German perspective – 11.06.13
11/06/2013
The general price relationship between the various hide types and between the abattoir prices and the selling levels continues to be out of order and even more so since the hide weights have been seasonally dropping sharply for the past few weeks. However, specific interests and strategies let the butchers benefit until it breaks. We understand this is not just a 'German' problem, but similar conditions apply for a number of European countries.
The situation in the US is also interesting, where the reports talk weekly about good sales – which on Thursdays, when the official numbers are published, are wiped out by the hard facts. It is possible that this can happen for a week or so, but not for an extended period of time. An increasing number of players are asking how reliable the reports can be and who the main source of information is – and when one starts to wonder about the volume one could also wonder about the prices published.
Regardless, the gist is not difficult to understand. The slow season of leather production is coming to an end and the big players have to replenish soon – if they have the leather orders and they can obtain sufficient leather prices. Sellers try to guide the market through the quiet time until the leather industry in Asia has to come back into the market. In the slow season, lower raw material prices will not stimulate demand anyway, so why take them down?
One would also not be too surprised if there are still more hides waiting for a buyer after the first half than many are willing to admit. In the meantime, there wasn’t much activity and interest this week, but the good news in the bad was that some of the regular buyers were willing to buy reduced quantities of cows - although at discounted prices. All attempts to hold prices steady were unsuccessful and to make it even worse the USD fell pretty quickly towards the end of the week, which shaved euro revenues even more.
Consequently, sales for cows were made to Asia, but at a return which is quite a distance lower than a few weeks ago. Trying to escape with the standard dairy cows to Italy was wasn't a great option either, because neither the volumes nor the prices were sufficient, although the price gap which existed for a long time has been closed.
A decent result was achieved for low grades which found good interest and even got a fraction more in price, which is confirming that tanners try to find cheaper options in the hope of averaging their prices down. So, at the end of the week one cannot complain about the volume, but the results in euros can't make anyone happy until the abattoir prices are adjusted to the market realities. Even with a better selling week one doesn’t get the impression that there is any broad recovery on the horizon yet.
The kill: This week the kill dropped by quite a bit. The weather could be the reason. The floods in the south and nice weather with the grass growing in the north are not encouraging farmers to sell cattle. Beef consumption is still well below normal levels and beef export is not compensating. Weights are still falling and getting pretty light. It seems that this is going to be the market pattern for some time.
What we expect: We think almost everyone would agree that if the market was about 10% below the present levels it would have solid base. However, prices are not a matter of wishful thinking. In the meantime the headwinds for the prices of cows in euro will increase – particularly if the dollar does not recover sharply. The heavy end of the males looks pretty solid until the summer holidays due to low kill and persistent demand in combination with forward sales due to the fresh hide supply programmes. The price structure needs an adjustment and the question is when
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