7:30 am - 9:00 am • Yuma 24-25 Rooms
MA 103: Grids — Sorting Out the Numbers
Mike Miller, Bill Chandler, Cattle-Fax

Grid Marketing — Sorting Out the Numbers

An opening session of Wednesday’s Cattlemen’s College® featured a marketing primer for cattlemen seeking to improve profitability through value-based marketing. According to Cattle-Fax analyst Mike Miller, fed cattle marketed on a grid are priced according to how they fit a packer’s target, with premiums and discounts based on carcass merit. Miller likened the use of grid- or formula-pricing arrangements to a balancing act. What make it challenging are the many parts that are constantly in motion.

Miller said producers need to know that different packers have different targets, varying according to preferences for quality grade vs. red meat yield. Generally, quality-based premiums reward carcasses falling within the Prime or Choice quality grades. Cutability may be rewarded through premiums paid on carcass Yield Grades (YGs) 1 and 2. Some marketing programs also include incentives for non-use of antibiotics or growth implants.

Discounts, explained Miller, apply to carcasses grading Select or Standard for quality, as well as too-fat carcasses earning a YG 4 or 5. Discounts also apply to carcasses that fall outside packer parameters for weight, as well as dark cutters and animals of B-maturity. Age, predicted Miller, will become an even bigger factor, with hefty discounts for cattle exceeding 30 months of age.

Selling on a grid, said Miller, means the producer is taking on a certain level of risk. Grid marketing transfers risk from the packer to the seller of the cattle. The producer should be confident that his cattle are above average and worthy of reward.

“Remember that grid marketing does not guarantee a premium or a profit. Discounts can be substantial,” Miller warned. “Grids change constantly and subtle changes can mean a whole bunch of money.”

To maximize returns from grid marketing, Miller advised producers to understand their own cattle. They need to know what they are producing. Producers should understand the grid program’s premiums/discount structure, as well as how the base price is determined.

“Understand the market. You are not detached from it because you sell on a grid,” added Miller. “You are affected by market factors.”

Miller warned producers against trying to make drastic changes in their cattle, and their operations, in order to match a certain grid. There are many grid-based programs available, so producers should seek a grid that fits their cattle.

— by Troy Smith

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