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The International Market

Posted on May 15, 2017 in Hide & Leather

The International Market

Argentina

In April, 950,000 head were dispatched to slaughter. This was 14% less than in March and 5% more in the year-on-year comparison. Considering the business days of each month, the daily average was the same as in March, with a remarkable growth of 16% compared to a year ago.

After two weeks drop, rawhide prices stopped its descending trend. Buenos Aires wet salted heavy steer hides are trading unchanged from last week, at about US$0.65-$0.73 per kg depending on hide quality.

Demand remains calm.

Paraguay

Just like recent weeks, the market is extremely quiet.

Sales of wet blue hides continue being made without price changes. Full substance whole hide wet blue TR1 continues trading at about US$1.25-$1.30 per sq. ft.; and divided hides (grain splits) TR1 1.8mm/up at about US$1.10 per sq. ft.

Of late, exports of semi-finished and finished leathers has grown significantly.

Slaughter continues strong. A beef export record is expected this month.

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Buyers Testing the Market with Aggressive Low Bidding

Posted on Apr 18, 2017 in Hide & Leather

Last week the US hide market continued under pressure with some buyers testing the market with aggressive low bidding while some stood on the sidelines waiting to see what happens. The pressure was on suppliers to find a level that buyers would step forward and enter the market, especially considering large slaughter numbers coming for summer grilling season. Prices were mixed with trading generally around a dollar or so lower, but a few small volume sales sold closer to steady. Included were HTS sold for $67 to $68, HNS sold from $73 to $75 and BBS from $72 to $73. The Jacobsen Hide Index closed the week on Thursday at $64.85 from $65.36 a week ago. A number people in the hide industry opined that producers will continue pushing for sales on most selections this week.

Meanwhile, in China the government held a video conference on April 5 about environmental inspection on polluting industries that could affect the tanning industry. The ministry of environmental protection will start the largest one-year supervision in history, involving 5600 environment law enforcement officers, covering Beijing, Tianjin, Hebei and surrounding 18 cities. It is understood that this strengthened supervision is the biggest action directly organized by national department in environmental protection history.

Today’s Market

The market began the week on a quiet note with only one packer quote for HTS at $67. While a couple suppliers indicated they did a decent amount of business, the feeling was that not all of last week’s hides were sold; however, this will need to be confirmed.


Today’s Trades

Packer Sales

HTS 62/64 @ $67.00

Processor Sales

No processor sales today.


Cured and Wet Blue Export Sales by Selected Countries  —  Through April 6


Livestock, Dairy, & Poultry Outlook

Cattle/Beef:  Demand Strength Seen Across the Cattle Complex

Thus far in 2017, a larger portion of U.S. winter wheat area was under moderate or more intense drought conditions than in 2016. Along with lower prices for wheat, the situation likely provides an option for producers to graze-out wheat pastures for backgrounding. To the extent that demand for calves to graze out these areas increases, prices of lighter-weight calves may find support. However, the timing of movement of these calves off pasture and into feedlots will likely impact both the level of placements and the price of heavier-weight calves in the coming months.

Feeder and fed cattle prices were supported by relatively strong demand during the first quarter, but packer demand has likely weakened as margins have been squeezed by weakening wholesale prices. The timing of beef sales ahead of grilling season may influence packer demand during the quarter, but second-quarter steer and heifer slaughter will likely reflect the marketing of the large number of cattle placed on feed in late 2016. Weekly dressed weights for cattle during March were slightly higher than previously expected and second quarter carcass weights were raised, helping to support an increased forecast of commercial beef production in the first half of 2017.

Wholesale beef cutout values strengthened toward the end of the first quarter; however, this is not surprising, given the tendency for both Choice and Select beef cutouts to gain momentum heading into the spring grilling season, when the market transitions from lower-valued end cuts to more expensive middle meat cuts. The weekly boxed beef cutout data (USDA AMS report LM_XB459) reports choice cutout values that advanced from mid-February’s low of $188.93 to $223.12 per cwt on March 24, with Select cutout values also gaining impressively over the period. However, wholesale beef prices have declined since the last week of March.

The gains in the boxed beef cutout values through late-March are the result of significant gains in beef middle meats (i.e., the rib and loin primals). However, boxed beef cutout values began showing signs of weakness in late-March, squeezing packer margins and likely pressuring fed cattle prices. The first quarter 5-area weighted steer price averaged $122.96 per cwt. The 5-area weekly weighted steer price has weakened from $127.38 during the last week of March to $124.33 per cwt in early April. Beef packers appear to be backing off recent higher prices for fed cattle. Fed steer prices reached $132 per cwt in the third week of March before declining to average $124 per cwt in the first week of April. Fed cattle prices in the second quarter are forecast to average $117-$121 per cwt, pressured by large supplies of cattle available for slaughter from late-2016 and early-2017 feedlot placements.

Estimated federally inspected weekly total cow slaughter for the first quarter was up about 5% compared to the same period in 2016. Beef cow slaughter is almost 10% higher year-over-year. However, cow slaughter as a proportion of the January 1 beef cow herd is only slightly higher than 2016, but below the average for 2012-2016, a period which included drought-induced liquidation. First-quarter prices for cutter cows were estimated at $62.63 per cwt, and prices for the remaining quarters for 2017 are likely to tick higher. Second-quarter cutter cow prices are forecast to average $63-$66 per cwt.

Mexican Feeder Cattle Imports Continue to Show Strength

In February 2017, U.S. live cattle imports increased by 27% from the previous month to 168,473 head, 11% up from the same period a year ago. More than 85% of the feeder cattle imported from Mexico were in the 400- to 700-pound weight range, while almost all the feeder cattle imported from Canada were over 700 pounds. For most of 2016, there was not a large difference between the number of cattle imported from Mexico and Canada but since November 2016, live cattle imports from Mexico have been significantly higher than imports from Canada. January and February imports from Mexico were above the 5-year average, while imports from Canada were below it. The strength of the U.S. Dollar relative to the Mexican Peso and a rebuilding of the Mexican herd are likely contributing factors to this uptick in imports from Mexico.

In February 2017, U.S. live cattle exports were up 66% from a year ago to 8,299 head; however, volume was down 36% from January. Mexico and Canada were the primary export destinations, responsible for 80% of total U.S. live cattle exports. February U.S. live cattle exports to Mexico declined sharply (69%) from the previous month to 1,049 head, 57% lower than the same month a year ago.

U.S. Beef Imports Expected to Decline in First Quarter 2017

In February 2017, the United States imported 200.5 million pounds of beef 14% below a year ago. This is likely due to lower supplies in several key importing countries coupled relatively large supplies of processing-grade beef in the United States. New Zealand, Canada, Mexico, Australia, and Nicaragua were the top five suppliers, accounting for 93% of total U.S. beef imports in February 2017. U.S. imports from Australia declined 42% from year-earlier levels, likely due to continuing herd rebuilding in Australia. Imports from Canada also declined by 9% to 6 million pounds in February from the previous month, and imports from New Zealand declined by 11% to 44.5 million pounds from last year. Some of the declines were offset by 22% higher imports from Mexico. First-quarter 2017 U.S. beef imports are estimated at 685 million pounds, a 14% year-over-year decline.

Lower U.S. Beef Prices Bolster Year-Over-Year Increase in Exports

U.S. beef exports more competitive. In February 2017, U.S. beef exports increased by 19.3% from the same period a year ago to 205.5 million pounds. The United States exported about 84% of February’s volume to Japan, South Korea, Mexico, Canada, and Hong Kong. Each market saw double-digit percentage-point increases year-over-year for February except for Hong Kong, which imported 19.2% less.

Link to complete USDA report:  LIVESTOCK, DAIRY, & POULTRY OUTLOOK


Industry-Related News

Apr 17 (Business-Standard) INDIA — Shifting of Tanneries: Kanpur Exporters Losing Business to Pakistan

The ban on slaughterhouses and the proposed shifting of tanneries from Kanpur in name of cleaning the Ganga is hampering leather exports from the country, with enterprises in Kanpur losing business to their competitors in Pakistan. The recent crisis in the leather industry is steadily impacting the Rs 6,000 crore annual export business from the city, and exporters based there estimate that at least 50 per cent of their export business has already gone to Pakistan.  READ MORE

Apr 16 (Korean Herald) KOREA — Korean Automakers’ Domestic Sales Exceed W40tr for First Time

Domestic sales of Korea’s top five local automakers surpassed 40 trillion won ($35.2 billion) for the first time last year, according to industry reports Sunday. Local carmakers including Hyundai Motor, Kia Motors, Korea GM, Renault Samsung, and SsangYong Motor posted domestic sales of roughly 41.17 trillion won last year, a 7.7 percent on-year jump compared to 2015.  READ MORE

Apr 16 (Dhaka Tribune) BANGLADESH — Tanners Fear Cancellation of Huge Export Orders

Leather factory owners are fearing the loss of export orders following the shutdown of Hazaribagh tanneries over their failure to relocate to Savar Tannery Estate. The tanners who have already shifted their units to the Savar estate are also facing the same threat as they are yet to install their crust and finished leather sections as the gas connection is still not available there.  READ MORE

Apr 15 (Detroit Free Press) US — Automakers Voice Opposition to Republican Border Adjustment Tax Plan

“This raising taxes to lower taxes just should not be done,” John Bozzella, president and CEO of Global Automakers said of the proposed border adjustment tax The automotive industry made it clear last week that it is strongly opposed to any proposal to adopt a border adjustment tax, saying it would raise the cost of cars and hurt both the industry and customers.  READ MORE

Apr 15 (Daily Nation) KENYA — Firms Stare at Losses as Leather Park Takes Shape

Mixed reactions have greeted the government-backed Sh10 billion Leather Industrial Park, with handicraft makers saying it could push them out of business. The Kinanie Leather Industrial Park Project, a flagship Jubilee initiative, has attracted interest from multinational firms dealing in processing and manufacture of leather goods that will enjoy direct, tax-free entry into Kenya. The 500-acre park, to be granted export processing zone status, is expected to revolutionalise the leather value chain, creating a new market for skins and hides usually processed into blue leather and exported as raw materials.  READ MORE

Apr 15 (Business-Standard) INDIA — Worldwide Leather Exports Reports Standalone Net Loss of Rs 0.57 Crore in the March 2017 Quarter

Net Loss of Worldwide Leather Exports reported to Rs 0.57 crore in the quarter ended March 2017 as against net loss of Rs 0.01 crore during the previous quarter ended March 2016. Sales declined 75.93% to Rs 0.26 crore in the quarter ended March 2017 as against Rs 1.08 crore during the previous quarter ended March 2016.  READ MORE

Apr 13 (International Leather Maker) BRAZIL — Brazilian Hide Exports Recover from February Fall

Brazil’s hide sector registered an export value of US$192.6 million in the month of March 2017, up 3.8% year-on-year (March 2016: US$ 185.6). According to the Hides and Skins Exports released by SECEX, Brazil’s Foreign Trade Secretariat, March’s figures are 19.5% higher over the previous month of February, when total hide exports amounted to US$ 161.2 million.  READ MORE

Apr 13 (International Leather Maker) VIETNAM — Vietnam to Speed up Leather and Footwear Sector Development

Vietnam’s Ministry of Industry and Trade has announced a revised plan for the development of the country’s leather and footwear industry during a seminar held on April 7 in Ho Chi Minh City, Vietnam. Under the revised plan announced by the Government, Vietnam aims to earn between US$24-26 billion from leather and footwear exports by 2020, according to local media reports.  READ MORE

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U.S. Export Sales & Shipments for Week Ending March 9

Posted on Mar 17, 2017 in Hide & Leather

USDA Hides and Skins Report

Net sales of 309,400 pieces reported for 2017, all whole cattle hides, were down 30% from the previous week and 22% from the prior four-week average. Increases were primarily for China (187,900 pieces, including decreases of 19,100 pieces), South Korea (74,900 pieces, including decreases of 2,200 pieces), Mexico (24,100 pieces, including decreases of 1,700 pieces), Thailand (7,300 pieces, including decreases of 400 pieces), and Italy (4,600 pieces). Reductions were reported for Japan (1,000 pieces) and India (100 pieces). Exports of 426,000 pieces reported for 2017, were up 10% from the previous week and 19% from the prior four-week average. Whole cattle hide exports of 423,300 pieces were primarily to China (276,500 pieces), South Korea (85,100 pieces), Mexico (22,800 pieces), Thailand (13,700 pieces), and Taiwan (7,000 pieces).

Net sales of 263,400 wet blues for 2017, were up noticeably from the previous week and from the prior four-week average. Increases were reported for China (66,400 unsplit and 24,600 grain splits), Italy (79,700 unsplit and 2,800 grain splits), and Vietnam (53,100 unsplit). Reductions were reported for Brazil (5,700 unsplit) and Vietnam (200 grain splits). Exports of 152,000 wet blues for 2017 were up noticeably from the previous week and up 36% from the prior four-week average. The primary destinations China (45,700 unsplit and 7,200 grain splits), Vietnam (26,600 unsplit and 9,300 grain splits)and Italy (19,600 unsplit and 11,700 grain splits). Net sales of splits totaling 73,200 pounds for 2017 were down 86% from the previous week and 87% from the prior four-week average. Increases were reported for China (86,800 pounds). Reductions were reported for Vietnam (13,600 pounds). Exports of 353,300 pounds were down 28% from the previous week and 18% from the previous four-week average. The destinations were Vietnam (213,400 pounds), China (123,900 pounds), and South Korea (16,000 pounds).

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US Hide Market Activity Picked Up a Notch

Posted on Feb 16, 2017 in Hide & Leather

The US hide market activity picked up a notch, but most sales are still pending. The balance of offerings overnight was steady-to-slightly higher and a fair number of hides and wet blue seem obtainable; however, producers still uphold they have respectable forward positions.

Today’s Market

There was a moderate number of sales reported today with prices from steady to firm and increases for HBH and HTS.


Today’s Trades

Packer Sales

HNS 64 MIN @ $77.00 OR 0.9375
HTS 64/66 @ $73.75
HBH 52/54 @ $59.00 OR 0.8675
HBH 54/56 @ $55.50 OR 0.7875

Processor Sales

HNS 64 MIN @ $73.00 OR 0.8900
HTS 64 MIN @ $69.00
BBS 62/64 @ $72.25 OR 0.8950
BBS 60 MIN @ $70.00 OR 0.9100
CBS 60 MIN @ $59.00 OR 0.7675
CBS 64 MIN @ $62.00 OR 0.7550
HBH 52 MIN @ $51.00 OR 0.7650


Hide Market Trends

Price trends for the Jacobsen HTS and the US Bureau of Labor Statistics Producer Price Index (PPI) for Hides, Skin and Leather (primarily hides) from 1969 through 2016 are shown in the following chart. The chart also correlates these prices with recessions over the same period.

The negative impact on both price indices of recessions is an obvious observation from the chart which shows most of the major corrections in the hide market closely associated with a recession. Two exceptions were in 1997 (Korean Financial Crisis) and 2014 (drop in global commodities due to the China slowdown). For the US hide market, the last major adjustment was arguably the greatest which shows the influence China has on the US hide prices as it probably should with over 60% of its hides exported to that country.

On a final note, after questioning the exceptionally close association of the PPI (source the St. Louis FRED) with the Jacobsen HTS prices, a representative from the US bureau of Labor Statistics explained that the primary component for their data was hide prices leaving the packers.


Livestock, Dairy, & Poultry Outlook

Cattle Report Shows Expansion Continuing, but at Decreasing Rate

USDA National Agricultural Statistics Service (NASS) released its Cattle report January 31, 2017 which showed higher inventory numbers in many categories for the third consecutive year. The total cattle and calf inventory increased about 2% from 2016. Increases were seen in 27 States. States with the largest increases in all cattle and calves include Texas (+500,000 head), Missouri (+250,000 head), Oklahoma (+200,000 head), and Kansas and Colorado (+150,000 head each). The expansion was likely buoyed by a combination of strong cow-calf operator returns in 2014 and 2015 as well as improved pasture and range conditions in much of the Plains region. Beef cow numbers were 3% higher than the same period last year, but milk cow numbers were virtually unchanged Total beef cows increased 3%, but a number of indicators suggest that although the expansion continues, the rate of expansion is slowing. Heifers for beef and milk cow replacement are often used as barometers of herd expansion or contraction rates. Heifers for beef cow replacement were 1% higher than last year but down from the 4% and 3% increases achieved in 2015 and 2016, the first two years of this expansion.

Heifers for milk cow replacement show similar patterns, registering at 1% below 2016 levels, but were positive for the first two years of the expansion. Producers also indicated that they expect only 2% more beef heifers to calve during 2017, down from increases of 7% and 6% in 2015 and 2016.

Despite relatively cheap feed, returns to feeder cattle operations were negative, with losses widening during 2016. Despite expected improvements in cattle feeding returns, feeder cattle supplies outside feedlots are above last year and prices will remain under pressure through much of 2017. Feeder cattle prices for 2017 are forecast to average $131-139 per cwt, down about $7 from 2016.

The number of cattle on feed in U.S. feedlots with a capacity of 1,000-plus head on January 1, 2017, was fractionally higher (Cattle on Feed, January 27, 2017). Cattle placed on feed in December 2016 were up 18% compared with December 2015. This was the second consecutive month that there was a year-over-year double-digit increase in cattle placements. It is likely that lower numbers of cattle grazing on small grains pastures was a contributing factor to the relatively large increase in placements. Winter wheat planted area was lower than 2016 in most of the country, and the estimate of cattle grazing small grain pasture in Texas, Oklahoma, and Kansas on January 1, 2017, was 5% below 2016. Fed cattle marketings in December 2016 were 7% above that of 2015, but the increased numbers of cattle on feed on January 1 2017, and the timing of their placement suggest that fed cattle marketings in the first half of 2017 will be larger than 2016. With 2% more cattle outside feedlots on January 1, placements in 2017 are expected to be above 2016. The timing of placements during the year will depend on a number of factors, including breeding herd decisions, producer decisions about winter wheat graze-out, and the availability of forage during the year.

Commercial beef production in 2016 came in at 6% above that of 2015. Weights were higher in the first half but fell below year-earlier as producers became more current with their marketings. Slaughter in 2017 is forecast higher as cattle placed in the later part of 2016 and first half of 2017 are marketed. Producers are expected to remain relatively current in their marketings during the year, which will limit increases in carcass weights. Beef production for 2017 is forecast at 3% above previous-year levels.

Fed cattle prices are expected to remain under pressure in 2017. Packers’ margins are seasonally weak, which is will likely impact their willingness to bid up cattle prices over the next weeks. As increased supplies of fed cattle are marketed in the spring quarter, fed steer prices are likely to remain under pressure, averaging $106-$110 per cwt during the quarter. Large supplies of fed cattle will likely continue to pressure prices during the second half of the year. Fed steer prices are forecast to average $109-$116 per cwt for the year, down from $120.86 in 2016.

U.S. Beef Exports to Remain Strong in 2017

December trade data, along with annual totals, were released earlier this month. Total beef exports for December reached 254 million pounds, 30% higher year over year. Following weak 2015 beef exports, sales to a number of Asian trading partners (Japan, South Korea, and Taiwan) helped U.S. beef exports recover to 2.55 billion pounds in 2016. Preliminary data suggests higher near-term exports, and with expected higher U.S. beef supplies and more competitive prices, robust demand will likely support an export expansion during 2017 to 2.72 billion pounds.

U.S. beef imports for 2017 are projected to continue their decline from 2016 levels to 2.74 billion pounds in 2017, due to an expected increase in domestic supplies and expected tighter supplies from Oceania.

Live Cattle Imports Forecast Lower in 2017

Total U.S. cattle imports for 2016 were reported at 1.71 million head, down nearly 14% year over year. Since 2014 highs, cattle imports from Canada and Mexico are projected to decrease for a third straight year in 2017 to 1.68 million head. During 2016, higher U.S. cattle supplies and a decline in feeder cattle prices contributed to the decline in imports of feeder animals from both Canada and Mexico. Mexico continues to finish more animals in feedlots and sell increasing amounts of beef to the United States and the rest of the world.

For cattle exports, 2016 totals were down 4% from 2015 to 69,411 head. However, December 2016 exports followed November’s record of the highest monthly total of live cattle exports since 2013. Exports for 2017 are expected to increase to 85,000 head.

Link to complete USDA report:  LIVESTOCK, DAIRY, & POULTRY OUTLOOK


Industry-Related News

Feb 13 (Drovers Cattle Network) US — Profit Tracker: Healthy Profits Continue

Cattle feeding margins increased $15 per head for the week ended Feb. 10, maintaining their perch above $245 per head. That’s $420 better than at this same time last year when red ink flowed to the tune of $176 per head. Packer margins declined $13 per head, leaving their margins positive at slightly more than $5 per head.  READ MORE

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Hide Activity and Analysis

Posted on Jan 16, 2017 in Hide & Leather

The US hide market ended the week with volume a little down, steers steady and cows firm. Packer HTS traded from $71 to $73, BBS from $72 to $73 and HNS from $75 to $75.50. Some reports from China note the market was more active as the China New Year holiday (January 28 to February 2).
Week-Ending Slaughter

The week’s estimated cattle slaughter was 609,000. The previous week’s kill was 537,000. Year-to-date slaughter at 1,146,000 is up 2.3% from 2016.

Today’s Market

There was a moderate number of sales quoted today with steers steady and cows firm. 

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The Jacobsen Leather Demand Index (JLDI)

Posted on Nov 13, 2016 in Hide & Leather

Summary

Leather demand edged lower in August, despite a bounce in Chinese imports which showed its first increase of 2016. Car sales dipped along with Chinese exports, which offset a seasonally adjusted gains in U.S. shoe sales. Global economic data continues to reflect very modest growth, as near zero interest rates have not been enough to stimulate developed economies. The JLDI and Heavy Texas Steer prices moved lower, with steer values revisiting support levels. The trajectory of the JLDI appears to be flattening at a faster pace than hide prices, which reflects the stabilization in Chinese imports.

Economic Data and Monetary Policy

Hide values have slipped, despite an uptick in overall Chinese imports, as global demand moved lower in the latter half of the summer. The Chinese trade number for September were in line with expectations, as hide prices look for a bottom. Chinese authorities reported that August exports fell 2.8% year over year following July’s 4.4% drop. Imports unexpectedly rose 1.5% year over year, reversing a 12.5% in July. August’s increase was the first year over year rise in imports since October 2014.

In the U.S., the data has been mixed. September retail sales increased 0.6% on the headline. The Headline strength was thanks to a vehicle sales bounce and an estimated 6% increase in gasoline prices. Chain store sales were fairly restrained through September, but the major consumer confidence gauges posted gains. Vehicle sales remain strong but their year on year comparisons makes it difficult to post gains. Earnings for the third quarter will shed light on shoe sales and furniture sales.

There are many unknowns that are weighing on the global capital markets which is depressing trade and economic growth. The UK Brexit appears to be heading for a hard exit, which will disruption trade in Europe. U.S. politics are headed for a climax in November, and the Fed is discussing a rate hike in December. Currently the futures markets are forecasting a 65% chance of a rate hike in December, compared to a 15% change in November. This is capping stock prices, which reduces top down spending. The market appears to have priced in a Clinton victory, but if the polls contract, volatility is likely to increase.

As we look forward to the September JLDI, the focus will be on how the Fed maneuvers policy and how the ECB deals with fewer bonds to buy for their quantitative easing program. The catalyst for global growth will be U.S. GDP, where forecasts for the Q3 continue to drop. Higher oil prices could help manufacturing rebound, which could spill over into global GDP, and help increase commodity demand. Chinese imports appear to have bottomed, with September numbers coming in negative, but near expectations. Exports looks like they have stabilized, which should allow Chinese growth to find a foothold between 6.5% – 7.0%.

chart

To produce an index that reflects perceived demand for leather, the JLDI combines changes in the shoes sales, furniture and automobile market given assumption made about the makeup of these markets as leather is concerned. Fluctuation in shoes sales, auto sales, and furniture sales will change the demand dynamic for leather globally.

JLDI Index

The Jacobsen derived its leather demand index by using an oscillator that captured an index from 1-100. The index is created from year over year changes to each of 4 time series.

  • Car sales data using a multiplier which includes the percentage index of leather construction is weighted by approximately 14%.
  • Year over year leather furniture sales is weighed by approximately 18%.
  • Chinese exports of shoes is evaluated along with imports of hides.
  • US sales of shoes that are leather – which is then weighted by approximately 68%.

The JDLI readings are on the right axis accompanied by prices of Heavy Texas Steer on the left side.

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