CME: Hog and Steer By-Product (Drop) Values
US - Our last report focused on the impact that higher prices for beef at the wholesale level are having on live cattle prices, write Steve Meyer and Len Steiner.But that is only part of the story since muscle cuts and
grinding products make up only a portion of the live animal sold
in the open market. By-product values, also known as drop
values, account for a good portion of the value that packers
derive from slaughtering livestock. Hides, offal, bones
and all other such products are sold in the domestic and export
markets. The latter is particularly important since particular
items (hearts, livers, etc.) trade at a premium in world markets.
Hide values also are important. The near death experience of
the US auto industry in 2008 caused a sharp decline in demand
for leather, which in turn directly impacted the value of cattle
going to slaughter. Now that the auto industry has recovered,
hide prices also have bounced back and so far in 2010, average
hide prices are up some 80 per cent compared to 2009 levels.
The charts below show the ten year history in byproduct
values for steers and hogs as well as the ratio of byproduct
values to the value of the live animal.
![](contents/10-12-03CME1.gif)
![](contents/10-12-03CME2.gif)
In the case of
hogs, we calculated an implied live hog price value based on the
lean hog carcass IA/MN price and a 74 per cent yield. Live steer byproduct
values are currently reported at $12.0/cwt., $2.4/cwt or
25 per cent higher than the comparable week a year ago. Live steer
prices (USDA reported 5-day moving average) currently are
trading some $17.6/cwt or 21.3 per cent higher than a year ago. But
while by-product values for steer are currently trading near all
time record highs, keep in mind that overall steer values are
near record highs as well. Indeed, steer by-product values now
account for about 12 per cent of the live steer prices, about the same as
they were 10 years ago.
Hog by-product values also have trended
higher although they remain below the all time records established in the summer of 2008. For the week ending 26 November, the pork by-product value was quoted at $4.58/cwt, 6 cents or 1.3 per cent lower than the comparable week a year ago. While byproduct
values in steer have contributed about 1/6th of the overall gain in live steer prices, drop values in hogs have offered
little help to the overall hog price. This helps explain to a certain extend why hog values have not appreciated as much even
though prices for specific pork cuts remain well above year ago levels. The lack of gains in pork drop values will remain a concern
for the pork complex going forward. Exports are clearly an issue as shipments of pork variety meats in period January - September
were slightly lower than a year ago. Beef variety meat exports in the same time frame were up 15 per cent from 2009 levels.