What happened this week: The week started with almost no activity from Europe and the Asian buyers also took a few days to return to their desks. Several countries in the Far East also had an extra day off, so it was only really on Wednesday that a full picture of the situation emerged and even then the start of the New Year produced very little excitement.

European buyers were virtually non-existent and only some leftover deals from before the holiday season or a couple of negotiations over delivery programmes were noted. The main interest remained in light material where tanners were sniffing around trying to trace any further available calf and kips below 15 kgs. As far as we could see, their search was in vain and it is going to be interesting to see how the demand in this particular segment will be satisfied in the weeks and months to come.

By Wednesday the Asian buyers had returned, but unfortunately this came a bit late as the US$—which started to fall early this year—had already dropped to roughly 3% lower than the level at which it had started in 2006. There was no opportunity to compensate for the steep fall with higher US$ prices for dairy cows and so the only option was either to bite the bullet and accept lower euro revenues or to wait for better times. After long and tough negotiations we were finally able to find deals and book very satisfying volumes of dairy cows. Consequently the number of hides sold reached more than adequate levels for the first week of the year. However, the market continues to remain trapped in the particularly narrow trading range that we saw for most of 2005.

While tanners are fighting against a firmer trend, the market could well be saved by low inventories and little opportunity to accumulate hides, which could burden the market. Those, however, who had the courage to stock hides in anticipation of an eventual rise in the market have been disappointed on various occasions so far and it seems that this will remain the case for some time to come. However, supply is now coming to the foreground more with the kill declining, and 2006 is definitely starting off with a lower inventory in the pipeline versus last year. Some items are even carrying a certain forward position, such as heifers and heavy cows. So, any increase in demand over the coming weeks in these specific areas will be a real test for any upside potential, and tanners will need to pay higher prices for material they need.

On the other hand other hides, such as light dairy cows remain an ongoing difficulty, basically because they are competing with cheaper alternatives. So some tension at least can be expected in the market for the first quarter and it will be interesting to see if there will be sufficient momentum to move the market in general. Although it looks more like there will be isolated price adjustments rather than a more general trend.

The kill: The kill has started low as expected going into the New Year. A holiday in the south of the country and Europe has reduced the beef demand and slaughter. In the coming weeks the slaughter should slowly normalise, but will remain well under the average levels of the last quarter of 2005.

What do we expect? The coming weeks will be dominated by the currency movements and a further fall in the US$ will certainly weigh heavily on euro prices – for dairy cows at least. A lot will also depend on whether Asian tanners get into another round of buying prior to their Lunar Year break. So, lower supply will battle with the currency issues and the general need for tanners to replenish inventories with the various options on offer. As for the price trend, we still do not expect any change as long as all different aspects of the market continue to paralyse the situation.