German Perspective 08.07.08
08/07/2008
What happened this week: This week was pretty much the same as many before now. Interest was limited and pretty much again for the same grades—bits and pieces of hides suitable for shoe leathers, but at the end still very little for dairy cows.
In the end we have to accept that the market for medium- or lower-end quality is still haunted by the same or even more problems than over the past two or three months.
Fear over rising costs is not only upsetting tanners’ calculations; family budgets around the globe are becoming more and more stretched, and no matter which economical definition one prefers, fear about the future is growing in the private as well as in the corporate sector.
The biggest problem in our view, however, are the growing cash-flow problems. The tanners that have been hit hard by the downturn in business (which is not all of them) are running out of cash quickly. Falling turnover, rising costs and no sign of improving conditions have mixed a pretty explosive financial cocktail in many areas of the business and most people—as usual in this trade—are shutting the eyes in the infantile hope that what they do not see cannot hurt them, and the problem will have gone away when they open their eyes again.
This attitude has created substantial problems already in this trade and has prevented the market from making the necessary adjustments. A major correction is already pretty overdue to bring prices back in line with overall market conditions.
Speaking to a large number of experienced members of the European trade this week the vast majority of people agree that things in general have never looked as bad as they do at the moment. It is simply too much with falling demand, rising costs, squeezed financial conditions and the holiday period in front of us. We do not even dare add the weak US dollar or rising interest rates, as these are already worn out parameters.
It is pretty useless to point always at the same few exceptions, but positive examples do exist. The general situation has been pretty bad for some time now. Of course this trade is pretty cyclical and stop-start behaviour is a fact— so the cycle will turn one day.
Global leather consumption may shift and vary, but in general it is still not declining. We have learned from the past, however, that our market is pretty sensitive to external effects, and all large crises were triggered by financial issues and not by the simple ratio of demand and supply. It seems that we are right in the middle of another one.
As far as trading was concerned, sales were again rather coincidental. The weak dollar made things difficult again and in Europe sales where restricted to the limited regular takers. A number of very cheap prices for cows are circulating in various markets, which would need another abattoir correction of at least 10–15 %.
The kill: The kill is falling moderately and the same is happening to weights. For the next eight weeks the kill will be low owing to the school holidays at this time of year. So, at least numbers will provide no additional burden at the moment.
What we expect: We could easily just repeat the question of last week—what can turn the market around or improve things? Well, this week, once again, we have been unable to trace any sign of an improvement. Only a round of replenishment of inventory in Asia toward the second half of July and into August can create some relief. The remaining players will be busy trying to find the cheapest transfer to their holiday destination.
| 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 | € 1,40 | Soft |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,30 | 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 |
€ 1,20 |
Weaker |
|
|
30/+
kg |
33,5/35,5
kg |
27/+
kg |
29/31
kg |
€ 1,05 |
Weaker |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,45 | Weaker |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,33 | Weaker | |
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,20 | 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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