German Perspective—12.05.10

11/05/2010

What happened this week: It was quite an exciting week. The Greek crisis has dominated the headlines; the hefty reactions of the financial markets as well as the riots seen in Athens demonstrated that the global economy remains pretty fragile and the recovery can still be threatened by new incidents on the financial markets. With Asia on a semi-holiday and Europeans watching the situation in Greece, trading volume this week was light with caution guiding the decisions. Concerns in the EU hide markets that built up during the week were calmed by the shortage of heavy males and the sharp decline in the value of the euro. This has made EU hides more competitive on the overseas markets; it remains to be seen if there is enough demand.

We feel, that cow hides, which in our case are mainly upholstery-related, are seeing most of the headwinds from the market. Some meat companies have used the situation for heavy males as an argument for increases across the board. But what might have gone through in April is now finding more and more resistance with a number of players realising that the risk level has sharply increased, even though it was already high. Everything now depends on the effect that the debt crisis in Europe might have on the global economy.

So far the indications for recovery in the US and sustained growth in China and other parts of Asia are strong enough to make investors to believe in a positive future with rising private consumption also in the ‘old’ economies. Well, this sentiment—at least for Europe—has got a few scratches and a number of people are now questioning if the finance package given to Greece could be followed by a bailout of other EU countries too. If not, taxpayers across the EU might be asked to pay the final bill of what is so far only a guarantee. One way or another it seems that people in Europe have, at least for the moment, understood that their disposable income could be threatened by rising taxes or deep cuts in public spending. In the meantime we still have to deal with the weekly market realities. In spite of demand, the kill of heavy males is still not enough to cover present production plans. The holidays in the coming weeks are adding to the problem, which cannot be resolved by price increases. The day will come when demand and production diminish and the market will get back into balance. This will give us a clear picture about the real value of the material.

For the few offers around, prices were bouncing around and anyone who had heavy bull hides to sell and working on a best-price-sells policy might have a had a decent chance of some good deals. For cows, the situation was and is totally different. At present price-levels the majority of tanners don’t want to buy. Prices are far too high to fit into their present calculations and there is a general feeling that prices have seen their peak and are now starting their descent. So buyers have either had to be blackmailed with the argument of long-term relations through ups and downs, or some isolated short-term needs have had to be covered. However, volumes have been small as they have for some weeks now.

It seems that contract positions for cows are eroding and, after some more weeks of sales below production, pressure to find a new level could mount. However, just a week of strong activity would bring confidence back and push sellers’ position forward again. Sales during the week were limited to isolated contracts for bulls and ox/heifers while the strong buyer resistance to cowhides left only a few bids to choose from. While heavies were still able to attract reasonable levels in view of the exchange rate with the US dollar, lightweight hides suffered more. However, the drop of the euro by six cents eased the pain a bit.

The kill: The kill is—despite the cold temperatures—still quite low. The pattern is still the same, with too many lightweights and not enough males in the slaughter mix. The holiday on Thursday, May 13 for Ascension Day is going to reduce numbers by quite a bit.

What we expect: No change, but we think, that prudence and concerns will rise and so will resistance to further price increases. Consequently males will remain scarce and females could feel mounting pressure with little price reaction so far.

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	€ 1,85	Steady
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1,65	Steady
Dairy cows	15/24,5 kg	22,5/23,5 kg	13/22 kg	20/21 kg	€ 1,75	Weaker
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1,50	Steady
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1,35	Steady
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 1,90	Steady
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1,80	Steady
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1,65	teady
Thirds	15/+ kg	25,0/27,5 kg	13/+ kg	24/26 kg	€ 1.25	Steady
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 1.20	Steady

German Perspective—12.05.10 - leatherbiz: Lea

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German Perspective—12.05.10