A view from America

Heavy Texas steers that had reached the year's low of $60 during the second week of May rose to $63.50 and even $64 several weeks later. Averages were 60/62lb. Traders covering shorts added fuel to the fire, in many cases, outbidding tanners in an attempt to reverse or, at least, bring their positions back to even.

As soon as this fervour had run its course, however, at the beginning of June, well-sold packers refused to accept any lower bids from tanners who had replenished their inventory and were equally content to stay out of the market at the new price levels.

By late June, packers were having to accept bids at $62 and, then, in the face of insufficient volume, to rebuild forward sold positions.

Traders were the tanners' lifeline, even at $62, as c&f Korea and other destination bids from tanners were only at $67-$67.50 which is not enough of a spread to warrant $62 fob.

Branded steers, as usual, mirrored Texas. At the market bottom, a small volume of 60/62lb averages traded at $58.00 but bounced up to $60.00 by the end of May.

At the lowest point and during the ensuing rally, packers managed to sell themselves so far forward that in late June, weeks after the fact, offerings are still relatively scarce for this selection.

Colorado's, as usual, sold about a dollar below branded steers, reaching a low of $57 in mid-May and ultimately rebounding to $60 in the last part of June.

Heavy native steers sold at prices only slightly above Texas during May and into the first week of June. However, a week later, surprising interest was seen in native steers as well as heifers and prices surged to a reasonable premium of non-branded hides over those with brands.

By late June, heavy native steers, averaging 60/62lb traded as high as $65-$65.50 at the same time when heavy Texas steers were selling at $62 and $62.50.

Native heifer prices bounced from a low of $52 to $56 in mid-June and branded heifers sold as high as $52.50 during the same period. Butt branded steers sold between $62.50 and $63, slightly above heavy Texas steers.

Cow slaughter was at seasonal lows during May and June, enabling packers to reject any bids that were below last sales. Regardless, during most of the period, fleshed branded cows sold in the area of $44-45, and heavy native cows in the $51-53 range.

Holsteins firmed late in June with 48/50lb averages moving from $52-$52.50 up to $53.50 and $54 towards the month's end. Producers remained well forward throughout the period.

Bull prices remained firm throughout the period as well sold producers managed to achieve steady gains. Natives averaging 85/95lb sold at $57-$57.50 with the better branded offerings in close proximity to Mexico reaching as much as $55.

Since the upswing in prices in late May, observers noted considerably fewer heavy native, butt branded, branded and Colorado steers being offered. Producers who had seen forward sale positions erode to uncomfortable levels, overcompensated by selling themselves far further forward than normal.

This created a situation in June where one of the largest producers of these selections didn't offer at all, and another major packer and large producer of branded steers didn't offer any kind of hides during the third week of the month. The only steer selection available in abundant quantities were heavy Texas.

On the other side of the Pacific, meanwhile, Asian tanners who had bought heavily during the rally entered a period where leather orders seasonally decline and developed a posture that if the lower-than-normal quantity of hides needed could not be bought at advantageous prices, they were content to wait and hope for further declines.

All of this created a steer market that became as steady as it ever does during most of June. Each week, Texas would be offered at $64, and bids at $62 and up to $62.50 would, at first, be rejected and subsequently accepted while, at the same time, tanners and traders would not pay packers any more.

Branded steers were in a similar situation although, as noted, only offered sparingly and only selling if $62 could be obtained against $63 offering prices. Buyers refrained and hardly any sold, which was apparently fine with both tanners and packers.

After a long gradual decline begun in mid-January, and the upswing in the latter part of May, the market on Texas and most steer selections became abnormally steady in June.

In the cow category, steady became the mantra of this segment of hides as well. Dairy cows sold between $52 and $54 on 48/50lb fleshed Holsteins throughout the period. Branded cows moved in a range between $43 and $45 for more than a month.

Hide prices usually increase during the early summer months and into autumn as tanners and their customers start to prepare and stock themselves for improved winter sales.

Given the steadiness seen during the slowest time of the leather business, we tend to think that this year will be similar and that we could now be seeing a floor of the current market in about all selections.

Leather remains very much in fashion. Increasing percentages of furniture and automobiles contain leather and the leather share of the footwear market is fully established.

Walk down the street in any major city in the world with cold weather, and you will see a plethora of leather garments. All but the poorest segment of society have leather wallets, belts, and purses.

One factor that keeps a lid on leather prices, however, is retail price points. Increasingly sophisticated gigantic retail organisations selling leathergoods know that at a price of x, they can sell y units. However, at a price of x plus, unit sales decline just as they increase at x minus.

Retailers are unconcerned about hide prices and there is a surplus of both tanners and leather manufacturers directly and indirectly vying for their business.

As retail buying power becomes more and more concentrated by the mega merchants adhering to the necessary price points, the inelasticity of leather prices becomes more apparent.

The supply of hides on a worldwide basis has been increasing with the population and, therefore, consumption and as we go to press in the last days of July, we find the world hide market about as steady as it is in the US.

If, as we expect it will, the economy here and abroad continues to recover for the rest of this year and into the next, leather's share of consumer goods will be sustained. If this happens, it should bring with it a price structure in hides that should easily be able to at least support current levels and quite likely push prices somewhat higher.

However, as noted, it will be practically impossible for prices of most hide selections to break through previously established trading ranges.

Don Ohsman

Hidenet.com

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