Grid Marketing
Sorting out the numbers
Cattle-Fax
Mike Miller
Bill Chandler
A Balancing Act
Grid Marketing
 General Overview
 Grids: How they work
 Cattle Markets
 Trends in grid marketing
 Helpful Tools
What is the industry target?
 Quality Grade
 Yield Grade
 Carcass Characteristics
 Weight
The Target
Yield Grade 1
Yield Grade 2
Yield Grade 3
Yield Grade 4
Yield Grade 5
Prime
$16.20
$13.70
$12.20
$(4.80)
$(9.20)
CAB
$11.20
$8.70
$7.20
$(7.80)
$(12.80)
Choice
$7.20
$4.70
$3.20
$(11.80)
$(16.20)
Select
$0.80
$(3.30)
$(4.80)
$(19.80)
$(24.20)
$(11.00)
$(13.50)
$(15.00)
$(30.00)
$(35.00)
Standard
550
*Ch/Sel Spread
$8.00
*60% Choice Grade
Carcass Weight Range
950
How Grids Work
 Premiums





Prime
Upper 2/3 Choice (i.e. CAB)
Choice
YG 1
YG 2
How Grids Work
 Discounts







Select
Standard
YG 4
YG 5
B-Maturity
Dark Cutter
Weight (either light or heavy)
How grids work
 Other Factors




Freight
Base price determination
Quality grade base
Weight limits
What is your target?
 Quality Grade
 Red Meat Yield
 Natural
 Seek out a program that fits your cattle
Grid Marketing Basics
 Grid marketing does not guarantee a
premium
 Discounts can be substantial
 It transfers risk from the packer to the
owner of the cattle
 Grids change constantly
How do you maximize returns?
 Understand your cattle
 Be honest
 Understand the market
 Just because your marketing on a grid or
formula does not detach you from the cattle
market
 Understand the program
 Premiums versus discounts
Cattle
 Do you have some history on the cattle?
 Performance in the feedlot
 Carcass characteristics
 Be conservative when you estimate future
performance
Importance of performance
 Don’t overlook feedlot performance
Pen 1
Pen 2
ADG
3.0
-10%
3.3
Conv.
6.0
-10%
6.6
Cost of
gain
$.50
+10%
$.55
500 lbs.
$250
$25 per
head
$275
Market Fundamentals
 Seasonal supply and demand
 Choice/Select spread
 Timing of marketings
Steer and Heifer Slaughter
2,900
2003
(000) head
2,700
2,500
2,300
5-year average
2,100
1,900
1,700
1,500
J
F M A M
J
J
A S O N D
Weekly Average Beef Production
575
2003
Million pounds
550
525
5-yr avg.
500
475
450
425
J
F
M
A M
J
J
A
S
O
N
D
Choice/Select Spread
$14
$12
$ per cwt.
$10
$8
$6
$4
$2
$0
1990 1992 1994 1996 1998 2000 2002
Ch/Sel Spread Seasonality
$16
$14
$ per cwt.
$12
$10
$8
$6
$4
$2
$0
J
F
M
5-year average spread
A
M
J
J
A
S
O
N
D
Seasonality of Fed Cattle Prices
108%
104%
100%
96%
92%
88%
J
F
M
A
M
J
J
A
S
O
N
D
Choosing the right program
 What fits your cattle?
 Change the grid to the cattle not the cattle to
the grid
 Quality grade versus yield grade
 Where will the cattle be fed?
 How much does it cost?
Choosing the right program
 Analyze the premium/discount structure
 Fixed grade base vs. plant averages
 How is the Choice/Select spread determined
 Base price determination
Trends in Value Discovery
 Gathering more information
 Fine tuning management
 Impact on genetic selection
Value Discovery Changing
+6
Premiums
Additional Premiums for:
-Prime
-CAB or Similar Specs
-Choice
2000
+2
1990’s
+1
1980’s
PAR
-10
Discounts
-12
-16
yg1
yg2
yg3
yg4
yg5
Grid Marketing
 Pricing Method: Pricing on Value of Beef and the
By-Products Produced
 Message: “Some Cattle are Better than Others”
 Result: Produce More of the Better Cattle
Beef Industry Structure:
The Way it is Evolving
Sharing Information
Consumer
Retailer
Food
service
Cow/Calf
Packer
Processor
Feedlot
Pulling Product Through
Stocker
Seed Stock
Percentage of fed cattle movement from: Formula,
contract, alliances and packer fed cattle
60
Percent
50
40
30
20
10
0
1995
1997
1999
2001
2003
Percent of cattle graded Choice
54.50
54.00
Percent
53.50
53.00
52.50
52.00
51.50
51.00
50.50
1996 1997 1998 1999 2000 2001 2002 2003
Cattle Yield Grades
55
Yield grade 1 & 2
Percent
50
45
40
35
Yield grade 3 & 4
30
1995
1997
1999
2001
2003
Cattle Carcass Weights
780
760
pounds
740
720
700
680
660
640
1990 1992 1994 1996 1998 2000 2002
Trends
 Larger premiums but larger discounts as
well
 Different base prices
 More coordinated programs
 More cattle marketed on grids and
formulas