An OFFICIAL Happy New Year is in order today! All at Daily Livestock Report wish you the best in 2009!

A note of caution about our weekly data table: Some of the numbers are for the week ended January 3 and some (cow slaughter, sow slaughter, all of the poultry data) are for the week ended 27 December. That distinction is most important when one looks a the year-to-date (YTD) numbers. Note also that the YTD numbers for cattle and hog slaughter and production represent only Friday and Saturday, 2 and 3 January. the year-ago numbers included 3 weekdays and a Saturday. These year-on-year comparisons will return to “normal” this week.

Friday’s surge in Lean Hogs futures was largely attributed to a Wednesday surge in USDA’s estimated pork cutout value. We thought this would be an opportune time to discuss cutout value as it is a term often asked about by readers..

A cutout value, whether it be for beef or pork, is simply the weighted average of the wholesale cut prices with the weightings being the proportion of the carcass that each cut represents.

Every packing plant in the US computes its own proprietary cutout value each day based on the actual cut yields that those plants see in day-today operations. These proprietary cutout values are, in fact, primary drivers of daily cash livestock bids. The other primary drivers, of course, are the byproduct value (ie. the value of items such as hides, organ meats, blood, etc. that are NOT included in the carcass cutout computations) and packers’ costs.

USDA publishes an “estimated” cutout value based on cut yields (ie. percentages of the carcass represented by each cut) that it compiles from periodic surveys of packers. These “standard” yields do not change often. USDA’s current “drop” cut yields (ie. the percentage of the carcass represented by each cut when the carcass is first cut into the various pieces) for pork appear at right.

To arrive at a cutout value, each cut’s drop price is multiplied by the percentage shown and those values are summed. Drop prices are determined by USDA’s composite cut value adjusted for initial skinning and trimming. Composite cut values are computed using item yields for various endproducts and the proportions of daily loads of the various end products. Pork loins, for instance, are sold as 1/4” trim, 1/8” trim, bone-in center cut, strap-on boneless and strap-off boneless. Producing these various forms also yields backribs, tenderloin, trimmings, fat, waste bone, etc. The prices of all of these parts are weighted by their yields and the number of loads sold on a give day to arrive at a composite loin value. The same process if followed for all other wholesale cuts to arrive at a cutout value.