German Perspective—14.12.10
14/12/2010
Packers and suppliers have become fundamentally more optimistic. Many expect the high slaughter to decrease at the beginning of 2011. At the same time, good news from many manufacturers of leather-related products is adding to the optimism, and with less supply, tanners could be forced to pay more for raw materials in 2011. This theory will work if the price for leather also rises.
Another interesting topic will be whether tanners have used the chance in the past months to build some inventory and buffer stocks. At least for European tanners, rising raw material prices could become a threat again, as they were over summer. The euro was able to able to recover moderately well this week, despite the massive political tensions in the euro zone about the handling of the present debt crisis. However, it doesn’t seem that the currency is on safe ground and one must continue to monitor the currency market closely.
The period around the end of the year has shown high volatility for many years. Leather business seems still to be strong for side leather products. The early winter in Europe is boosting sales, and accessories and luxury leathergoods are still high on shopping lists around the globe. Car sales also remain high, keeping strong demand for automotive related leather types.
Inflation is returning with rising consumer prices almost everywhere. So, fundamentally, the grounds are set for rising hide and skin prices too. This would lead us, however, back to the same problem we had in the second and third quarters of 2010. Cash-flow and profitability issues will dominate in the tanning industry and could trigger new problems. At the same time, all consumer product manufacturers are fighting higher prices, since they also face substantial headwinds from the markets due to higher retail prices.
The consequence is that the industry is experimenting increasingly with leather product substitutes. Much of this will be successful, and we will find more such products in the shops in the next season. Anyway, for the moment trade is increasingly optimistic and preparing for a firmer trend in the first quarter 2011. How successful this is going to be will depend mainly on the raw material inventory position of the global tanning industry. In the meantime, most tanneries in Europe are closing for at least one week, and in many cases two, when they will take no hides. A bit of relief can be expected.
If the slow-down of demand from the Far East continues in the coming weeks, the situation could ease into January rather than tighten?regardless of what happens later on. What is also strange is that generally the quality of the buyers in China is deteriorating. Less industry, more trade.
This shows that demand at the moment is more driven by speculation than a real willingness and need of the industrial buyers to invest more in raw material. The reason in our opinion is the leather price. Without clear indications for higher prices for leather into 2011 tanners are not really willing to take raw material positions yet.
Sales were pretty light this week. There were some sales early in the week but then hardly any interest. Sales were a bit of everything; some dairy cows and some males and heifers, but nothing really dominating. Prices were steady and this week it was not possible to generate any windfall profits from the currency market.
The kill: The kill has eased a bit. This was partly down to the weather conditions, which made transportation more difficult, and partly to high live cattle prices. The decline in hide weights in particular for males was noticeable. It seems that the heavy ones have been sold and the demand for the Christmas season is for better quality beef. There should be no change in the week to come.
What we expect: Everything points towards a quiet finish to the year. European tanners are just sniffing around to see if they can find bargains for 2011 and the Asians seem to more concerned about Christmas and the Chinese New Year holidays than really pushing things hard. So, we expect for the coming weeks bargain hunting rather than much real activity. For the year’s final week things could pick up a bit, because it seems that Asian buyers will still need to cover some more raw materials for after the Chinese New Year. So, prices should stay steady for next week with suppliers testing the market on the upside.
| 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 | € 1,70 | Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1,70 |
Steady |
|
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 | € 1,85 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,65 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,40 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.20 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.20 |
Steady |
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