"Horses and mules that went unsold were shot and sold as carcasses for less than $2 apiece at the rate of three thousand a month. One visitor to Washington witnessed horses being led down to the river one by one, shot, and thrown onto a pile of fifty carcasses. They were loaded onto barges and floated to a 'bone factory' near the Long Bridge. Horseshoes were removed for scrap iron, the hooves used to make hair combs and glue, the hides sold to tanners, and the hairs from the manes and tails exported to Europe for weaving into horsehair cloth. The shinbones were valued as imitation ivory for use in cane heads, knife hilts and pistol handles. Once skinned, the carcasses were boiled in a huge vat, 140 at a time, and the oil skimmed off and barreled for sale as a lubricant and an ingredient in soap. The bones were ground into 'bone dust' fertilizer. The sale of dead horses netted the government $60,000 per year."
I am currently reading Kenneth J. Winkle's Lincoln's Citadel: The Civil War in Washington D.C. and am enjoying it thus far. (I will write a review of it after I finish reading it.) I came across the above paragraph on pages 172 and 173 and thought it was rather fascinating. Civil War books and articles frequently describe soldiers being killed and though there are stories about the remains of dead animals on the battlefields (either being burned by the army which held the field or by local civilians after the stench from the corpses became too powerful), I had not seen the specific usages of dead horse parts as mentioned here.
Some of the animals the government purchased for military use were not fit for service and were put up for auction, but not all of them sold, as discussed above. It is interesting that the government found a way to recoup some of the costs of purchasing so many animals for the war effort. Even the dead ones were worth money (At least there is no mention of the dead bodies being turned into food, though at times during the war a freshly killed horse may have sounded welcome to some soldiers.)