German Perspective - 15.08.17
15/08/2017
Since there is not much to report in terms of weekly business activity, it might be a good time to have a look at the general market situation in Europe. Business is suffering because many slaughterhouses are judging the market based on the situation of the hides that are always in demand. The cattle hide market revolves around hides for the automotive industry and the rest of the market has to subordinate itself at the abattoir gate. This applies for almost all of Europe.
While the euro was weak and the competing origins were defending themselves against the market situation, a lot could be compensated for. But, as the summer went on, the US dollar continued to fall, prices in the US continued to decline, and seasonal hide weights were reached, the situation worsened. As summer progresses, tensions are rising and the market demands a solution.
We are facing the same dilemma as in many previous years; nobody wants to be the bringer of bad news. Some of the larger abattoirs have sold their production until the end of the summer holiday time, which is preventing the abattoir market from adjusting. Nobody is talking about the situation that has developed in the meantime, and slaughterhouses, in their ‘benchmarking’ attitudes, refer to prices that were agreed quite some time ago and that were not even adequate at that time.
Those slaughterhouse that need to fix new prices are not willing to discuss less money. They are using the extremely low slaughter as a tool to try to squeeze inadequate prices out of their customers for the full range of grades and types. This is creating price bubbles that will eventually burst. Some may not be worrying, but we believe that a sliding adjustment in preparation is a better option than rapid slumps. It seems that the European industry is not capable of managing price fluctuations and valuations professionally.
In the meantime, sellers are hoping for the surprise solution. In regions where mainly salted hides are traded, significant stocks of material slowly begin to surface and are confidentially offered to potential buyers who are considered to be in the position to buy and absorb the hides.
All of the above applies mainly to hides that are salted, are of standard quality and fit the weight range of 20-35kg. These types are the ones that are most hit because they compete with other, cheaper origins. They also have to contend with the general issues leather is having in relation to the shoe industry. With the present market price structure, they are simply out of any range. The beef industry needs to understand that the price structures can no longer be sustained.
Sales were almost non-existent last week. The European tanners are on holiday and are covered until September. For the rest of the market, prices are too high. It seems that people won’t deal with the reality until the end of the month.
The kill: The kill has gone up a little. Levels are still very low and we don’t expect any changes in the coming weeks. We should see the numbers rise gradually from the third week of August. The weights of dairy cows are extremely light, confirming the better milk prices and minimal cow slaughter.
What we expect: We have very little to add to our statements of the past few weeks. We know that nobody is willing to act during the holiday period so it seems that it won’t be until the showdown in Shanghai that people realise that waiting is not a good option. It is difficult to imagine what could change things now.
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