GERMAN PERSPECTIVE—31.03.20
What happened this week: Everyone around the globe is busy dealing with the impact of the coronavirus on everyday life. Companies and individuals, directly or indirectly, are affected. In most countries, part of the strategy is to ask people to stay at home. We are living under circumstances we have not known before. Everything feels completely unreal, like a movie or dream that will, one day, end and will return to normal.
Uncertainty is one of the most toxic psychological factors, because for some it means fear and for others it means a dangerous tool. Mixing both it becomes one of the most threatening cocktails for normal citizens.
For business this means that the vital and dynamic global consumer business is as paralysed as many productions. This means that there is no functioning hide market at the moment either. Food production continues and so does slaughter. Hides are produced and need to be taken care of, but under the present circumstance this is not easy. Abattoir operations risk being threatened if hides and other by-products can no longer be collected; there is also the possibility of food manufacturers being unable to source gelatine and collagen. The more international trade and transport is restricted, the more important it becomes to have local production. Some minor regular business could be preserved, even with Italian tanners closed.
Chinese clients were actively bidding this week, but it was easy to understand that most of it was just the usual market testing to check if there are any free lunches to be snapped up. It is obvious that the sharp decline in leather demand now will leave very little real physical need for hides.
Our attempts to have a serious discussion about the few types of hide that are special and cannot be easily substituted were in vain. Even reminding clients that transport is difficult and the arrival of goods can be delayed did not help. One had to realise that the bids and interest were only speculative gambles. In Europe the few remaining tanners that are open were struggling to find a commercial base to value supplies for the coming weeks.
We have decided to call invoice amounts for deliveries ‘the commercial exchange level’ not the ‘price’. Price is a reflection of a liquid market. This is non-existent at the moment and if the present valuation were considered as the genuine ‘price’ of hides, the long-term repercussions would be extreme.
The kill: After the spate of panic buying we have returned to normality and the big problem for beef is now the lack of sales of prime cuts. Supermarkets sell predominantly minced beef and processed convenience food, which does not give a sufficient return to slaughterhouses or farms.
What we expect: The first week of isolation is over. The production chain has begun to adjust to the new conditions. This means a new valuation for many products and new structures. Since we are still in unknown territory nobody can actually come to any conclusions yet. It means that we have to operate from week to week now.
