A view from America

24 August 2005

Steer prices managed to hold on to their previous gains since our last article, but the cow sector was forced to acquiesce to lower bids. Bulls were also a little softer but small packers and low grades were essentially steady. The long standing embargo on Canadian cattle coming into the US for feeding and slaughter was finally brought to a halt by the 9th circuit court but any significant increase in slaughter is yet to be seen. Heavy Texas steer prices that had risen to $65 on 62/64lb in our previous report remained at $65 as July came to a close. This is in spite of averages rising in a number of cases to 64/66lb. Packers kept pointing out their well sold forward positions and saying that if they could not obtain the same prices as for their last orders, they did not need to sell and could wait till someone needed their hides bad enough to pay their price. This is not to say they didn't try for $65 or $66. It's just that tanners who were facing a loss at even $65 simply refused to pay anything more. However, tanners and traders still bought enough to take almost all packers produced on a weekly basis and, therefore, kept the market steady but firm. Branded steers, as usual, mirrored Texas. Most trades during the past four weeks were at $64, steady with a month ago, but some business was recorded as high as $64.50. Averages were generally in the area of 62/64lb. Heavy western varieties averaging close to 70lb managed $65-$65.50 from advantageous freight points. Colorado steers actually advanced during the period moving from $61 a month ago to as high as $63 last week. Speaking of freight, it should be mentioned that as of August 1 across the board rate increases by the steamship companies, added to recent 'bunker fuel charges' mean the passing on of more costs for container ships. These increases will add about 40 cents/ piece to hides sold for export. This squeezes exporters as the calculation between delivered Asian prices and fob packer shrinks. Heavy native steers also managed to retain their previous value in late June and July with the majority of trading taking place at $66 but mostly at $66.50 for major productions. Butts were the same as heavy Texas, selling typically at $65 on averages between 62-66lb. Heifer prices rose since our last report. Some heavy native heifers sold as high as $59 in early to mid July while others traded at $58, all up at least a dollar and mostly $2 over late May/June levels. Branded heifers rose as well with some southwesterns achieving $57 and river area productions selling at $54 and mostly at $55. As noted, cows languished as their prices dropped in the face of minimal buying interest. Fleshed branded material that had traded as high as $49 in June dropped to $42 by late July. Indications were that bids as much as $2 less may have worked if there had been any volume, which there was not. Holstein cows fell from $53-$54 to $49 for better productions but, even then, not in enough volume to clean up over burdened producers. Bulls traded in the area of $55-$56 Laredo for the past month or so with natives selling several dollars higher. Production was seasonally slower but so was demand and this item could best be termed as weakly steady. The opening of the Canadian border is certain to help US packers to produce more hides. However, this is not going to happen over night and there is little expectation that even with the peak slaughter season due in August for Labour Day, significant increases in weekly slaughter are not expected to occur. Should slaughter advance 10% which, again, would be a surprise to the industry, most feel that even then it would be unlikely to put any downward pressure on hide prices as leather demand normally picks up in the late summer and early fall and could quite possibly absorb any increased hide supply. This is not to say that hide prices cannot retreat from the highs of their present trading range. However, we feel that until the well forward sold position of steer producers erodes to a point where they will again want to extend it, there is little incentive for them to accept any lower bids. They are well aware that the market, although firm for so many weeks, has not been able to advance past current levels on steer prices. They can clearly see that prices are at a ceiling with respect to what tanners are willing to pay. The semi-annual Las Vegas shoe show, a new furniture show in Las Vegas for upholstery, and the Shanghai Leather Fair, will all take place between late July and early September. These trade fairs could have some effect on at least the market perception. If these shows reflect the good retail sales that have occurred so far this year, then perhaps an increase in retailer and manufacturer buying could enable tanners to obtain increases in leather prices that they have been missing for more than a year. We wouldn't bet on it. The 'walmartization' of finished leathergoods (as well as about all other consumer products) has put a cap on what all but high fashion retailers will pay for a leather product. This cap is likely to remain in place and keep leather prices where they are for the foreseeable future. In summary, it seems that the only thing to change hide prices is a substantially increased supply. This could occur in early fall if cattle on feed numbers that have been growing turn into heavier packer activity and the Japanese rescind the embargo they have had in place for more than a year on US meat. Add to this the Canadian border opening and there is at least a hope to see non holiday cattle slaughter average above 700,000/week. Our view, however, is that this is not about to occur until early 2006 and that the odds are for generally steady steer prices between now and then. Don Ohsman Hidenet.com

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