Beef byproduct values have been eroding sharply over the past 18 months, with weekly values declining from about $10.70/cwt. in early 2018 to about $9.00/cwt. by the end of the year, according to Derrell Peel, Oklahoma State University Extension livestock marketing specialist.

Peel explained that, on average, beef byproduct values represent about 10% of fed cattle prices. However, byproducts represented 8.2% of fed cattle prices in 2018, at an average value of $9.60/cwt. on a live-weight basis. The latest weekly byproduct 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% of fed cattle prices.

Peel explained that beef byproduct values (or drop credit) include values for hides as well as a host of other edible and inedible products. Edible byproducts, he said, 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,” Peel noted.

While tongue and liver values are somewhat lower compared to recent years, Peel said values for these products are holding overall, 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," he said. "Thus far in 2019, these products represent 48.2% of total byproduct value, compared to an average of 43.3% in 2018 and 37.4% from 2013 to 2017.”

Additionally, he said 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.

Peel said hides make up the single largest component of byproduct values but added that a weak global hide market has sharply eroded hide and, thus, total byproduct values. In fact, in 2013-17, hide values (butt-branded, steer) averaged $74.36 per piece (animal) and represented 52.3% of total byproduct value. In 2018, hides represented 45.6% of byproduct value, with an average value of $47.93 per piece. During the first half of 2019, Peel said hides have averaged $34.46 per piece and accounted for 36.6% of total byproduct values. The June monthly average hide value was $27.60 per piece.

This shows that the global hide market continues to weaken, Peel noted, adding that a variety of economic factors are contributing to it.

“Recent information published in Australia spell out some of the factors affecting hide values,” he relayed. “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.”

Further, Peel said China is the major global buyer of hides, and demand there is being hampered by tariffs and trade disruptions as well as by stronger environmental regulations that are affecting 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,” he explained.

For example, Peel said some hides in Australia 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, he added.

“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,” he said.

In the meantime, current U.S. beef byproduct values are reducing fed cattle values by more than $110 per head compared to peak byproduct values just five years ago, Peel said.