Abstract
Pricing fed cattle on a value-based quality and yield grade grid provides the best opportunity for cattle producers to receive premiums associated with high quality cattle. However, grid discounts for cattle not desired by the particular packer are often quite substantial. Thus, cattle producers targeting cattle for specific grids need to have considerable knowledge regarding the quality attributes of their cattle. This study compared pricing of 202 pens of fed cattle on a live basis, a carcass (dressed) basis, and using four different packer grids. Results indicate that no single pricing method is optimal for all cattle. Producers need to know the quality of cattle they have, be willing and able to sort those cattle, and compare the various selling options and grids before deciding upon the pricing method that generates the highest revenue.
Highlights
Value-based marketing refers to pricing cattle on an individual animal basis with prices differing according to the underlying value of beef and by-products produced from each animal
Grid discounts for cattle not desired by the particular packer are often quite substantial
Results indicate that no single pricing method is optimal for all cattle
Summary
Value-based marketing refers to pricing cattle on an individual animal basis with prices differing according to the underlying value of beef and by-products produced from each animal. Several value-based, fed cattle, pricing systems have become more prominent, including formula pricing, price grids, and alliances. The answer to both questions is, “it depends.” It depends on several things, but the most critical factors that influence the profitability of these decisions include: 1) the quality grade, yield grade, and dressing percent of the cattle you produce; 2) the price spread between Choice and Select; 3) the particular packer or alliance premium/discount price grid for which you target your cattle; 4) production and feeding cost differences associated with targeting your cattle to a particular price grid or packer; and 5) most importantly, your knowledge about the price/quality distribution of your cattle Should you market your cattle on a carcass merit basis? If so, does it matter which pricing system or packer you sell to? The answer to both questions is, “it depends.” It depends on several things, but the most critical factors that influence the profitability of these decisions include: 1) the quality grade, yield grade, and dressing percent of the cattle you produce; 2) the price spread between Choice and Select; 3) the particular packer or alliance premium/discount price grid for which you target your cattle; 4) production and feeding cost differences associated with targeting your cattle to a particular price grid or packer; and 5) most importantly, your knowledge about the price/quality distribution of your cattle
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