German Perspective—06.07.10

06/07/2010

What happened this week: There is not much to write about any more these days. Prices for German hides are too expensive on international levels and the sharp correction of the US dollar towards the end of the week doesn’t make it any better. So, only very limited volumes of business have reached our regions and as positive as some of the reports from other markets sound, market activity in our area was quiet. Not, that there is no interest, but the prices of German hides in combination with the weakening US dollar are just not adequate in relation to what people can buy from other markets around the world. This has unfortunately not sunk in with various competitors at the abattoirs and consequently hides are continuously overpaid at the abattoir door. There is a number of reasons for this, which are entirely local and it doesn’t seem that the market is going to find a solution very soon. As a logical consequence of this, sales this week were not particularly active. Some regular buyers had the mercy to give bids that were workable, but quantities remain pretty small. European tanners are certainly not very supportive at the moment because they are trying to take the chance of the upcoming summer break to test if suppliers are already scared enough to consider lower prices.

There could be a reasonable amount of business in the overseas markets if hide prices would come down by about 10% or 15% from present levels. That would be about what people are willing to pay, and since German hides are still enjoying a certain preference in the market we would even believe that good volumes could be sold, in particular to China, if the prices were more in line with the levels from other origins.

Having been too expensive already at the beginning of the week, a sharp correction of the US dollar made the problem worse. So, actually history is just repeating itself and we have been in almost the same situation for a number of weeks now.

The latest news from the US and Chinese economies was also not too positive so there are more headwinds for the commodity market and a lot of the general optimism about the global economy has started to fade. Possibly we are starting to return to something more realistic.

We continue to believe that the situation is pretty sensible and we have seen a number of times how quickly emotions can shift.

The leather business is also not delivering much news these days. This summer season is traditionally low season and only the manufacturers in Asia have to take decisions about four or six weeks in advance to make sure that their supply chain isn’t interrupted. However, with the number of hides they have bought recently, in particular from the United States, it doesn’t seem that there are too many hungry buyers left for the short term. Possibly we have the chance of another wave of buying in case the US sellers lift their asking prices in response to the extended forward positions they claim to have for many grades.

Apart from the uncertain outlook for leather demand for the second half of 2010 we still remain pretty worried about the financial situation of the tanning industry. Even with the Chinese still being in a much better state, we can see from that part of the world that in many cases payments are coming much later and letters of credit are not being opened with the speed they used to be in the first four or five months of 2010. This might be related to the high prices. This might be related to the low season but in general it’s a clear indication that the Chinese policy of tightening money supply and credit is starting to work and a number of people no longer have the endless access to capital they had before.

What we were able to sell this week was pretty much bits and pieces. A load here and a container they are, but nothing that was more than just coincidental. Prices were on the weak side of steady and only the very heavy bulls are where a tough position on price had some success. Most of the activity and interest we received were from the Far East while in Europe just a few sales for the sidelines were recorded.

The kill: The kill dropped sharply again. Butchers are complaining about the beef business and are finding it pretty hard to buy cattle at the moment. The holiday season in the region and we have seen the lowest numbers for a week in 2010. With temperatures going up we have very little hope that the situation is going to change in the coming weeks. In addition we are suffering from extraordinary light weights at the moment, which is not making the business any easier.

What we expect: We think the German market is overdue for a correction. The leather business being good or bad is one issue, but for the time being prices have been pushed too hard and need to get back in line with the rest of the world. Either we make a first step in July or the problem will be extended.

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	€ 1,70	Weakish
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1,45	Weakish
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1,30	Weakish
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 2,05	Pressure
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1,95	Pressure
	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	€ 1.15	Weaker
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 1.10	Pressure

German Perspective—06.07.10 - leatherbiz: Lea

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German Perspective—06.07.10