What happened this week: Last week was probably the first one in 2005 where trading and selling activity was on normal levels, at least for this time of the year. A number of tanners returned to the marketplace and secured raw material for their production of leather. After such a long period of subdued sales and trading, it was a reminder of how the business could and used to be. Having said this, every single sale was a struggle and took much more time to be concluded than normally. One of the old questions is whether you should feel sorry for your client… At the moment, calculations are very difficult for the tanners and they were hoping raw material prices would assist them in meeting price expectations of their leather clients. At the same time, the supplier, at least in our case, is of little assistance due to pressure from other (our) suppliers too. As for overseas business, the main trouble was once again in the value of the US dollar. Prices in the US currency have not moved very much for some time, so the weak currency weighs heavily on the exporters’ calculation. Buyers last week came from almost all directions and sectors. While in Europe the focus was on repeating existing long term businesses mainly for bulls, overseas interest was almost across the board. Chinese tanners came in for their first round of raw material buying after holidays and were mainly looking for dairy cows for furniture production. As most interest was in fairly quick shipments, it confirmed the fact that they were hoping to use their holidays for the market to fall. When they returned and saw prices more or less at the same levels as before, they had to give in and secure the raw material for the existing orders. However, this was selective and is, in our view, not an indication of a more general positive change. Some interest was once again seen in light weight kips and calves with some tanners looking for medium and heavy weight ox/heifers, obviously in an attempt to substitute more expensive sources. As already mentioned, price negotiations were very tough.  With increasing costs in raw material prices, the need for another price increase was not well received and one had to fight and wrestle extremely hard for every cent. Wherever progress was made, it was certainly not enough to return to sufficient and adequate margins. The next round of abattoir buying will be tough too and it remains to be seen if butchers will be convinced to cover their part. If we were to say one thing about last week it would have to be the conclusion that even satisfying number of sales cannot make up for inadequate prices.

The kill: No big changes reported but the kill is very steady and, despite the lower numbers, current regular commitments can be met. With adequate salted stocks around Europe, there are no bottlenecks in view.

What do we expect? Providing the interest last week was not pure coincidence and it continues into this week, some of the existing pressure could eventually be eased. We doubt this is a start of a new price trend unless the US dollar firms up and relieves those who still need to move some of the stocks built over the last 8-12 weeks. We do, however, think the market is through the worst for now but remain cautious with hopes for an upside potential in short term prices.