German Perspective 21.04.08
20/04/2008
What happened this week: Again not too much activity this week. The European business is entirely focused on male hides where the regular buyers are only replenishing their regular needs. With the kill declining and average weights doing the same we are entering the classical spring-summer situation where business is not particularly good, but the declining numbers and availability cushions the market.
With a relatively steady production of fresh hides around the year we see the normal surplus of material in winter and squeezed conditions from May to September. There is a simple interpretation: this will mean falling prices in winter and rising prices in spring into summer, at least for fresh bullhides.
Many are trying to construct the same scenario also for this year and it may work. However, what cannot be overlooked is that the fresh hide market is only a small island in the global sea of the general hide market and in relation to other origins and markets German bulls are looking particularly cheap. We would need sharp gains in other markets to justify today’s levels, not to speak about any potential increases. Any surplus and salted material needs to compete with the international markets and here the situation doesn’t look very favourable.
At equivalent levels of the markets in US dollar terms German bulls are easily between 5% and 10 % too expensive in relation to their prices at the abattoirs theses days.
Anyway, as usual the market will not take much notice about the situation and butchers and the hide trade will, as usual, be more impressed by supply and market share rather than market economics. The decision of the largest German abattoir group to market more hides themselves and to withdraw material from the processor market came at an interesting time and is adding to the stimulation for hide prices at the abattoir door at this time of the year.
In the long run however prices must always come back into line with international levels, which means either that other markets must rise or German abattoir prices will eventually settle again.
The biggest problem of the week was again the fall of the US dollar, which made export calculations difficult and returns lower on international markets. Sales were reasonable in volumes for males, but unsatisfying in prices. Bids coming in from Asia have been fair in relation to other origins, but not inviting as far as a return in euros is concerned. We decided to take half the volumes to stay involved, but with little excitement.
Letters of credit are coming in much more slowly today than during the winter semester and the reason for this is not clear. Lack of orders or lack of money is the simple answer.
Business in dairy cows and heifers was slow this week and we couldn’t trace much interest in Europe or abroad. Selling prices were steady in Europe and another 1%–2 % lower overseas owing to the influence of the weakening dollar.
The kill: Many are reporting, that the kill is already falling. Well, fortunately we haven’t experienced much of that in the last week. Numbers are still steady, but weights are coming down. However, we expect the kill to come down and with the May holiday in front of us numbers will be down for sure.
What we expect: The Lineapelle event in Bologna this coming week is going to bring more insight. For light shoe upper material we should get some indications about business and fashion. For the heavier and upholstery end we might get some indications, but it is unlikely that there will be much news. We still fail to see any reason for a fundamental change in the market situation. Only a sustained reversal of the Friday dollar turnaround would change the situation to a more positive picture and would leave room for more optimism.
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