German Perspective - 12.8.14
12/08/2014
In the hide market, many players believe politics will not influence the market or, if it does, only in their favour.
Let’s sum up what has happened in the past 10 days. Sanctions against Russia have been answered with sanctions from Russia on the import of food and agri-products. Italy is falling back into recession, the largest bank in Portugal has been bailed out, the conflict between Israel and Hamas has escalated, Iraq has destabilised and the US is returning with air strikes. Stock markets are dropping sharply and money is fleeing to 'safe havens'.
This would normally be the time where prudent and cautious planning and conservative pricing would apply. However, this is not the attitude.
Despite pretty poor business, a number of large suppliers are pushing the market higher, trying to scare the industry from the supply side.
And it is working - as long as you are not looking at the volume of trade. This is pretty comfortable, because the public references are all playing the supply card and talking the market higher.
This is clearly an attempt to pave the way for the trips to Asia: the customer visits, the show in Shanghai [All China Leather Exhibition, September 3 to 5], and to protect the value of wet blue inventories and the negotiations of the new leather contracts for the coming season. So far, so good, and it is probably best for the short term. It makes sellers’ lives pretty comfortable.
Looking further ahead we would have preferred if prices would have eroded somewhat over the summer and certainly not pushed higher. It is common practice and in conflict with risk management policies to ignore the potential risks we stated above.
If things go well and the thunderstorm passes it is visionary wisdom; if it goes wrong it was inevitable and could not be avoided. This way, politicians and management make never any mistakes and can never be blamed. So, we see business as usual and all members of the supply chain are involved and need to follow the tide.
The low season offered us a good deal of sales options and the higher asking prices overseas and the firmer US dollar until this morning let us have another round of sales, in particular for males and customers we haven't see for a long time. Many think it is time to check other options and to verify the value of alternatives. This resulted in a good number of sales. Nothing spectacular and not huge numbers, but for a summer where there are hardly any European customers and none for salted males, it is a nice option.
Apart from the sales of bulls there was not much other interest. A few bids for cows at steady levels and decent interest for low grades was traced.
Shipments are getting a bit better, but letters of credit and payments are coming late. Many shipments need to be delayed for a week or two and, on average, shipments are still about 30 days behind contract this summer. It is pretty clear that many companies still suffer from tight financing conditions in China and it doesn't seem to get any better.
The kill: The kill remains on the low seasonal levels. It needs to be seen if the sanctions will have any negative effect on slaughter. It is unlikely, because Germany has not been exporting much beef due to import restrictions. However, live cattle could potentially be exported from EU countries, slaughtered and the beef exported to Russia. This would certainly have an impact eventually.
What we expect: The general market pattern will not change. Suppliers will keep the market supply-driven and prices firm. If the general problems will change anything it is unlikely until the trade has got a full picture after the meetings with their clients over the next coming weeks. Until then, it will remain pretty much the same.
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