More than a drop in the bucket
May 10, 2011
Why are fed cattle prices as high as they are? Well, of course that’s a complicated question with lots of answers relating to cattle supply and beef demand. One very important but less talked about factor is the “drop value” or “drop credit” of a steer.
That’s simply the value of the items that are “dropped” off the carcass – hide, tallow, meat and bone meal, and variety meats like liver, tongue and heart. While these are not the highly sought after cuts most U.S. consumers desire, they do add significant value to the beef animal. In particular, hide value makes up about half of the total drop value.
This chart shows the dramatic rise in drop value of a steer in the past two years.
It’s doubled since early 2009. That $7/cwt. increase, when applied to a 1,300 lb. steer, equates to $91/head. Or, in other words, if the value of these by-product items had not increased like they have,a $115/cwt. live cattle market would only be $108/cwt.
Drop value is probably not something that cattlemen need to pay close attention to, but when auto manufacturing increases and the price of leather goes up, or when countries like Japan are able to import more U.S. tongues, don’t underestimate the impact these things have on the price of cattle.
They all add up.
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