German Perspective—09.12.08
What happened this week: It has been another week of tremendous turmoil. Sellers have been panicking about finding customers with buyers thinking there is a never-ending decline in the hides market. Some may even think they will eventually get paid to take and tan hides. It is clear that things are in complete disorder and there is no logic in the game anymore. There is no balance between price and value of hides and most are dumping their stocks in an attempt to raise cash and prevent further losses.
Timing could not have been better with the Christmas break approaching, which will be swiftly followed by the production break in Asia. Most of the last optimists have become discouraged in recent weeks as signs of a calm down were destroyed by another round of price cutting and volume selling. It seemed to the few buyers left that whatever they did would end in them feeling they had bought too early. If people do not believe in cycles this could be true, but today’s prices will look cheap at some point in the future as everyone knows. Fear is still the commanding force in the market on both sides. Neither can be blamed.
Reading media reports this week, experts, institutes, politicians and everyone else have been falling over each other to predict the steepest and deepest recession of the last 60 years, if not in history. Even though it is wise to be aware of the present problems, we have a feeling that things are somewhat overstated. Indeed, it seems that we are in a period of fundamental change. Even key industries such as the car industry are in global crisis. So it was pretty interesting to read this week that the German furniture industry has grown this year and that the future looks optimistic into the future as the crises is causing more people to stay at home more and to invest in their homes.
The same reports are coming from shoe retailers who admit that the retail situation is bleak, but are reporting decent sales especially for ladies’ shoes. The general theory is that, in times of crisis, small pleasures are increasingly important. The sharp decline in food and energy prices, which were such a major burden just six month ago, have also been a factor. Prices are now down 20-50% and are leaving much more money in consumers’ pockets. The risk of unemployment remains and this is linked to confidence, companies and production. It could become a real problem if banks continue to restrict credit, credit insurers cut covers and people continue to talk things into a crisis.
Hide business this week was limited with decent levels of inquiry, but little business has been done so far. Everyone is trying to hit the bottom so most bids were too ambitious to be accepted. However, if there is a silver lining then it is that large buyers are getting ready to grab whatever is good and cheap to buy.
The kill: The kill remains strong. What was missing at the beginning of November is coming now as farmers realise there is no hope for better cattle prices and that a lot has to go at this time of year. We expect the next two weeks to remain strong before we enter the slow season.
What we expect: Although trading will not be active, it seems that the markets are starting to settle down. There might still be the odd desperate seller, but the number thinking that it might be useless to press and wise to hold is starting to grow. So there is a growing chance for market consolidation without much trading activity, but some larger speculative buying is expected.
