German Perspective - 06.08.13
06/08/2013
The kill is hitting the annual lows, either because of the holidays which is also touching labour at the abattoirs, or because of high temperatures, which traditionally reduce the demand for red meat in this part of the world. Cattle prices are high, farmers are busy with other operations and beef demand is low. All this is not making the hide and skin business easier these days. Although hide prices in Europe must decline so that they do not fully lose contact with levels in the rest of the world, the low kill makes it difficult to build the necessary pressure on packers and sellers. With a large proportion of German hides marketed in fresh, chilled state and with enough drums ready and in need of hides, the pipeline is not yet congested enough to build the pain some may need to suffer before they see the market realities.
A local reduced supply has little to do with the market conditions around the globe. Hide demand is down. Seasonally, but also due to the shrinking demand for leather and consumer sales that have not met expectations in recent months. Apart from the general consumer market conditions, the rising prices for leather have had the expected impact on sales. The fundamental problem for the small region we cover is, however, the price level, which has totally decoupled over the last quarter from the international market level, at least for the hides that face competition from substitute materials. The seasonal decline of hide weights in the second and third quarter is adding to the problem, with fewer in-demand heavy hides in the mix and an inflated volume of lighter weights which need to be sold in a larger percentage outside Europe. This has created a shortage and rising prices for heavy hides, which are in constant demand from the automotive and vegetable tanners, and serious price problems for the lighter ones, which are not in the top-quality range. This trend has how accelerated with the weaker US dollar and prices falling in other origins and pressure is now rapidly increasing to adjust the price levels in Europe too.
The trend in the world of leather is not general any more. While exclusive products consuming leather are performing well and are hardly price sensitive, normal consumer products are exactly the opposite. And the hide market in many countries now has to produce hides in the abattoirs for both markets.
Market activity this week was pretty calm. Asian tanners are still looking for some dairy cows as an alternative to the more expensive steers. Low grades are being chased from various destinations for the same reason and heavy hides, as explained above, are still being covered by the low kill and the existing contracts. So far, so good, but the prices at the abattoirs need to be seriously adjusted, not just because of the demand but to get in line with the price levels around the globe.
Leather demand is down and it can easily be seen that, despite lower kills all over, there is no shortage of raw material. This means, that the decline in demand is more than the decline in slaughter. Additionally, we are facing a serious problem in cash-flows in many tanneries due to the exaggerated hide prices and slowing demand, sales and payments in the pipeline. So, we continue to believe that the market needs an adjustment to lay the base for a healthier future. Prices for the small volume sold were steady to weaker for lighter weight bulls and ox-heifers.
The kill: We saw a serious drop in the kill last week, in double digit numbers. For the coming three weeks we expect pretty much the same and only in September will the kill really recover.
What we expect: We have little to add to the statements made in the last weeks and above. The price structure is in many ways out of order and needs adjustment. So far the market pressure hasn’t been strong enough to make it happen. We continue to believe that the market is ready for the needed correction and that this has been postponed for too long already. We can only hope that when it happsn, it happens in an orderly and controlled fashion.
| 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.q. |
|
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € n.q. |
||
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ n.q. |
|
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ n.q. |
|
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ n.q. |
||
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € n.q. |
|
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € n.q. |
||
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € n.q. |
||
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € n.q. |
|
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € n.q. |
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