What happened this week: As anticipated, activity slowed down this week. This was probably not just the result of decreasing interest, but was also related to shortened offer lists. As we stated last week, it seems that most established sellers have concluded their business on dairy cows and are now fixing programmes with key customers for the coming six to eight weeks. Consequently there was not much left for non-regular customers. This situation paved the way for trader business and so most of this week’s activity was seen from traders asking for offers – either to cover existing sales or to stock up for the latent interest from Asia that is still circulating.

European activity was focused mainly on lightweight material and abattoir buying. For the rest of the trade, most people are waiting expectantly to see how the current market conditions influence standard business in bull hides in Europe. Abattoirs have already made their decisions and it is going to be tough to make ends meet in the near future. The market is beginning to enter a pretty difficult pattern now and the key question remains – at least for business into the Far East –as to whether all of the raw material that has been bought in the first quarter will be covered by finished leather contracts.

While it is easy to believe that this is the case for material related to footwear and bag leather production, there is still a question mark as far as the upholstery sector is concerned. If it is just a case of a temporary and delayed restock to make up for material that was missing in the period from November-January, then we will see the current levels subside after April. However, if it really is a case of additional and rising global demand, we will run into a classic cul-de-sac situation in the market. Neither rising prices nor higher leather prices generate more hides automatically and the market will balance itself out eventually. It is still too early to come to a final judgement and we still need a few more weeks to have a clearer picture, as we are currently in a period of transition.

The US$ lost almost 2% of its value this week which generally kept revenues under control as prices couldn’t advance to the same extent. Sales were moderate with less broad interest and more patchy enquiries. This was still enough to move the desired volume in cows and ox/heifers, while the male kill is just about keeping basic demand satisfied and shipments secured. Prices remain at full asking levels, but have failed to improve so far. Looking at the levels of dairy cows today we are certainly nearing the point where the market always shows strong resistance and the peak for the first half of the year for dairy cows is often around the end of the first quarter. We will all know more about what to expect following the trips to Asia that are starting at the moment. 

The kill: Reasonably steady. Beef prices are favourable, but abattoirs are struggling to get the animals at the right price and in sufficient volume. The effect of bird flu is now definitely being felt even if consumers’ reaction is as difficult as usual to understand in situations like this. For the coming weeks we have no reason to believe that things are going to change.

What do we expect? The short term outlook remains unchanged. However, for dairy cows it might be time to start thinking a little further ahead. Unless there is no confirmation of an increased order position versus a year ago one has to assume that the present demand is strongly related to the import tax policy in China. The impact of this could fade towards the end of the first half of 2006. If there is no any additional support (demand), a correction would come as no surprise.