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Grid Pricing Concerns

One could argue that concerns regarding grid pricing components may influence the extent to
which feedlot managers market fed cattle with grids. Feedlot managers were asked to rate their
concern on a ten-point scale with components of grid pricing. A significant difference (at 0.05)
was found between the two grid pricing groups for two components but not the other two.

As would be expected, feedlot managers who used grid pricing less frequently expressed greater
concern regarding how the base price is determined in grids than those using grid pricing more
frequently (mean rating of 8.2 and 7.2, respectively). Similarly, the same group was more
concerned about the structure of premiums and discounts (mean rating of 8.0 and 6.9,
respectively). No difference was found between the two groups regarding the subjective nature
of quality and yield grading (mean rank of 7.4 and 7.7, respectively). However, this was the
component of most concern to frequent users of grid pricing. At the bottom for both groups was
concern about the absence of key factors determining the value of carcasses, such as red meat
yield and tenderness, among others (mean rank 6.6 and 6.1, respectively, for the two groups).

Summary and Conclusions

Previous grid pricing research identified motives for grid pricing by cattle feeders, but no
attempt has been made to empirically explain the extent of grid pricing. This research sought
cattle feedlot managers’ input into factors determining their use of grid pricing and related
practices or concerns related to grid pricing use.

Findings indicate some differences among cattle feedlot managers who marketed more than half
vs. half or less of their fed cattle via grid in 2003. Some differences were related to extent of
marketings sold to the largest buyer and extent of involvement with market agreements of some
form. Feedlots using grid pricing more frequently were more apt to determine the base price in
grids by a formula tied to plant average prices and less negotiation with packers.

Price and market conditions also explained some of the difference in the extent of grid pricing
and the difference in grid pricing groups. However, these were not consistent enough to explain
the decline in formula priced trades during the third year of mandatory price reporting compared
with the first two years. Neither did other significant variables in the regression and ordered
logit models provide much insight into why formula priced trades declined and negotiated trades
increased during the three years following implementation of mandatory price reports.

Cattle feeders using grid pricing more frequently were both more apt to sort cattle and more apt
to sort at placement and prior to marketing. However the purpose for sorting between the two
grid pricing groups was essentially the same, with the most important objective being to
minimize “out” carcasses.



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