Drop Values

Meat packers call it the "drop value." It's everything that drops off the carcass, including hide and offal. In the past, there's been a nice little return tied to that drop value. But in a trend that runs counter to the idea of tight supplies, these values have been falling off since last year.

Dave Anderson, Extension economist at Texas A&M, College Station, said the drop value was $11.79 per cwt on fed cattle in late July 2015. For comparison, the drop value at the end of 2014 on fed cattle was $16.24 per cwt.

"That is a substantial amount of money," Anderson said. "It used to be we talked about that being the profit on the meatpacking side."

By late summer (mid-July, USDA), hide values were at $4.92 per cwt, or $64 per head. Hides are the highest part of the total drop value. At the end of 2014, hide values were $7.82 per cwt, or $107.53 per head. This represents about a 40% decrease.

As drop values fall, Anderson said the industry is likely to see a negative effect on fed cattle prices. How much of a negative effect will be unclear until feed prices are known.

Anderson believes the strong dollar overseas is the primary reason for the decline in hide values. He explains most hides go overseas for tanning and processing. Economic slowdowns in countries like China can cut into the demand from processors who make leather goods.

(VM/CZ)

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