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Spotlight on Economics: Byproduct Exports Important to Cattle Prices

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Tim Petry, Extension Livestock Marketing Economist, NDSU Agribusiness and Applied Economics Department Tim Petry, Extension Livestock Marketing Economist, NDSU Agribusiness and Applied Economics Department
Beef byproducts include all edible and inedible items from harvested cattle that are not part of the dressed carcass.

By Tim Petry, Extension Livestock Marketing Economist

NDSU Agribusiness and Applied Economics Department

The importance of U.S. beef exports to the U.S. cattle markets has been well-documented. Beef exports on a value basis set a record high in 2014, and so did beef byproducts. Beef byproducts are less glamorous, so their importance sometimes gets overlooked by cattle producers. However, the value of byproducts, sometimes referred to as “offal or drop value,” also plays an important role in cattle prices.

Beef byproducts include all edible and inedible items from harvested cattle that are not part of the dressed carcass. The hide is the most valuable byproduct and usually accounts for about one-half of the total byproduct value. Other beef byproducts include items such as tallow, livers, hearts, tongues, oxtails, tripe (stomach) and meat and bone meal.

Edible byproducts often are referred to as “variety meats.” Inedible byproducts are used for a wide variety of pharmaceutical, cosmetic, household and industrial products.

Values for individual beef byproduct items are influenced by many fundamental supply and demand factors. Export demand is especially important because the amount of U.S. byproducts produced is large, compared with domestic demand.

For example, many hides are exported to overseas customers to be processed into leather and leather products, so economic conditions around the world and the value of the U.S. dollar relative to other currencies impact byproduct values. Strong economies, with robust automobile and leather clothing sales, certainly help the demand for leather.

Tastes and preferences for traditional beef cuts and variety meats differ throughout the world. Fortunately, unlike many U.S. consumers, some foreign customers prefer variety meats such as livers, hearts and tripe.

For example, tongues are popular in Japan. In some countries, particular variety meats are preferred over traditional meat cuts and even used for medicinal purposes. In other countries, a variety meat may be a cheaper source of protein for lower-income consumers.

The U.S. Department of Agriculture’s Economic Research Service published a much more in-depth explanation on the uses of byproducts. “Where’s the (Not) Meat? Byproducts From Beef and Pork Production” is available at http://www.ers.usda.gov/media/147867/ldpm20901.pdf.

The USDA’s Agricultural Marketing Service (AMS) publishes a daily “USDA Byproduct Drop Value” report for fed cattle. It is available at http://www.ams.usda.gov/mnreports/nw_ls441.txt.

The AMS reports the quantity, price and value for a number of the most important byproducts for a typical 1,375-pound steer and a combined steer and heifer (1,300 pounds) category. Values are reported on a per hundredweight live basis. As I write this article, the byproduct value for a 1,375-pound steer was quoted at $16.24 per hundredweight, or $223.30 per head. AMS reported the market value of an average live steer at $167 per hundredweight, so byproducts amounted to about 10 percent of the steer’s value.

Values of selected byproduct items included the steer hide at $7.82 per hundredweight ($107.53 per head), tongues and oxtail at 96 cents per hundredweight ($13.20 per head), meat and bone meal at 78 cents per hundredweight ($10.73 per head), livers at 58 cents per hundredweight ($7.98 per head) and hearts at 37 cents per hundredweight ($5.09 per head).

AMS also issues a weekly “USDA Byproduct Drop Value Cow” report. It is available at http://www.ams.usda.gov/mnreports/nw_ls444.txt. The report lists the quantity, price and value for important byproducts from a typical 1,100-pound cow. When I wrote this article, the cow byproduct value was estimated at $15.22 per hundredweight, or $167.42 per head. A 1,100- pound cow selling for $115 per hundredweight would have a market value of $1,265, so the byproducts would amount to about 13 percent of the cow’s value.

Fed-steer byproduct values increased to record high levels in the first part of 2008 ($12 per hundredweight). However, the U.S. and world economic crisis sent values plummeting to $6 per hundredweight by the end of 2008. Values began improving in late 2009 as economic conditions improved. Gradual improvement throughout 2010 resulted in record high values again at more than $12 by year’s end. Continued gradual improvement, fueled by strong export demand, has resulted in the current record high values of more than $16 per hundredweight.

Supply and demand factors will affect beef byproduct values in 2015. Projected lower U.S. fed-cattle and cow slaughter, and continued strong export demand, should support byproduct values at near record levels again in 2015.


NDSU Agriculture Communication – Dec. 23, 2014

Source:Tim Petry, (701) 231-1059, tim.petry@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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