A view from America

From that point of view, the American contingent viewed the show a success. However, travellers failed to sell what they might have had they remained behind their desks during the weeks immediately preceding and following the event.

In August, Texas as well as branded and Colorado steers rose from a basis of $64 up to $68 asking prices on Texas and a dollar or two less on branded and Colorado steers. This was essentially caused by trader buying in anticipation of tanner visits leading up to and including the fair. This also put major packers in well forward sold positions which enabled them to maintain their firm asking prices into post-fair period.

Heavy native steers maintained their post-BSE panic highs of the year at $69-$70, although this was due to buying by the big three US automotive tanners. Butt branded steers were supported by the strength in natives, as were heavy native heifers.

All of this came to a halt after Shanghai. Sellers realised that tanners could easily buy alternative sources at considerably cheaper prices and somehow make them work to fill leather orders. Tanners made it clear by their lack of bidding that they were not about to take on inventory at prices that would assure them a loss based on current upholstery and shoe/handbag leather prices.

After making only minimal sales, as traders tried to unload their long positions by grabbing whatever tanner bids were available, major packers realised they would have to lower prices in order to maintain their forward sales posture. This resulted in prices falling from their artificially high $67-$68 levels to a decent pace of activity at $64-$64 on Texas and $62.50-$63.50 on 62/64lb average branded steers.

Finally, seeing a chance to create profits, tanner buying picked up so that by the end of the third week in September, supply and demand were pretty much in balance.

Meanwhile, the aforementioned heavy native steer/heifer support to the market began to dissipate around the first of September and prices began to ease. By mid-September, heavy native steers had dropped to $68 and native heifers to $58. Butt branded steers declined back to Texas prices, or in the area of $64-$64.50.

Seton, one of the larger 'big three' automotive upholstery tanners in America, announced that they were discontinuing their wet-end/beaming operations at their Newark New Jersey tannery and would only be taking in wet-blue in the future. This took a sizeable portion of the demand for heavy native steers and, to a lesser degree, native heifers and some butt branded steers out of the marketplace. However, this should be mitigated somewhat by packers delivering wet-blue to Seton that would have been sold to them in the raw state.

The cow sector languished between mid-August and mid-September. Slaughter was smaller than normal, enabling packers and processors to try to hold out for higher prices. However, by the third week of September, bids on Holstein cows of $54 began to be accepted for fleshed 48/52lb averages but, even then, the volume of bids and general interest seen was relatively small.

Branded cows, offered at $47-$50 for many weeks, finally succumbed to $44-$45 bids towards late September and some producers were able to sell at least part of their production, for the first time in many cases, for more than a month.

The small packer market remained relatively firm throughout the period as smaller than normal supplies were commensurate with less than normal demand. Low grades were in a similar position as were bulls that traded as high as $58 for 100/110lb natives and $54-$55 for desirable brands.

US slaughter continued at a low ebb, running more than 10% below the record numbers that met their fate in 2004, but also significantly below the pace of more normal years. This was essentially due to packer's inability to export their offal (the most lucrative portion of the animal) to Asian and other countries due to the case of the single 'Mad Cow' discovered last spring.

As this is being written, US and Japanese negotiators are coming closer together in an attempt to reach an agreement that both sides can live with.

Not only has the American meat industry suffered terrible losses but so has the importing and meat retailing industry in countries like Japan and Korea.

Consumers have also missed US beef that was marketed so effectively for so many years, but Australian meat exporters have done their best to recapture lost market share.

What this means with respect to hide supply is that even when, and we think it will eventually come to pass, packers can again sell their meat to the Far East, any significant impact on US slaughter and, therefore, conceivably on American hide prices, will not be seen. This is exemplified by the US government statistics realised in late September that showed ranchers placements into feedlots during August down 12% from a year ago and 6% below two years ago.

This was the second lowest placement figure for the month of August since 1996. To add some perspective to this, 7% fewer cattle were sold to packers in August than last year and 10% below 2002. This was also the lowest figure since the government began keeping these records in 1996.

Having said all this and noting that so far this year the industry has produced over 2.7 million hides less than 2004, why are prices for major selections in close proximity to what they were a year ago? The only rationale we can fathom is that in addition to more tanners being able to adequately source their raw material away from a formerly steady diet of US hides, leather prices have not risen.

This puts a cap on what tanners can pay and operate profitably. It is only conjecture as to what the US hide prices would have been had slaughter numbers been equal to last year.

Although not spectacular, the important back to school retail season that has now been completed was reasonably good for footwear, handbags, and even upholstery. This should mean that orders from manufacturers should start to be placed with tanners in the near-term, albeit at no higher prices than they have been.

Perhaps volume will improve and could then increase the demand for US hides and at least in theory raise prices. Whether or not this scenario will come to pass remains to be seen but few, if any, foresee any break out in the current trading range until perhaps early 2005, if even then.

Huge mega retailers control price points in volume finished goods of all types, including those made of leather. They know all too well that if a particular product can be put on the shelf for x and sell y units, that if they increase the sales prices to x plus, that they will sell y minus units. This paints a bleak picture for tanners who will have to buy their raw stock at levels that will enable them to operate profitably in a marketplace that leaves them without any pricing power.

Don Ohsman

Hidenet.com

Printer friendly version

Email this article to a friend