influence market conditions and related factors influence the use of grid pricing and whether or
not these factors can explain the apparent sharp change in grid pricing usage during 2003-04.
Was the decline a short-term, temporary response to unusual market conditions in 2003 or the
beginning of a trend away from formula pricing and grid pricing due to concerns or unsatisfying
experiences with grid pricing?
This research had a single, focused objective: to determine factors affecting the extent of grid
pricing by cattle feeders for fed cattle. Is the extent of grid pricing affected by market
conditions, learning on the part of cattle feeders, concerns with grid pricing, characteristics of
cattle fed, characteristics associated with cattle feeding firms, or other factors? The purpose of
this paper is to report results from a cattle feeder survey conducted in September 2004 intended
to fill another hole in the developing literature on grid pricing by cattle feeders and packers.
Survey and Data Summary
A survey was conducted in September 2004 of cattle feeders in Nebraska, Colorado, Kansas,
Oklahoma, Texas, and New Mexico to capture data relevant to the issue addressed in this
research.1 Cattle feeders surveyed were members of the Nebraska Cattlemen’s Association,
Colorado Livestock Association, Kansas Livestock Association, or Texas Cattle Feeders
Association.2 Approximately 500 questionnaires were mailed and 147 completed questionnaires
were returned, a 29.4% response. The survey instrument contained questions about the feedlots
(location, size, extent of custom feeding, extent to which cattle were sold to their largest buyer)
and about their marketing and pricing practices (extent of marketings under a contract or
agreement and marketings by pricing methods). Then feeders ranked their agreement or
disagreement on a seven-point Likert scale with several statements regarding their likelihood of
pricing fed cattle with a grid. These statements related to market conditions, estimated carcass
characteristics of the cattle being sold, previous experience with grid pricing, etc. Feedlot
managers were also asked about when (if) they sorted cattle in the feedlot prior to marketing and
for what purpose. Lastly, feedlot managers were asked to state concerns they had with
components of grid pricing.
Of the 147 usable questionnaires returned, 31 respondents did not use grid pricing in 2003.
Since the focus of this research was factors affecting grid pricing use, the remainder of the paper
refers to the 116 respondents who used grid pricing for some or all of the fed cattle they
marketed in 2003. Table 1 provides summary information about the cattle feeder respondents;
state where most of their fed cattle were fed, marketings in 2003, and extent of grid pricing.
Over half the respondents (64.3%) were from Nebraska and Kansas. Barely over half marketed
less than 20,000 fed cattle in 2003. The extent of grid pricing varied from 1 to 100% with 59.5%
using grid pricing for 40% or less of their marketings in 2003 and 36.3% using grid pricing for
more than 60%.
Grid pricing groups were compiled based on the extent of grid pricing use, i.e., percent of total
fed cattle marketed that were priced with a grid in 2003. The objective was to determine
whether or not there was a difference in factors affecting grid pricing for groups of cattle feeders