Grid Pricing: A Win-Win for Cattle Producers and Beef Consumers
October 11, 2023
Kansas State University (K-State) agricultural economists have conducted an extensive analysis on the impact of grid pricing within the cattle industry. Their findings, among other conclusions, indicate that negotiated pricing agreements have proven advantageous for both producers and consumers.
According to K-State Livestock Economist Ted Schroeder, grid pricing for fed cattle involves assessing a group of cattle based on their carcass quality. This evaluation encompasses factors like quality grade, yield grade, preferred weight, special branded programs, and more, leading to the application of premiums or discounts.
Schroeder further explains that the majority of cattle transactions within a grid pricing framework involve a marketing agreement with packers. This agreement encompasses a foundational price and a structured schedule of additional incentives or reductions, contingent on the characteristics of the delivered cattle.
“Marketing agreements and grid pricing have evolved because producers strive to link consumer preferences for high-quality beef with farm-gate, fed-cattle values,” Schroeder says. “The data we’ve reviewed clearly demonstrates that sending clear value signals to producers through premiums for high-quality carcasses and discounts for less-desired quality has transformed the beef industry.”
Schroeder and Katy Doumit, K-State ag economics graduate student, have identified recent trends in grid pricing and the implications for the cattle industry. Their paper, Fed Cattle and Beef Premiums and Discounts, is available online through www.AgManager.info, a website maintained by K-State’s Department of Agricultural Economics.
“Over the last 20 years, as the use of marketing agreements has increased dramatically, producers have responded resoundingly by increasing the percentage of steers and heifers that grade Choice and higher, from 55% in the early 2000s to consistently over 80% today,” Doumit says. “Producers have benefited by having higher prices for fed cattle, and consumers have benefited by having higher-quality beef that they prefer in retail stores.”
Schroeder notes that producers who are considering entering into a marketing agreement should first study the array of alternative grids available and match those with their own cattle procurement, production and marketing strategies.
“The two go hand in hand,” he says. “Premiums and discounts that we’ve summarized in our report have considerable variation across grids. Knowing the type of carcass quality traits that a producer can attain relative to cost is critical.”
Schroeder encourages producers to “shop around to find the grid to match the type of carcasses the producer can effectively produce.”
“That will make a big difference between a grid system increasing or reducing profit,” he says. “Launching a grid system is less about chasing targets than it is about knowing the type of cattle one has available and the feeding management system that can match the grid with the cattle.”
More information, including Doumit’s and Schroeder’s full report, is available online.
Source: Pat Melgares, K-State Research and Extension news service, Western Ag Network,