CME: Hog Byproduct Values Increasing

US - The byproduct value is the total value of all non-meat items produced from an animal such as cheek meat, hearts, livers, tripe, tongue, meat and bone meal, edible and inedible tallow, and hides, write Steve Meyer and Len Steiner.
calendar icon 16 March 2016
clock icon 4 minute read

These byproduct values are a key factor for packer margins. Exports are a driver of most byproduct values as there is a much higher consumer preference for variety meats in overseas markets including Asian countries and Mexico.

On the cattle side, US hides make up a majority of the byproduct value, and most hides are processed overseas.

Starting off on the cattle side, during 2015, cattle byproduct values tracked significantly below their past five year average (2009-2013) since mid-summer.

A new year has not helped values much, as of the first week in March, steer byproduct values were $3.77 per cwt. below 2015’s and $2.54 below the five year average (2010-2014).

The past four weeks of data have shown some very slight but consistent improvements in these values however.

Using the Foreign Agricultural Service’s (USDA-FAS), Global Agricultural Trade System (GATS), we can evaluate these byproduct volumes and values on a more specific level.

On a volume basis, for the month of January, beef tongues, livers, and frozen offal all posted year-over -year declines in export volume.

Fresh/chilled offal posted a slight year-over-year increase in export volume, however it only accounted for around 5 per cent of the monthly export volume.

Out of these four categories (tongues, livers, frozen offal, fresh/chilled offal) the most significant contributor volume wise is frozen offal which accounted for 60 per cent of January’s export volume for those four products.

Hides are a major driver of the overall beef byproduct value, and when evaluating hide prices on a year-to-year basis, according to USDA-AMS weekly data, butt branded steers hides were $73 per piece last week compared to $112 a piece one year ago. GATS monthly trade data confirms this value difference.

For January, the value of exported hides was 23 per cent below 2015’s. The quantity of hides exported was actually up 10 per cent year-over-year, but obviously not enough to overcome the decrease in hide prices.

For perspective, the total value of beef tongues, livers, frozen offal, and fresh/chilled offal accounted for 33 per cent of January’s beef byproduct export value, while cattle hide and leather exports made up the remaining 77 per cent of the monthly byproduct export value.

Transitioning to hog byproduct values, they have seen more of an uptick in prices recently compared to beef.

However like beef, hog byproduct values trailed significantly below their five year average value for the majority of 2015.

For the second week in March, hog byproduct values were $0.28 per cwt. below 2015’s and $2.02 below the past five year average value (2010-2014).

Again, using GATS to look more specifically at hog byproduct categories, frozen offal accounted for 91 per cent of January’s hog byproduct export volume and 94 per cent of the value.

For January, compared to 2015, volume of byproduct exports was up 18 per cent however the value of those exports was 6 per cent below 2015’s.

Obviously there are many factors affecting the byproduct market including; global economic growth, exchange rates, seasonality and domestic production.

Interestingly, and beneficial for export dynamics, the past two weeks have shown a slight decrease in the value of the US dollar relative to a majority of other countries’ currencies that we track (South Korea, Mexico, Japan, Hong Kong, China, etc.).

While the exchange rate movement has not been huge, it does lend support to our expectations that the US dollar will not outperform 2015 in terms of increasing value relative to other currencies.

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