German Perspective—18.01.11
18/01/2011
Abattoirs’ buying at the start of the new year has been as bad as we feared, and the trade’s magic talent to jazz prices up on emotions rather than in relation to facts has also been in evidence. The usual suspects were pushing prices too far and too high making things pretty difficult. The euro gained quickly after Portugal, Spain and Italy were able to place new bonds more easily and at better conditions than expected. Investors obviously consider this as the end of the debt crisis, judging by their reaction on the currency market. Nobody knows how long this will last, but on Friday of last week calculations for overseas exports were 3% down on the numbers people were giving on Monday, with buying prices having rocketed in the meantime. What we have is a worst-case scenario for the hide business and for tanners. Higher raw material prices are bad for the tanning industry.
We were anticipating higher prices and a moderate rise was inevitable considering the general parameters of the international markets. Foot and mouth disease in Korea, floods in Australia and large order books in many parts of the leather industry in combination with the moderate supply base has laid a base for January which was critical. With so many services and products rising, inflation is back by far more than the official statistics measure and ambitions and hopes for higher hide prices developed. Since this trade has never been famous for appropriate reactions, things moved sharply at the abattoirs, where a moderate adjustment would have been adequate. The tanning industry will now need to manage and digest the price-rises.
Calculations have become more short term in many instances, but those industries working on long-term contracts and price arrangements will have a pretty tough start to the first quarter. It will be of great importance to see if retailers and manufacturers—understanding the general commodity situation—are willing to adjust their prices for leather quickly and adequately to meet the present market realities. Leather substitutes are also rising in price, although not as fast or in such a volatile way as the price of raw materials in the leather value chain.
Solutions are desperately needed now, otherwise the next problem (a financial one) will soon be on its way to hitting the industry. History in this trade is always repeating itself and the next few months are likely to be dominated once again by the controversy between short-term players and speculators on the one hand and the long-term players on the other, which is never fun. Despite the positive outlook for demand and business in general, the outlook for margins and risk are pretty grim at the moment.
Interest this week was normal, but not as good as one would believe with all the hype in the market. Tanners have become more cautious, even those who are in a ‘need to buy’ position. Automotive tanners seem to be the ones who are feeling most need of replenishment and upholstery tanners the least. Side leather makers might be best positioned as they have had a lot of security in orders for a while and have felt that an adequate raw material position was advisable. However, we don’t assume than anyone is running high raw material inventories at the moment, allowing them to stand back from the market completely.
Chinese buyers will try to use their holiday (Chinese New Year is February 3 this year) to take a bit of buying pressure off the market, but many are planning trips to their suppliers during visits to Europe; they are not just coming for a cheap holiday.
Trading was moderate for the week. Even with a firm US dollar at the start of the week things were still positive, but towards the end of the week, with a weaker dollar and higher buying prices, it was far less fun. Prices were able to advance a fraction in dollar terms, but this was swallowed up quickly by the rise of the euro. There was some progress in Europe for bulls, while net revenues overseas were steady at best.
The kill: The kill was a bit of a roller-coaster ride. Numbers suddenly went higher and one gets the impression that farmers and butchers are trying to do what they can before any threat from the dioxin scandal hits them. Beef demand has certainly been positively affected so far and export beef contract shipments have resumed. To make any forecasts on the kill in the present situation is quite difficult, but generally the levels should remain good without any surprises.
What we expect: There is no option but to raise asking prices now and to fight for a rise. A rise of a few percentage points was already anticipated and might have been easy to achieve, but higher figures will become difficult and emotional and will need to be negotiated. Results will depend on individual inventory positions. In Europe it seems that the need is bigger at the moment than in Asia and price advances here will be higher than overseas and bulls will be more favoured than cows. It doesn’t seem that sellers will have much mercy and tanners will have to bite the bullet, especially for males.
| 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 | € 1,95 | Firmish |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,80 | Firmish |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1,75 |
Steady |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,65 |
Steady |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,45 |
Steady |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,95 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,85 |
Firm |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,55 |
Firm |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.30 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.30 |
Steady |
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