Select price spread, the extent of grid pricing increased. Conversely, as disagreement increased
with the the importance of a wide yield grade 4 vs. yield grade 5 price spread, feeders were less
apt to use grid pricing. The importance of the Choice-Select price spread is consistent with
considerable previous grid pricing research (Schroeder and Graff 2000; Anderson and Zeuli
2001; Feuz 1999; McDonald and Schroeder 2003). Feeders agreeing with the importance of the
Choice-Select price difference were 12.4 times more likely to be in the group using grid pricing
more frequently than in the group using grid pricing less often. Lastly, as disagreement
increased with the importance of tight supplies (meaning marketing cattle “green” or with fewer
days on feed) as a determining factor in grid pricing, the extent of grid pricing declined.
The two remaining significant variables were from the Other Factors and Futures Market
Conditions groups. As agreement increased with the importance of expected favorable profit
margins on the fed cattle being marketed, the extent of grid pricing increased.
The last statement to be discussed was very robust across models estimated, both OLS and OL
models, and for various grid pricing groups. As disagreement increased with the importance of
relatively stable futures market prices, the extent of grid pricing declined. In fact, the OL odds
ratio was larger for this variable than any other. Feeders disagreeing with the importance of this
factor were 16.0 times more likely to fall into the group using grid pricing more frequently than
in the group using grid pricing less frequently. So to heavier users of grid pricing, the stability
of futures prices was not very important. The relationship between relative stability of futures
market prices and extent of grid pricing for the lighter users of grid pricing is not clear.
Sorting to Enhance Grid Pricing Effectiveness
Feedlot managers were asked whether or not they sorted cattle in the feedlot, when, and for what
purpose. It could be argued that cattle feeders using grid pricing more frequently would be more
apt to sort cattle one or more times to maximize the effectiveness of grid pricing. Survey
responses bore that out. Table 5 summarizes the sorting results from feedlot manager
respondents.
Feedlot managers in the group using grid pricing less frequently in 2003 reported not sorting
cattle significantly less than those using grid pricing less frequently. Significant differences
were also found regarding when sorting occurred. More frequent users of grid pricing sorted
more often at placement and prior to marketing than the group of feeders not using grid pricing
as much.
Feeders were asked to rank on a scale of 1 to 3 the purpose of sorting cattle on feed. No
significant difference was found between the two grid pricing groups (Table 5). The highest
mean rank for each group was to minimize “out” or severely discounted carcasses, which is
consistent with much advice given by economists familiar with grid pricing. The second and
third highest mean ranks differed in absolute terms between the two groups. For the group using
grid pricing most frequently, the next two highest-ranking targets were quality grade and end
weight.