German Perspective - 11.8.15
11/08/2015
The hide processors and everyone involved in pricing have to negotiate August abattoir prices, which need another substantial adjustment in view of the international levels that need to be met prior to the All China Leather Exhibition, August 31 to September 2.
The supply side is going to be an interesting story for the rest of 2015. The fairy tale of low kills – at least for Germany – had to be rewritten after the statistics for the first part of the year were published showing an increase over 2014 and the total kill surpassing 1.7 million head.
Milk prices are beginning to make the headlines, starting in France. With the end of the milk quota and the strong sales of milk and dairy products, dairy farming looked increasingly attractive. Low interest rates let many farmers expand their herds. However, the decline in sales to Russia and the demand for milk powder reversed the trend and milk prices are back down. How the farmers are going to react is being discussed in the agriculture sector.
While Europe is quieter, overseas operations are much busier. Where hides are the basis of leather production for the big brands, the market correction of the past three months has come to a stop. Tanners have had to replenish their stock. One has to assume that many sales in the past weeks have been well below the official price quotes, but that doesn’t matter much. The congestion had to be removed and for the medium and higher end, it seems to have worked.
However, it does not apply to all categories and in Europe some grades still have a way to go to get in line with the international levels. Those who are celebrating and talking about the end of the cycle may be reminded that a rebound is not yet a trend change and for a real change the volume of sales needs to be sustained and leather prices have to be adequate, too.
For the European suppliers, just a handful of sales were possible as part of a round of replenishment in Asia. The main reason is that the price levels of males and heifers are just not attractive yet and dairy cows are not part of the favoured materials. Business was rather patchy and bids were on the low side. A few sales for heifers and bulls were done towards the end of the week, while we considered the bids for cows too low before the abattoir prices for August reflect the levels.
The main problem seems to be that many of the tanners in the north of china are short of money and the slump in the stock market has hit them and their finances badly, on top of the losses made during the first half of the year. Consequently, both numbers sold and prices were on the low side.
The kill: The pick-up of slaughter the week before was just a short phase and numbers fell back to the levels of July. Hot weather was not favourable and numbers should remain low for the rest of the month.
What we expect: One can hope that the strong performance of the US market could spill into Europe. This is the interesting story for the coming week. We still think that EU prices will need either adjustment to be competitive again or overseas prices need to climb significantly to get Europeans back into the game. We would prefer an adjustment of EU prices for a safe start to the next season.
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