On average, beef byproduct values represent about 10 percent of fed cattle prices. Byproduct values have been eroding sharply the past 18 months with weekly values declining from about $10.70/cwt in early 2018 to about $9/cwt by the end of the year. Byproducts represented 8.2 percent of fed cattle prices in 2018 at an average value of $9.60/cwt on a live-weight basis. The latest weekly byproducts value was $8.88/cwt for the week of July 26, 2019. For the first 29 weeks of 2019, byproducts have averaged $8.78/cwt or 7.2 percent of fed cattle prices.
Beef byproduct values (or drop credit) include values for hides as well as a host of other edible and inedible products. Edible byproducts are referred to as (edible) offals or variety meats and include organ meats and other beef products. Aside from hides, the most important beef byproducts in terms of value include tongue, liver, tripe, heart, cheek meat, edible tallow, and meat scraps along with inedible tallow. So far in 2019, these items have had an average value of $4.52/cwt of fed cattle, up from $4.30/cwt average value in 2018. While tongue and liver values are somewhat lower compared to recent years, overall, values for these products are holding with strength in tripe, inedible tallow and meat scrap values and mostly steady values for cheek meat and edible tallow. These products are accounting for a growing share of total byproduct value due to declining hide values relative to the values of these products. Thus far in 2019, these products represent 48.2 percent of total byproduct value compared to an average of 43.3 percent in 2018 and 37.4 percent from 2013-2017.
Additionally, a host of minor byproducts add another $1.43/cwt to byproduct values. These include numerous products that are used for pet food or rendering, including trachea, lungs, and inedible livers and hearts among others.
Hides make up the single largest component of byproduct values but a weak global hide market has sharply eroded hide and, thus, total byproduct values. In the period 2013-2017, hide values (butt-branded, steer) averaged $74.36/piece (animal) and represented 52.3 percent of total byproduct value. In 2018, hides represented 45.6 percent of byproduct value with an average value of $47.93/piece. In the first half of 2019, hides have averaged $34.46/piece and accounted for 36.6 percent of total byproduct values. The June monthly average hide value was $27.60/piece. The global hide market continues to weaken.
A variety of economic factors all contribute to the global weakness in hide values. Recent information published in Australia spell out some of the factors affecting hide values. Hide supplies are larger as a result of increased cattle numbers and slaughter, especially in Brazil and the U.S. Some hides are being salted and stockpiled which may limit value improvement going forward.
China is the major global buyer of hides and demand in China is hampered by tariffs and trade disruptions and by stronger environmental regulations impacting small tanneries. Hide values are so low that more hides are being rendered in some markets and some hides are not worth marketing in other markets. In Australia, for example some hides are being exported for a loss simply because the cost of environmental regulations to dispose of the hides is a greater loss. Other factors affecting hide values are exchange rates and less demand for leather in luxury cars and footwear, which are using more synthetic materials.
Beef byproduct values, especially hide values, are often considered a bit of a bellwether of global economic conditions. As such, byproduct values bear watching in the coming months. In the meantime, current U.S. beef byproducts values are reducing fed cattle values by over $110/head compared to peak byproduct values just five years ago. —Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist