German Perspective—10.05.11
10/05/2011
For other articles tanners are now trying to hold out as long as possible, and as usual people appear to want to hit the bottom abruptly instead of sliding with the levels to achieve average levels in the end, but this is common practice. Consequently the market hasn’t found a base yet and most people find it very difficult to give prices a serious and reliable valuation these days. Buyers are convinced that it is now their turn to get prices right and sellers feel there is no serious reason for any major adjustment because leather demand is still considered to be good with raw material demand intact. Although every side has good arguments, the influence from speculation, currency exchange, positions hit by the problems of the tax investigations and the leather prices are too strong and short term at the moment to enable the market to find a common level. As always, one hide too few or one hide too many can make the market. All this is creating a lot of confusion at the moment and most players are failing to get a clear grip on the market.
This is certainly also related and amplified by the turmoil on all commodity and currency markets. Precious metals have been falling dramatically and so has the price for oil and the easy game, selling the US dollar and buying commodities, has got a shot in the arm. As soon as the speculative money leaves the trade, prices correct sharply and reflect much better the realistic conditions between physical supply and demand. This applies also in the hide and skin market with the only difference that here no futures market involved and stepping in or moving out is far more complicated than dropping just an option or future contract in a liquid market place. In particular long positions are far more difficult to liquidate in hides and skins than in the common futures markets. Consequently a lot of the individual interest involved is now conflicting. Tanners want the raw material market down but don’t want to read it in the official reports to avoid the trouble of their leather contracts and negotiations changing. Raw material people don’t want to see the market collapsing to avoid problems with their contracts or the valuation of their inventories, but at the same time everybody knows that only a fair valuation of the hides will make business safe. Opinions over what constitutes a fair valuation are also pretty far apart.
The turmoil on the financial markets since Thursday afternoon is also leaving traps. Suddenly there are fears that the global economy may not be as hot and good as the speculation considered. Inflation, rising interest rates, the influence on demand from excessive prices for raw material, energy and food have started to become a worry. On Friday this was garnished with the rumour that Greece might want to leave the euro zone. Everything is different again and a number of people are starting to think that Greece could become the Lehman Brothers of 2011, in reference to the investment bank that declared bankruptcy in 2008, contributing to the global financial crisis. Suddenly the US dollar, which had been close to the magic $1.50 level versus the euro turned around. Commodities dropped sharply and this raised the question over how this could eventually affect the value of hides and skins. Whatever happens in the end, for the moment uncertainty is rising and the psychological factor is coming into play. If the term ‘risk aversion’ could be used, it is adaptable also to the hide market now. Packers have been so comfortable with the ever rising prices, but they have suddenly realised that the wind may turn against them. The days of working steadily with rising revenues for hides coming into their calculations might have come to a sudden end.
Trading was again light this week and it is actually mainly lots here and there. Bulls are still thriving on low kills and the forward contracts of fresh material, and cows are struggling with the Chinese staying out of the market. The firmer US dollar had no effect because the sharp reaction came too late to change anything. Prices for bulls were incrementally lower for very small volumes and cows remained under pressure with all kinds of prices bouncing around. There were a lot of stories about desperate sellers trying to get bids and orders.
The kill: The kill remains seasonally low and the exceptional warm and sunny weather is not helping beef demand either.
What we expect: Next week will be tricky and depend more on the financial than on the hide market. We have no reason to believe that the dust has already settled. The correction should continue for cows and standard materials and the final settlement of the abattoir prices will be determining too. The US dollar will just help a little.
| 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 | € n.a. | Weaker |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € n.a. |
Weaker | |
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ n.a. |
Weaker |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ n.a. |
Weaker |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ n.a. |
Weaker |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € n.a. |
Pressure |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € n.a. |
Pressure |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € n.a. |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € n.a. |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € n.a. |
Steady |
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