German Perspective—09.11.10
09/11/2010
While buyers’ interest in this situation is easily understood one could at least ask why sellers are joining in the negative sentiment, in particular those who previously were pushing hardest on price and insisted that the summer market desperately needed correction. Well, the solution might be that they need to widen margins to balance the money they might have burned before.
This is only part of the entire picture. There was no question that prices had to come down and they did. There was no question that heavy hides were totally overvalued, but they look much more fairly valued now and this is raising the question if the short term oversupply of fresh, heavy hides should really be used to force the market levels substantially further down at this moment. We will not be very popular with this opinion, but another sharp correction would create a problem for leather prices, which still need to be negotiated and it would also increase the risk for higher market volatility, which is not really something we should look for either. So we would actually prefer that the fair value of hides determine the market price rather than short-term and seasonal variations of the supply and demand balance. While in the past the hide industry was willing to balance this by salting and storing excessive quantities, moving the production is the driving force today. With slaughterhouses marketing predominantly fresh hides at the moment, this has led to sharply increased volatility with prices determined by the daily performance of the market and the seasonal supply and demand situation, not by a fair valuation of the material.
This has led to a temporary decoupling of the price levels of certain European hides from the international levels; this has been the case since spring. What we see now could become a similar pattern on the downside. The adjustments have been made and now the market is trying to find a safe level, but the momentary oversupply of hides could end in another excess, this time on the downside, if the tanners succeed in their attempts to force the market their way. This has a pretty fair chance at the moment, but would again not reflect the international price structure or invite overseas buyers back into the market. EU tanners should take this into consideration before they get too ambitious. Anyway, this scenario is certainly related to the general market reaction after the US Federal Reserve continues to flood the world with dollars nobody actually needs. As long as the decline of the value of the US dollar remains in line with the increase of commodity prices, major influence on the hide market should be avoided. If the Federal Reserve decision triggers new turbulence in the markets things could change quickly again.
In the meantime trading this week was within normal ranges. Buyers for heavy bullhides were bidding aggressively downwards and were seemingly finding victims (see above). For the other and lighter standard grades we had enough interest to choose from. With the decline of prices since mid-September there was interest again not only in the standard Asian products (cows), but also in the upper end of the weight and product range. In the end sales were good enough to keep the product flow intact and to prevent stock from building up. We have to assume that this the general situation means the market is reasonably well protected against any major congestion at the moment. Prices on the overseas markets were steady for cows while males suffered a fraction in sympathy with the EU market. The US dollar decline of about 2 % was not compensated by higher prices.
The kill: Slaughter is now gaining speed to the levels one would expect for this time of the year. Numbers are pretty good, while we still think that weights should be better at this time of the year. In our region the cow kill is pretty strong with a lot of animals finally being taken off the fields. Most slaughterhouses are confident that this situation is going to persist until the end of the year and numbers should be good until then.
What we expect: Fundamentally the market remains in the narrow trading range. Abattoir prices seem to be adjusting to the market realities, which should be relaxing for the trade. With the recent price correction it seems that product flow is better again and most sellers have decided to bite the bullet to get expected productions cleared until the end of the year. So, without any surprises in the financial markets or massive changes in the kill, the market should now be in the final lap of the correction. Any sharper and extended movement would create a situation in which our hide prices wouldn’t fit into the global price range. We would only see upside potential in the case of market reaction to the inflationary risk, while the downside risk depends on the currency and the kill. We are convinced that the market is better for the moment and that downward pressure should fade.
| 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 |
€ 1,65 |
Sliding |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,45 |
Sliding |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,30 |
Sliding |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,80 |
Pressure |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,60 |
Pressure |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,40 |
Pressure |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.10 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.15 |
Steady |
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