 lb averages. Heavy western Canadian productions, which averaged 68/70lb, sold at $72.50 and $73, in part due to their advantageous freights to Asian tanners. Also $72 was achieved on averages approaching 70lb.

Colorado's sold at $68 and up to $70 and butt branded steers also moved in consort with Texas prices. Heavy native steers were higher as well. Trades took place in reasonable volume at $73 and as high as $73.50 in early January and up to $74-$75 by mid month.

Branded cows moved fairly well, after being mostly dormant in the last two weeks of 2003.

Southwestern brands that had difficulty in finding buyers at $39-$40 before Christmas and BSE, sold as high as $43 during the second week of January.

Heavy native cows sold at $54. Fleshed Holstein dairies traded at $55, up more than 7% over mid December prices. Small packers were firmer also. Fleshed mid-western steer/heifers sold at $52.

Others sold at $51 from similar points on averages approaching 60lb. Native bulls with a small brand content traded at $54, up $2 from pre Christmas levels while branded equivalents sold at $53 Laredo.

Korea was the main supporter during the first part of January and then China, Hong Kong and Taiwan stepped into the market adding further fuel to the fire. Domestic tanners did not seem to have enough inventory to resist participation either.

Further, there was the lingering fear amongst all tanners that even though hides bought during this price surge would generate a loss compared to leather prices, potential losses could be worse in coming weeks should prices continue to climb higher.

In the past, when external events have pushed prices higher, as has just been the case, some tanners have been able to extract moderate gains in leather prices from large manufacturers. Should this happen this time, the new pricing structure in hides could be maintained and expanded over the short term.

The rising price trend will not continue forever, but until slaughter significantly increases, we see little if any chances for prices to retreat on any selection. The unanswerable question is, when will kills resume to normal levels and, therefore, create a hide supply that is adequate to meet demand and moderate prices.

Due to the practically worldwide export embargo from former US customers placed on meat and meat products due to the BSE discovery in December, packers have had to find alternative sources for about 10% of their production. The quantity of meat normally consumed by Americans continues unabated and may even increase due to lower prices.

However the offal produced, of which the greatest majority was exported to Pacific Rim countries and Mexico, has been having great difficulty in finding alternative markets. In order to keep this huge tonnage moving, producers have been forced to reduce prices sharply in order to find new buyers.

This has drastically lowered packers' drop credits and, therefore, their profitability. Faced with a loss, major slaughterers have, for the most part, reduced working hours to minimum union levels which are about 32-34 hours per week.

For example, the slaughter total of 567,000 during the second week of January compares to a 664,000 total during the same period in 2003.

This portends what weekly FIS totals are going to be in the near term, if not some time beyond until the situation is rectified. This can only change by further significant declines in cattle prices, a rise in meat prices, or the lifting of the ban by countries consuming large amounts of US beef offal to lift their bans.

None of these factors are anticipated to favourably change in January and quite possibly into February.

Don Ohsman

Hidenet.com

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