Drop Credit Running Below Average

The value of beef hides and offal continues to march along at levels that are far below average, but they may cross above last year soon, if only temporarily.

The total value of those products, the so-called “drop credit” or the “drop,” the last week of June was reported by the USDA’s Agricultural Marketing Service at $11.41 per cwt, down $0.08, or 0.70%, from $11.49 the previous week.

The latest value also was $0.90 per cwt, or 7.31%, below the $12.31 reported in the same week a year ago and $2.08, or 15.4%, below the 2010-2014 average of $13.486.

This year’s drop credit is close to moving above last year’s value but could just as easily dip lower and avoid exceeding last year’s mid-summer low.  If it does, the drop this year will not cross last year’s declining value until late September.

At any rate, this year’s drop appears to be on track to emulate the 2010-2014 value, although at a much lower level.




The value of the hide comprises nearly 50% of the total value of the drop credit.  For May, the value of each “butt-branded steer hide was worth $61.68, down $19.23, or 23.8%, from $80.91 a year earlier.  It also was down $14.85, or 19.4%, from the previous five-year average of 76.53.

Demand for hides and the leather they produce is linked closely with the world economy and with demand for leather goods like automobile seats.

Leather clothing also is a big consumer item that is tied closely with the economy.  One late market analyst and economist used to link leather demand to the price of oil and synthetic fabrics.  If the price of crude oil was high, then demand for leather also rose, but if oil prices fell, then synthetic fibers got cheaper, and leather demand faded.

Current oil prices are well below the peaks of a few years ago, and so are hide prices, so maybe he was on to something.




Liver values also are lower.  USDA-AMS data for the hide and offal value show livers in May were worth $2.75 apiece, down $2.02, or 42.3%, from $4.77 a year earlier.  They also were down $1.57, or 36.3%, from the previous five-year average of $4.32.

Tongue values, however, are up, with May at $13.00 apiece, $1.87, or 16.8%, higher than last year’s $11.13.  They also are up $4.68, or 56.3%, from the 2010-2014 average of $8.32.

Much of the value of tongues is from export markets.  Tongue is not consumed in large quantities here where they become a product of pet foods or are rendered into protein meal for poultry or hog feed.  In some other countries, like Japan, tongue commands a high price, siphoning off almost all beef tongues from the US market.




Cash cattle markets Monday were quiet with no bids or offers reported.

Cash markets last week were up about $6 per cwt at mostly $122 on a live basis within a range of $116 to $123.  In dressed markets, prices were up mostly $10 at $195 with some earlier in the week at $185.

The USDA’s choice cutout Monday was $0.10 per cwt higher at $208.83, while select was up $1.06 at $194.79.  The choice/select spread narrowed to $14.04 from $15.00 with 89 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Friday was $143.49 per cwt, down $0.17.  This compares with the Aug settlement Monday of $144.07, up $1.62.