What happened this week: This week most people were just waiting for the outcome of the Euro Summit to solve the immediate problem of the debt crisis in the Euro zone. On Wednesday night the politicians found something they called the solution and the markets have been celebrating since then. Commodity prices and stock markets jumped up and the Euro as well.

The hide market has not had much time to digest the situation yet and so we are facing one of the quietest weeks of the year. The Asian buyers are driven by the weakness of the US market and since most of them are not good buyers in a falling market most were refraining from bidding and showing any serious interest for buying. They had a lot of excuses so it was easy for them to get away and hide from any serious discussion about business.

With a falling US dollar, at the end of the week the equation of prices between the US market and the European origins has become pretty difficult again. The support we had due to the weak Euro disappeared until last week and with the present rates well above 1.40 our hides have become substantially less competitive again. In Europe the situation was a little bit better, because a number of tanners were at least willing to take bits and pieces. However, the big issue now is whether the prices at the abattoirs can finally be adjusted to the market realities and there is quite a long way to go to bring buying prices in line with the present market conditions.

The big question mark is whether the fireworks of the markets will also spill into the hide market too. At the present moment it seems pretty unlikely. Leather and hide demand will hardly be influenced in the short term by the general economical markets, but much more by the retail sales, inventory positions and the currency market. Leather business is neither good nor bad; it is just not meeting the forecasts and expectations. This, in combination with the negative margins in leather production, has reduced hide purchasing to the minimum possible.

With the recent market reduction in the US market, prices are moving slowly into profitable territory again. The EU hides need to follow and adjust according to the recent changes in the international markets and the currency fluctuations. While high quality and heavy hides can still disconnect from the general trend, lighter weights and cows need to make adjustments to the international realities. While for cows the way is not too far, it seems that the gap for heifers and bulls is pretty wide and could cause tremendous pain if the market situation or the currency market does not deliver any short term surprises. For the moment we are in a classical downward market environment and many tanners are not good buyers in a falling market. In particular, Asian tanners are not known for being strong performers as long as prices fall. Everybody hopes for the cheaper price tomorrow.

With a lower intake of leather orders for some time now, the purchasing decisions of many tanneries could be extended which will fill the pipeline for many hide types. When a trend has been set it always takes a bit to stop and to reverse the dynamic. Trading and sales this week was rather sporadic. Trials, a few spot deals, but nothing really convincing or any significant quantities were done. The little sold was a bit of everything with the exception of lighter weight bulls and heifers. Actually we would call this week one of the quietest of the year so far.

The kill: The kill this week was not at the high levels we saw last week. Numbers are still reasonable and acceptable for the time of the year, but we had expected more this week.

What do we expect: Apart from the general question about prices, we think that our market needs a serious correction at the abattoirs. The mix of prices for the different types does not reflect the market realities. Politics may command for a while, but economics need to be realised eventually. Let’s see if November is going to bring enlightenment. Apart from that we have to wait until the downward trend is stopped by enough buying and it doesn’t seem to us, that this will happen next week. In the meantime, currency and spot deals as well as the abattoirs will command the days and the prices.

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