What happened this week: Forecasts and market developments continue to walk hand in hand. The weaker € and steady sales led to a stable and in some cases rising prices up to 2-3 % for cows. Sales were just about normal and numbers were only inflated by some of the regular program businesses. We are faced with the rising problem, that market segments and markets (currency) create a more and more conflicting price level and selling prices are drifting more and more apart. Regular european program sales are kept under severe price pressure and make suppliers life difficult. Spot export sales generate – supported by significantly higher prices in other (i.e. USA) markets and the weak € - enormous price spreads for the same product in the € and USD areas. As we all know nothing what can last very long. Traders and processors who do not feel committed to long term customer relationships take full advantage of the situation and obtain consequently much better avg. revenues than long term operators. Unfortunatly is there very little cooperation from the program customers to assist in the problem and this is obviously increasing the market tensions. So,

in our case the recent weeks were succesful in sales of males, but not so much in better prices. A bit different is the situation in heavy dairy cows. Italy tries to cover as much as they can what confirms the impression, that better quality, higher substance furniture leather is in steady or good demand. Many are interpreting this as a  better female market but we disagree as long as the complimentary lighter weights do not find their regular outlets in Asia at present levels. Many make a paper caluation using the currency advantage and find the revenues favourable. However, nobody speaks about the large number of delayed and not opened L/C’s from Koreas and Chinas garment tanners. The market is more and more segmented and the focus of interest is just on the positive ones, ignoring that we still have a fair number of segments not doing particularly well, such as avg. and lower quality shoe leathers and bovine garment leathers in Asia. We also sense a rising number of cash-flow problems and so the gap between the good and the bad ones is widening further. While our concerns in 2001 about payment problems were wrong or premature, it seems that now some of the problems are heading to the surface, with better

leather business only focussed on a few, but important yet. In any case, prices in Europe have been rising moderatly during the week for hides preferably suitable for better quality furniture leathers, while others have just stood on. South German abattoir prices were weaker on bulls and a fraction firmer on cows what gets this market now in line with the rest. The kill: Finally the slaughter is declining as expected to the seasonal reduced levels. For the coming weeks we expect further reductions. What do we expect? We are entering difficult times now. Whether one likes it or not the market tensions will grow due to the large spreads and asking prices will continue to rise for selected items and they will determine the entire market. This will make purchasing negotiations for next month difficult even with the levels from the South in hand. We continue to be cautious about too much optimism. The sales and better impression is still focussed on a small base. This customer base is covering well forward and can step out if needed or prices don’t look attractive anymore. To confirm a real firm trend it would require widespread buying activity also in the low end and we fail to expect this before end of February, otherwise it will loose steam quickly.