German Perspective—07.07.09
08/07/2009
GERMAN PERSPECTIVE—07.07.09
What happened this week: Pretty much the same as in previous weeks. The usual suspects are continuing to push this market and are particularly successful at the abattoirs, but much less so with tanners. As a consequence, processing margins are eroding quickly, if one looks at the present purchasing levels and the current market levels. This has opened the door again for those who are preparing their lots in relation to the price paid and it looks pretty likely that some tanners will be surprised by what they get when they process the material eventually.
However, all this is not really the essential question of the week. It is much more that the optimists—like in many other markets—have gained the upper hand at the moment and believe that the future outlook for the leather industry and production is positive for the time after the summer break, and that consumer business will justify the replenishment of inventory.
This continues to focus the interest on better quality hides and keeping the bulls in the driver’s seat. Other than the Chinese policy of investing their currency reserves in raw material rather than in US dollar obligations, one can find few arguments that would justify higher raw material prices. Even with short-term replenishment in the automotive industry, in which manufacturers had run their supplies too low, the question remains about how much this optimism can be turned into economic realities later this year.
For the western world, the outlook is not good. Unemployment is rising or set to rise later this year. No matter what politicians are saying today, they will either have to cut payments or increase taxes, both of which will have much the same effect on consumer spending in the short term. So, maybe the BRIC countries (Brazil, Russia, India and China) will have enough power to compensate for the problems the western economies will have to deal with in the coming years.
In the hides market, we still saw this week reasonable interest in better and heavier male material. As much as could be made available was sold. Cows are not moving easily anymore. Sales are becoming more isolated every week and reports from China confirm that, there too, upholstery tanners are not enjoying good business any more. There is also a decent amount of wet blue stock sitting in the warehouses. Many traders and tanners sold the better selections off from the material they had bought from April until now and are now sitting with low-grade stocks they cannot move, or at least not at the right price. As long as they continue to buy, because they can still finance the stocks with the returns for the better selections, fine, but what happens if leather demand is no longer strong enough to absorb the low grades that continue to pile up?
Anyway, isolated sales to bag leather producers were still possible, but not at the prices one would need today following the moves at the abattoir doors. Since we are now entering the summer season in Europe sales in the area were limited to very small availabilities of lightweights and males. Females were dominated again by a few sales to China.
The kill: Weather has become pretty hot this week, which was immediately reflected in the fall in beef consumption. With the school holidays having now started in Germany and the peak season still ahead, the kill will remain low.
What we expect: Without wishing to sound too pessimistic, we see the level of risk for the market progressively rising with every percent the market gains. Price are now getting into the ‘danger zone’ and this will add to all the other problems the world has to deal with. Let us hope that the market takes a break now until we all will have a better grip on the situation in September when the production season starts again. Until then, we believe that the market is set to run into a dead-end quickly, lacking further support from buyers.
| Type | Weight range | Avg. green weight | Salted weight | Avg. weight salted | Price per kg green weight | Trend |
| Ox/heifers | 15/24,5 kg | 22,0/23,5 kg | 13/22 kg | 20/21 kg | € 1,30 | Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,00 | Steady | |
|
Dairy
cows |
15/24,5
kg |
22,5/23,5
kg |
13/22
kg |
20/21
kg |
€ 0,80 |
Headwind |
|
25/29,5
kg |
27,5/28,5
kg |
22/27
kg |
25/26
kg |
€ 0,75 |
Headwind |
|
|
30/+
kg |
33,5/35,5
kg |
27/+
kg |
29/31
kg |
€ 0,70 |
Headwind |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,15 | Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,05 | Steady | |
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 0,90 | Steady | |
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,50 | No interest |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,50 | Steady |
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