A view from America

For many years, even if tanner buying did not measurably increase, traders would buy up quantities of hides to sell to tanners during the extended Hong Kong period. This year, it was not enough to stem the tide of prices that have been gradually easing since the BSE peak in January.

Heavy Texas steers, the most voluminous and as a result, the benchmark US selection, which traded between $66.50-$67 in later February, fell to $64 towards the last week of March on 60/62lb averages. Several large producers had significant forward sales positions and resolutely resisted lower bids each week but, ultimately, seeing a decline in their forward sales, begrudgingly accepted lower bids.

Many had thought that once Texas fell to $65, from pre-BSE levels in December of $67-$68, and $73-$74 during the panic period, that Asian tanners sitting with empty warehouses would have to rush in and clean up all available supplies. To nearly everyone's dismay, this failed to happen and tanners only 'nibbled' and bought comparatively limited quantities most weeks, while at other times, hardly bid at all. This is more interesting in that far fewer than normal tanner complaints were heard of poor leather business or a lack of margin against hide prices.

As mentioned in our previous 'View' we, and now many others, believe that this lack of tanner enthusiasm or normal buying patterns is due in large part to the burgeoning trend of substitutions being utilised where American hides were previously thought to be the only acceptable raw material source.

Furthermore, the on-going policy of 'just in time' buying by retailers of all stripes seems to be impacting the footwear and accessory trades even more so.

This has resulted in manufacturers relying on their suppliers to be able to deliver orders on very short notice. This has also changed the traditional habits of tanners to buy in large quantities against customer blanket orders. Now they buy in smaller quantities and on an as needed basis. It is still not clear if this is going to be a permanent trend but all indications are that it will.

Branded steers, the second most voluminous American production, also fell since our last 'View', trading down from $65-$66 a month or so ago to $62-$62.50 just before the APLF. As has been the case in Texas, many weeks have gone by where packers were unable to sell their entire production, even with total slaughter levels that are about 10% of normal (50-60,000 head per week) due not only to strong buyer resistance to offerings but to what is now an apparent lack of need by tanners to take on large quantities of hides.

Sizeable orders in, primarily, Taiwan for heavy weight leathers, managed to boost prices for western Canadian and USA branded steers to $67 during March on hides that averaged between 66-70lb but even these productions started to give ground as the month came to an end.

Heavy native steers were no exception to the price malaise regardless of what has been quite decent automotive and furniture upholstery business. Here, too, substitutions continue to play a bigger role for tanners of these types of leathers who find they can meet auto and furniture maker specifications utilising advances in tanning techniques and finishes to enable them to utilise bovine material that would have been unheard of a few years ago.

Native steer prices that had been at $68.50-$69 in late-February fell to $66 as March came to a close and, generally, within two dollars of heavy Texas steers. Heavy native heifers were not in big supply but prices declined into a $55-56 range since our last report. River area branded heifers traded in a range of $51-$53 in the second half of March but, as in the case of native heifers, offerings were few.

Butt branded steer prices hovered between Texas and natives with good demand seen by upholstery manufacturers but not enough to stem the trend of falling prices. Late March prices were between $64.50-$65.50 on averages between 62-66lb. Colorado prices, like all other steers, fell in value as well, trading down to a low of $61.50 by the third week of March.

All segments in the cow category gave ground in the last part of February and March. South western fleshed brands sold as low as $38-$39 in early March but managed to rebound to $41 as the month came to a close. Northern and western productions, all averaging in the area of 50-53lb, traded between one and two dollars higher.

Heavy native cows, seldom available in good quantities, sold between $51-$53 for much of the period. Holstein cows found good Chinese and Korean interest early in March at $55-$56 for most packer and processor productions where a good volume changed hands. By the end of March, however, buyer ideas fell to $54 and bids became fewer regardless of price.

About the only selection that actually gained in value between our last report and now were bulls. 100/110lb conventional averaged natives that had fallen to $53-$54 about four weeks ago found active Asian buying that cleaned up all available supplies and caused prices to advance into the $56 or even $57 range just before the APLF. Brands advanced as well from lows of $48-$49 to highs of $52-$53 during the same period.

Weekly slaughter hovered around the 600,000 mark between late-February and mid-March when numbers began to increase towards 615,000-620,000 per week.

Growing numbers in feedlots of slaughter ready cattle has caused some pundits to predict that this increased supply of desirable cattle in April and May would find themselves at the nation's slaughterhouses in substantial volume in the next month or two.

US meat demand is expected to display its usual spurt in meat consumption as barbecue season coincides with warm spring and early summer weather. Most are expecting kills to total at least 650,000/ week by late April and perhaps even 700,000/week in May, a sizeable increase in hide availability compared with 600,000 or so per week that has been the case since early November.

The Mexican embargo on US meat exports came to an end in mid-March. This event, combined with compromises becoming a reality between US meat producers and the Japanese government, is a positive factor towards increased slaughter.

Added to this is some relief being forecast on the nearly one-year-old embargo of Canadian cattle coming into the US that should also bolster American slaughter during the peak summer months of meat consumption. Weekly slaughter of 750,000 head is not out of the question, should all of the above factors fall into place.

The time has just about passed when voluminous leather orders for Asian tanners should have spurred a rally in US hide prices. It also appears that tanner inventories are quite adequate.

When combining these two factors with somewhat less than normally extended packer forward sold positions and larger weekly kills on the horizon, it is not hard to be bearish in the coming months which traditionally are the low point in leather demand.

Perhaps the Hong Kong Leather Fair will produce some surprises. Our surprise would be that it will.

Don Ohsman

Hidenet.com

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