Analyst: Weak hide, product values dampen cattle prices

by Kim Souza (ksouza@talkbusiness.net) 130 views 

Prices for cow hides and beef by-product values have even eroding sharply in the last 18 months, according to Derrell Peel, extension livestock marketing specialist at Oklahoma State University. He noted this week, beef by-products typically represent about 10% of the fed cattle prices. He said that has fallen to an average of 7.2% for the first 29 weeks of this year.

He said by-product values were about $10.70 per hundredweight in early 2018, but they had fallen to $9 per hundredweight by year-end. Through July 26, the values are down to $8.88. Peel explained the beef by-product values (also known as drop credit) includes values for hides, as well as edible and non-edible products.

“Aside from hides, the most important beef by-products in terms of value include tongue, liver, tripe, heart, cheek meat, edible tallow, and meat scraps along with inedible tallow,” Peel noted.

He said in 2019, these items have had an average value of $4.52 per hundredweight of fed cattle, up from $4.30 per hundredweight average value in 2018. Peel said tongue and liver values are somewhat lower year-over-year, but values for tripe, inedible tallow and meat scrap are trending higher this year.

In 2019, these products represent 48.2% of total by-product value compared to an average of 43.3% in 2018 and 37.4% from 2013-2017, Peel noted.

Other by-products used primarily in pet foods add another $1.43 per hundredweight in by-product values.

Peel said hides comprise the single largest part of by-product values but weak global demand for hides has pushed total by-product values lower. In 2018, hides represented 45.6% of by-product 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% of total by-product values. The June monthly average hide value was $27.60/piece.

He explained a variety of economic factors all contribute to the global weakness in hide values. He said China is a major global buyer of hides and that demand has been hindered by tariffs and trade disruptions as well as stronger environmental regulations on the tanning industry in China.

“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,” Peel noted.

He said beef by-product values, especially hide values, are often considered a bit of a bellwether of global economic conditions and by-product values bear watching in the coming months.

“In the meantime, current U.S. beef by-products values are reducing fed cattle values by over $110/head compared to peak by-product values just five years ago,” Peel concluded.

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