German Perspective—25.05.10

26/05/2010

What happened this week: We still cannot trace much news that will really shake or rattle the market. For the time being, the optimists and the pessimists, as well as the strong demand for bulls and limited enthusiasm for cows are all cancelling each other out. While all available heavy bulls are quickly snapped up for the right prices, opinions about the market for dairy cows are drifting apart. Some are not really concerned that the activity for cows has not been what it should be for some time and believe it is only a temporary pause. But others are significantly more concerned and believe that the low season in upholstery and generally declining demand will sooner or later have their effects and lead to a general and extended correction in the market for dairy cows.

So far the situation is still undecided. On one hand the argument is that the supply of raw material is generally shrinking and leather demand remains stable enough to sustain the present raw material price level. On the other side we have those who support the idea that the actual price level for raw material needs to convert to leather prices, which are too high and will just lead to the substitution of leather as a material. Raw material price levels will have to change to allow competitive prices for upholstery leather again. We find it difficult to judge.

In the meantime dairy cows are being used increasingly for side leather products and easing some of the price problems that are resulting from the high levels of males and heifers. In particular in China a lot of manufacturers and wet blue traders are far less selective and also have the advantage of their domestic market for shoes, which is still less quality-educated in many cases. So, for a tanner in China, the present strategy is pretty simple. Tan the cows to wet blue and use the top selection for high quality upholstery leathers for export and domestic use while the lower selections are sold off for side leather products for the local shoe and leathergoods market. Any concerns about quality and technical issues are just wiped away.

The price difference and the Chinese logic for economics make a lot of things possible over there. This has supported the cow market so far; traditional use in the upholstery market would have caused a price correction already. However, in the meantime buyers are seeing a rising chance of a price correction and are starting to sense that the famous ‘forward positions’ of shippers are eroding quickly, which could offer them the chance to save some money if they play their cards well.

While upholstery tanners have almost totally withdrawn from the market at present prices, side leather tanners in China are waiting for bargains to come around. In the meantime they have taken note of the changes in the currency market and a lot of emails are arriving asking for discounted dollar offers owing to the weakness of the euro at present. Well, unfortunately not much benefit can be taken from the impressive decline of the EU currency. Almost all of the potential benefit has been quickly turned into higher prices at the abattoirs. Price negotiations are more and more delayed abattoir prices these days; they are being calculated backwards for the month that has passed, rather than for the month ahead as they used to be, once upon a time.

Trading was again almost a copy of previous weeks. Males were pretty readily taken, but with increasing resistance and much tougher fights to agree on prices than before. Sales for cows were hard work again and most bids were pretty ambitious. In the end only a handful of sales were concluded overseas using the weak days of the euro to make prices workable. Prices for males were fractionally higher and those for cows fractionally lower, with volumes normal for bulls into Europe and limited for cows in Asia.

The kill: This week the kill was almost normal. News about the failure of the largest independent slaughterhouse group in the Netherlands has attracted lots of interest in the beef and related industries in central Europe and has reminded many again of the fact that the restructuring of the industry is not yet finished in this part of the world. This coming week will be short again with a holiday on Monday, so pressure on the supply side will not increase. After that, though, and until the summer break the kill should be more regular now.

What we expect: In our opinion the risk level continues to rise. This may certainly apply far less to bulls, for the reasons stated above, but in the end the markets for cows and bulls never drift apart for too long. The markets overseas are showing fatigue, the US dollar has stopped the one-way street for the moment and upholstery is off season and demand is dwindling. It remains to be seen if there is enough momentum to hold prices throughout the summer. It may still be some time before there is a sharp correction, but we remain careful and prepared for a possible change.

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	€ 1,90	Steady
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1,75	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	Weakish
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1,35	Weakish
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 2,10	Steady
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 2,00	Steady
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1,70	Steady
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—25.05.10 - leatherbiz: Lea

Intelligence

German Perspective—25.05.10