November 22, 2006

US beef offal value highest in nearly three years

At US$9.15 per hundredweight, the value of the hide and offal from each steer, heifer or cow slaughtered in the US is the highest it has been in nearly three years, according to USDA statistics, and market analysts cite a slow rise in export demand for the increase.

The last time the hide and offal value, often called the drop credit, was higher was when it hit US$9.21 in 2004, almost a month after the world shut off US beef imports due to mad-cow disease. Offal values reached a peak at US$10.50 on Dec 16, 2003.

The drop value primarily is determined by exports, said Ron Plain, agricultural economist at the University of Missouri.

There also is a seasonal tendency for the drop credit to hit its low in late spring and to rise from there into a high late in the year, Plain said. Thus, the trend toward the current higher prices is more of a seasonal fluctuation, he added.

Hides are nearly 40 percent of the total value, and these prices "are up significantly from a year ago," Plain said.

Since the US exports a large portion of these items and then re-imports the leather or leather products, the value of hides can be seen in terms of a stronger export market, he said.

Blood meal, which tends to fluctuate with feed ingredient prices, also is up from a month ago, as is the cost of other fed ingredients, Plain said.

But the higher drop credit probably is not enough to influence packer decisions to keep slaughter rates at their current levels, said Rich Nelson, market analyst for Allendale Inc.

Beef values have dropped over the last couple of weeks, but the meat still is where the bulk of the income comes from, Plain said.