German Perspective—28.06.11
28/06/2011
We see the spread between various grades and origins further widening. This is bad news, because such large spreads can hardly be entertained for a long period of time. The good order books in the premium car industry are supporting these prices. The situation for ordinary upholstery hides and dairy cows is more difficult. We can be happy that these are frequently used today as cheaper alternatives in the side leather industry in Asia, otherwise the pressure on prices would be much higher. Standard side leather hides are benefiting from low inventories and one can well see from the weekly sales reports in the past weeks that tanners had little option other than to replenish now. It seems they are early this year as it is normally more July and August when they become more active. So, actually very little has changed over the past month or so. Tanners have been able to deflate prices from their peaks and seem to be pretty happy with the situation. The risky situation of the global economy doesn’t seem to worry the leather business too much and most seem to be pretty optimistic that the level of sales and business will persist into the seasons of 2012.
This is in our view the key question for the second half of the year. Can and will consumers spend as much as they have done? All plans and budgets for the rest of the year are still based on the results and forecasts of 2010–11 and so far nobody is actually willing or in the position to revise these. The coming weeks will however deliver the final consequences of the Greek debt crisis and–at least for Europe–it can’t mean good news for consumer spending.
The economy in the US doesn’t look too healthy either and the Chinese locomotive seems also to have a need for maintenance. It seems that we will have to wait until after the summer until the economic sector draws its final conclusions about the situation. Talking about China we hear also about more and more money problems. A number of tanners are said to be short of cash at the moment and despite healthy sales, letters of credit are not coming as easily as before and ones that were reported to be opened are obviously being withheld by the banks sometimes until enough cover is generated to commit again. This is something we have not seen for a long time.
From Italy one hears about more and more claims that in many cases seem to be related rather to the market than to the quality and loads that are being shipped a day late or cancelled without any notice. It is happening, and this too is something we haven’t seen since 2008. So it seems pretty much that the upper end of the quality range is doing better than the medium and low end and this is also reflected more and more in the prices for the various origins of hides. For the better end, the forward sales positions of producers remain very comfortable, which makes them far more optimistic about the situation than the ones who have more of a struggle to attract buyers for their material.
With our hides we are a bit in no man’s land. Some consider them as premium, others as commodity and so their valuation is different from one to the other. Sales and business activity this week was a bit restricted, both in terms of the kill and demand. As far as overseas export is concerned it seems to be a good strategy to sell hides on Mondays and Fridays and to sell the US dollar on Wednesdays or Thursdays. That is at least covering a bit for the missing margins that are still the result of inflated abattoir prices and low average weights. The interest was mainly concentrated on dairy cows and heavy males. Prices were generally steady although buyers are still bidding ambitiously low at the beginning to understand in the end that one is not actually forced to dump hides at the moment. Only males for the Asian market are still overpriced in comparison to other options the buyers have, which is also reflected in the sales of US hides into Germany over the past weeks.
The kill: The kill remains at very low levels and it is still falling. Packers complain heavily about their beef sales and live cattle is not cheap either. Not the best conditions for reasonable slaughter numbers. The school holidays are now in sight and there is little hope that the numbers will get any better soon. Weights will remain low too and since Germany is not suffering from any climactic turbulences so far there is also no emergency killing to be expected.
What we expect: Some of the pressure has eased. The low kill is supportive to the market and allows packers and sellers to be more relaxed about their sales positions. However, German hides are still not fully competitive in the international markets and minor reductions cannot be excluded over the weeks to come. A firmer US dollar would however also add support. For the coming weeks we still don’t expect any major movements as there is no sign that tanners are willing to consider paying higher price levels. So, things ought not to move much, with prices staying in the narrow range established.
| 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 | € 2,20 |
Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1.95 |
Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1.95 |
Steady |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1.75 |
Steady |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.60 |
Steady |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2.20 |
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 | € 1.75 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.35 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.35 |
Steady |
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