German Perspective 24.06.08
25/06/2008
What happened this week: This week was a carbon copy of the ones before.
Business is almost entirely concentrated in a few strong hands in Europe, who are covering their own needs. However, this applies only to the male section.
Bits and pieces to the areas in China that are not influenced by the restrictions imposed by the government in the build-up to the Olympics has added to market activity this week. There is not much more to report.
Other than this limited activity, we haven’t seen much—only a rising number of problems.
The cost of transportation and energy is constantly going up. Global consumer markets are slowing down at the moment, and rising petrol prices have made an impact on most family budgets around the globe; there are only a very few countries left where people are free from the pain.
On Thursday, the Chinese government decided to raise petrol and diesel prices there by almost 20% overnight. Day by day, people and businesses are becoming more worried about how to cope with the cost rises.
This is even more of a concern when you consider the fact that leather prices are still under pressure and, so far, have not actually received any support for the rising cost of transport and production.
Consequently the situation is not getting any better.
Changing tax regulation in China, the Olympics, the sudden rise in energy and food costs are weighing heavily on the markets and, apart from the rational facts, the psychological factor has become significantly important.
One can sense the rising fear all around. Many sellers are still trying to distribute optimism, and all hopes are directed towards this fact: the leather business is still the one that is first to feel a recession, but also the first to come out of it.
The question remains about how long and how deep the process is going to be to define where we actually stand today.
This leaves existing market activity, for the time being at least, to premium manufacturers, which is not enough to absorb the present production of raw material. This is extremely pronounced on female or, to put it another way, cowhides.
In the second half of the week the US dollar lost a large proportion of recent gains, so that there was little help on offer from the financial markets. Consequently sales this week failed to meet expectations and were not well balanced.
While the majority of male hides are still being absorbed, dairy cows are still underperforming, as they have been for a long time.
Both main markets for this raw material, Italy and China, are operating at nowhere near normal levels. It remains a mystery that sales numbers from the US were steady week after week, and that robust export sales have been reported, keeping the forward position of their suppliers intact—at least on paper.
So if we do see an improvement in the situation, it could bring European hides back into play eventually.
Where sales were made, prices were pretty close to asking levels, but it seems that even lower prices for the critical grades would not support demand.
The kill: The kill remains pretty decent for this time of the year. With milk prices being well down again from the peak, it seems that many farmers are more willing to get rid of cows than they probably were some time ago. With the upcoming summer holiday season, the kill should gradually decline from now and weights should be at their seasonal lows until mid-July.
What we expect: There is absolutely no indication that things will change for the better soon. Standard grades for the European premium tanners should hold their base, but all other items should still have a difficult time. The biggest problem, however, is fundamental demand for cows and the fact that we do not believe that lower prices would actually stimulate demand.
| 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 | € 1,45 | Soft |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,33 | Soft | |
|
Dairy
cows |
15/24,5
kg |
22,5/23,5
kg |
13/22
kg |
20/21
kg |
€ 1,40 |
Weaker |
|
25/29,5
kg |
27,5/28,5
kg |
22/27
kg |
25/26
kg |
€ 1,25 |
Weaker |
|
|
30/+
kg |
33,5/35,5
kg |
27/+
kg |
29/31
kg |
€ 1,13 |
Weaker |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,48 | Weaker |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,35 | Weaker | |
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,22 | Steady | |
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1,05 | Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1,05 | Steady |
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