German Perspective - 14.10.14
14/10/2014
Well, one has to realise that the shortage was more a restriction of offers rather than a lack of supply. What might be missing in one place was available in another; we have not come across a single tannery in the past six month that did not get the raw materials it needed; no drum stopped because there was no raw material to fill it.
What the tanners were missing were hides at the prices they find acceptable, which links to questions over leather being sold at the right price or prices for leather being depressed by overcapacity. If we have overcapacity that can be maintained with the raw material available, what we have is a lack of demand for the finished product. This is the problem.
We are running a very high risk of price levels curtailing leather demand. If we look at last season’s shoes (which had plenty of suede from splits) and look at what has arrived for this autumn-winter (plenty of non-leather materials), one could draw the conclusion that factories have been busy producing shoes, but not from leather any more. The present shoe production is for spring-summer 2015.
Why should shoe makers use leather now when so many other materials are much cheaper (look at the oil price or cotton just for an example)? What is really worrying is the fact that split prices are not recovering, despite persistent high prices for hides and grain leather.
This doesn’t even take into account the deteriorating outlook for the global economy. We don’t like the spreads between materials either. Lamb, sheep and splits have fallen dramatically in price this year and the spread between the various selections is wider than ever before. This means that either the low prices have to go higher or the high prices have to go lower. We fail to find a reason for the latter.
The problem today is, that the leather industry needs a correction, but nobody wants to say it. This leads to all the secret, private deals that are beginning to swirl around. However, sellers are afraid to talk openly about price corrections, afraid of what this could mean for stocks and contracts. Tanners are afraid too, but any public decline in raw materials could mean an even sharper request for leather prices to go down too at a time when leather orders are more scarce then plentiful. So, actually everyone wants things just to stay the same - officially - but this really means that in many cases the real price ideas - not public - are possibly pretty far apart from the public market quotes.
Business this week was quiet until Thursday. Then bids and interest for small volumes came in, but at levels of 2%-5% below the last prices. With the euro recovery prices were far less attractive than in the weeks before. It took a little while until the serious interest was filtered, but sales could only be concluded at discounts and for smaller volume. Most of the interest was for low grades and cows, while the small cracks in the US prices erased any interest from Asia for males. Europe was totally quiet for us.
The kill: The kill has returned to high levels and a full week. Males came in pretty heavy while cows were still on the light side. The next weeks will continue to supply high numbers.
What do we expect: Everybody continues to work for a stable market. In Europe we face the lowest risk of short-term problems. Although the euro has corrected, we are still one of the more attractive options, which means that of the business available we should still get a fair share. However, it does not seem that enough hides are sold every week and with high slaughter levels some grades could begin to pile up. It could still need a few weeks before the real pressure mounts.
| 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 | € 2,45 |
Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 2,10 |
Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 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 |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,85 |
Steady | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2,30 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2,30 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 2,10 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1,80 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1,75 |
Steady |
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