What happened this week: The market continued last week’s pattern and there was no reduction in buyers’ appetite from the Far East. Many tanners were caught up in the concerns over import taxes and duties in China at the end of last year and many used the issue to predict lower raw material prices in the first quarter to compensate for the increasing cost from the Chinese import policy. This was wishful thinking on the part of tanners in general and as a consequence many – in particular oriental upholstery tanners - reduced their regular purchasing volumes below their needs. With the hide market acting according to supply and demand, prices haven’t fallen enough to leave the undersupplied players in the situation they had hoped for and as a consequence they have had to step in and cover their requirements for reasonably quick shipment, in a market where there hasn’t really been abundant supply or inventory.

As a consequence the market is extending its firm footing – at least as far as all grades below 50 kgs are concerned. As we are in the high season for production, tanners have very few options at the moment and no matter how positive the profitability looks, dairy cows were still trading below the long term average level. As a consequence prices advanced moderately during the week and finished at full asking levels today. Combined with the reasonably firm US$, revenues were adequate for the first time in a long time. In sympathy with the market the pressure on extra heavy hides also eased and bulls up to 50 kgs were able to hold their own, while the extra heavies had to accept moderate corrections if the seller were not brave enough to keep hold of the product in the hope of better times to come.

What was also interesting this week was the fact that more and more interest is being seen in light dairy cows from side leather tanners. As usual it has taken some time for tanners to react, and this time it actually took even longer until one of the options was taken to react versus the shortage of light heifers. Although concessions regarding the grain selections have had to be made, it was surprising to see how long it took to fill the existing supply gap with this obvious option. The excitement over light material is also continuing to fade. There is still demand, but the extra light market is certainly no longer on fire.

It seems that most tanners have made whatever arrangements they had to make and are no longer trying to solve their problems by chasing their preferred raw materials. At the end of the week the number of hides sold was again pretty adequate and combined with the shipping schedules in hand it seems that we will proceed in an orderly way for the remainder of the first quarter. It also appears that most tanners will have to deal with a higher average price for raw material than that of the last quarter 2005. This, combined with other increasing production costs as well, will not make them very happy.

The kill: Absolutely no change. The kill remains steady at the lower levels which are normal for the season. There is no sign of any change at the moment. Although bird flu has now reached Germany it doesn’t seem to have touched the market yet and if poultry consumption is eventually affected, it is most likely that pork will benefit rather than beef.

What do we expect? The solid and firmer tone of the market is certainly going to persist. The only question open for the week to come is if there is still more ‘need to buy’. Under normal conditions it seems that most of the action should be temporarily over and activity might take a break. If we are wrong it could get a bit tricky as more demand doesn’t create more supply.