German Perspective - 26.02.13
26/02/2013
It is always a question what one expects and what kind of conclusions one draws from the market. It seems, that the market is still not on solid ground and still profiting from the control and confidence of the big packer industries around the globe. However, the leather industry is presently looking for an exit strategy. The endless rise in prices and the risk to supply have created the need to stick heads together to find solutions. Some are looking for higher leather prices, others for cheaper alternatives; cutting production is up for discussion too.
Money is starting to dictate too. Nobody seems to be pursuing a ‘survival of the fittest’ strategy, just burning money until competitors surrender. This is the privilege of the hide business. This means that, for the time being, production costs are in check and productivity too. Raw material alternatives or new articles could help manage the margin problem, or financial departments could secure sufficient cash-flow to help keep operations running. Suppliers are still trying to play the supply card.
Demand for beef is less than buoyant and sellers are again pointing to the kill. US slaughter numbers are low and we also face a low kill in our area, although it is not clear why we are seeing numbers down so much. Most are of the opinion that the horse meat scandal has reduced demand. Nobody really knows if this is the case or if it is just that retailers are still cleaning up the problem. In any case, it will take some time to clean the supply chain up and to understand what has really happened. Retailers will have to double check all their product supply, which includes beef. Since this is mostly convenience and fast food, the delivery network is pretty complex and it could take a while. Eventually it might even help local and domestic supply of beef as deliveries can be checked more easily and supply is far more transparent.
The good news of the week was the recovery of the value of the US dollar. With the levels of $1.32 to the euro, which we reached again at the end of last week, export revenues rose by about 3% compared to a couple weeks ago. Since markets prices respond only slowly, if at all, to negative currency fluctuations this trend was warmly welcome with recent rise in abattoir prices.
From the leather business one hears very little. However, behind the curtains one can sense the intense discussions among management teams about how to deal with the problem. While very little can be done for this current season, most of the big players are scratching their heads over how to deal with their customers. Some tanners have sent a letter around describing the situation and the effects of the raw material price rises in recent months and simply declaring that their leather prices are going up by the equivalent amount. We know about these attempts but haven’t yet heard what leather buyers have said in response.
No matter what is finally agreed it will not increase confidence for the future and will make the life of many purchasing managers difficult. They will most likely not meet budget for this year and when they start to think about budgets for the future, they will not feel much better. Well, one should be too scared; things change quickly in this business and frequently the unexpected happens.
Sales during the week were just about acceptable but only because the interest at the start of the week allowed to sell what was on the list. In the second half of the week it was not even that tanners were trying to bargain; there was hardly any interest seen. Prices were basically steady and betting on the currency market could have made the difference again. Hardly any bulls are available and cows to Asia was the main business of the week. Weights are not too brilliant either.
The kill: The kill this week was pretty low. In particular premium cuts are hard to sell and farmers are not willing to sell cattle at a discount. The horse meat scandal is not helping either and so slaughter was limited to what needed to be killed and not a beast more. Packers are expecting further drops next week, which will drop the numbers to record lows if it happens. The slaughter mix favours females at the moment and the kill of bulls is the biggest problem. Consequently supply is no fun.
What we expect: We would certainly expect market pressure soon if the kill were normal. With the missing numbers, suppliers can still play the supply card. However, demand has not been what it should be for weeks now and other origins are actually painting the same picture. This excludes only the top end of the product range. This is lifting pressure from suppliers and letting them gain more time before they have to worry about what happens next. Consequently, we expect another week without much variation, but at least the clock is beginning to tick.
| 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 | € 2,30 |
Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 2.00 |
Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 2.10 |
Steady |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1.80 |
Steady |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.70 |
Steady |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2.15 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2.00 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.85 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.50 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.50 |
Steady |
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