Friedrich Sturm Report - 17.11.06

22/11/2006

What happened this week: This has been another pretty uneventful week. Market activity in Europe has remained fairly scarce. Most people involved are watching the strong performance of the

market with great interest and surprise, and this is probably pacifying a large number of European salesmen about the future of their businesses. The fact is that in Europe the kill has finally increased slightly and, with Christmas now lurking around the corner, the majority have made plans that already reach well into 2007 and a number of tanneries are closing their beamhouses for as much as two weeks. So, in the last two weeks of the year, and even the first week of the New Year in some cases, there will be a substantial decline in soaks around the continent. This situation is not really worrying as it has become fairly common to take a break over Christmas in addition to the summer holidays, but the early and exact announcements are making it clear that the vast majority of industry producers are not under pressure, either from their order books or from customers, to keep production running until the very end. It is a fair decision to close beamhouses, tanning and finishing in a logical order and for a fair amount of time. We would not say that this is a sign that there will be a substantial slowdown in leather orders, but the heat is certainly off. So, for those pondering how long this market can continue to digest the present raw material conditions, the strong performance of the

market in recent weeks acted as a tranquiliser pill at just the right time.

There is no question that, in some segments of the market, business has become less fully successful. The frontrunners, such as extra heavy south German bulls, have not found enough homes recently and are stored in salted or wet blue in sellers’ hands in the hope that they can be filtered back into the pipeline when the seasonal slaughter for this particular material drops again. Veal has also been underperforming compared with the long easy stretch they enjoyed. Prices and the season have shown their effects. The mainstream types of hides are less affected as they profit from the global market and price structure. Consequently, weekly sales were again dominated by interest from the Orient, again particularly for ox/heifers and low grades.

Cows continue to attract interest but, with strong price resistance and the lower $ levels, it has been difficult, and sometimes even impossible to find a solution to bridge the ideas between buyers and sellers. Everything is still pretty relaxed because there are only a few that are really pressed and ambitious sellers. At least for the moment, the European market doesn’t seem to be the one-way-street that we have been seeing for such a long time. This hasn’t led to any change in prices and we haven’t seen many considering changes, particularly with the support from overseas, but the number of people starting to think about the market conditions is certainly growing.

The kill: A moderate increase was finally seen in the kill at the end of this week. Although temperatures are still high and a lot of cattle are still in the fields, the wet conditions are now forcing more farmers to bring the cattle in. Farmers are reporting strong demand for good quality cattle and it seems that high quality beef is a strong option this year in many families. The strong rise of heifers in the slaughter mix confirms this. So all this leads us to believe that the kill will rise slightly in the coming weeks and, considering the beef demand, weights should do the same.

What do we expect: The alert level is moderately increasing, but it is still too early to call for a market change because of the international levels. Overpriced grades are finding themselves under pressure.

Type	Weight range	Avg. green weight	Salted weight	Avg. weight salted	Price per kg green weight	Trend
Ox/heifers	15/24.5 kg	22.0/23.5 kg	13/22 kg	20/21 kg	€ 1.80	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.55	Steady
Dairy cows	15/24.5 kg	22.5/23.5 kg	13/22 kg	20/21 kg	€ 1.65	Alert
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.50	Alert
	30/+ kg	33.5/35.5 kg	27/+ kg	29/31 kg	€ 1.42	Alert
Bulls	25/29.5 kg	27.5/28.5 kg	22/ 27 kg	25/26 kg	€ 1.65	Steady
	30/39.5 kg	36.0/37.0 kg	24/34 kg	31/33 kg	€ 1.70	Steady
	40/+ kg	45.0/48.0 kg	34/+ kg	38/40 kg	€ 1.58	Steady
Thirds	15/+ kg	25.0/27.5 kg	13/+ kg	24/26 kg	€ 1.25	Steady
Thirds bulls	30/+ kg	38.0/40.0 kg	24/+ kg	33/36 kg	€ 1.25	Steady

Friedrich Sturm Report - 17.11.06 - leatherbiz: Lea

Intelligence

Friedrich Sturm Report - 17.11.06