Abstract
The fed cattle grid pricing system’s premium and discount incentive mechanism is investigated. Two issues are addressed: a) we investigate changes in the weekly market value of an animal’s carcass quality attributes as determined by the USDA-Agricultural Marketing Service (AMS) additive grid; and b) an evaluation of the effect of packer behavior on grid valuation of carcass quality attributes. A pooled-cross sectional data set containing carcass information on 598 fed steers evaluated weekly on the AMS publically reported price grid (National Carcass Premiums and Discounts for Slaughter Steers and Heifers) was constructed for the years 2001 to 2008 (226,000 observations). Thus individual animal carcass quality characteristics are held constant through time. For the 598 animals included in this study, the empirical evidence suggests that: a) premiums and discounts associated with specific carcass quality attributes have been adjusting over time; b) during periods of packer cooperative behavior in the fed cattle market, the market value of carcass quality declined, on average, by $0.50 per hundred weight; and c) the average market value of an animal’s carcass quality, meeting industry quality standards, exhibited a positive trend during the study period. This implies the grid incentive mechanism strengthened during this period for those producers who produced fed cattle that met industry quality standards.
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