German Perspective—19.01.10
19/01/2010
The week started with news and reports full of excitement and people were falling over each other talking about strong leather orders empty stocks and a raw material shortage. High prices for hide sales were thrown around and most of them were easily 10% above where we thought the market was.
Well, when a market starts to feed itself there is very little one can do, and so we joined the club and lifted our asking levels accordingly and were pretty excited to await the stampede of buyers to buy all the hides on offer. Well, very little of that actually happened. Except for some isolated loads we didn’t even get a bid. So, the caravan has obviously passed by without stopping at our oasis.
We have now to wait and see if another passes by next week or if we have to wait for them to return.
In spite of what has happened, there is hardly anybody who can actually see any reason for this market to turn. Most of the productions are in balance or even sold forward and there is consequently hardly any unsold hides pressing on the market. This is giving a lot of comfort to butchers and sellers, and as greed is rising again so are the ambitions to test where the price limits are these days.
The price rise is accelerating, but nobody actually knows how many hides are being sold at the rising levels. With the decent forward positions nobody really cares that, in fact, the volume of trade is declining as prices advance and this could be seen as an indicator that the dynamics could end one day. It might however not be a bad idea to take it into consideration.
Anyway, in the meantime other European origins were quoted at much higher prices than Germany’s. French cows were said to have seen the magic 60 figure already and UK cows were quoted to have marched well into the 50s. Everything is possible these days, but we still have to mention the fact that the top names in Asia have not been buying for quite some time already, or have only been buying hand to mouth, at least as far as the upholstery tanners are concerned. The big activity is mainly seen by traders and importers.
And in the dairy cow section they are shaking the market up, because they send their inquiries all over the place and are also not very selective in their supply base. This is creating a bazar environment and unease, which supports fear and uncertainty.
In Europe business was moderate. Also here the market is driven more by isolated segments than by a broad based demand. Butchers and many processors are convinced that there is a shortage of heavy bulls. This might be true for a short window, but in general we relate this only to a temporary replenishment demand from automotive tanners, and they are indeed grabbing at the moment all they can lay their hands on and so abattoir prices are rising in big jumps into 2010.
Margins are eroding quickly and when we think that hide prices have gone up now by 50-80% in a year, it must be of concern how this can be digested in the calculation of leather production. Some hide types have already reached prices levels that are not far from the levels seen in the first half of 2008, which is leading to the logical question of whether demand and price levels for leather have also returned to a similar situation.
Let us not forget that already at that time tanning in most cases wasn’t too profitable. Well, one can imagine what it looks like today, if one has to calculate with today’s replenishment costs.
This must leave some worries about the long-term solidity of the trend. As already mentioned, trading in our case has been reasonably light, with coincidental trades occurring at moderately rising prices. There was interest for oxen and heifers close to asking levels, heavy bulls were easy to place also close to what we think their present value is, but the cows section did not bring the bids and returns we expected in view of the market whispers. Anyway, it might have been just a breather and we wait with great interest for next week.
The kill: The kill is reasonable. The weather conditions are generally good for beef consumption, but not so good for transport. so, the total numbers are neither promising nor depressing and we still wonder about the pretty low average weights. We should be at peak levels, but we are still far away from them and that’s also not good for the calculations. There are no indications that there will be any change until the end of January. After that the carnival season should depress numbers for a fortnight.
What we expect: The next week will be dominated by fundamental optimism. We are now heading fast towards the Lunar New Year break in Asia and we find it interesting that many factories are talking about a three-week break this year. That doesn’t fit well into the big wave of leather orders people are talking about. In the next days there will be another test over the asking prices can be obtained. We believe that the firm sentiment will remain intact with rising resistance.
| 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 | € 1,50 | Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,45 | Firmer |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1,15 |
Firmish |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,10 |
Firmish |
|
|
30/+
kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,05 |
Firmish |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,55 | Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,35 | Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,25 | Firmer |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,90 | Firmer |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,80 | Steady |
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