PLAYING TO WIN
GRID MARKETING OPENS DOOR TO PREMIUMS by Morgan Boecker for Certified Angus Beef
Learning to play chess in later life isn’t easy, but it’s not impossible. Grid marketing finished cattle is similar. It’s not intuitive, but it’s a learnable risk management tool. “Maintaining ownership through the cattle feeding period and selling on the rail is an opportunity to recapture the input costs and hopefully improve our bottom line,” said Paul Dykstra, Certified Angus Beef ® (CAB®) assistant director of supply management and analysis. “The key is to align genetics, management and performance with the seasonal trends.” At a January webinar, he said producers can target cow herd genetics toward the factors driving value in the supply chain. Backfat and marbling have differing value implications at the packing plant and can be selected in different directions in the herd. Prime beef production FIGURE 1. is at record high, while Select beef share is declining (Figure 1)– consumers are paying to keep high-quality beef on the table.
works against us,” Dyskstra said. Packers pay the most for the rare combination of Prime quality and YG 1, and they greatly discount carcasses falling at the opposite end of the grading table (Figure 2). Cattle sold on the grid compete with the average percent Choice at the packing plant. Cattle are graded individually, but packers look at entire load average to determine if any cattle earn a premium. The current U.S. average of near 70 percent Choice, with regional differences, means packers only pay the Choice premium for the share of cattle in the whole lot that exceed the plant average, Dykstra explained. “Whether it’s 40 head or 150 head, the percentage of those cattle grading Choice matters,” he said. The Choice/Select spread points to supply and
GRID MARKETING 101
Profit on the grid depends on beating industry averages for quality and yield grades. Fed cattle sell by formula, contract or spot-market bids. Live or carcass weight-based pricing formats are often dependent on region. Grid marketing sets a starting price according to a carcass-value base, then figures premiums and discounts to each carcass. Overall yield, or dressing percentage, converts live to carcass price. “The average dressing percentage of 63.5 percent is pretty standard for the industry,” Dykstra said, but grids may vary and the number is affected by mud, gut fill, external fat, muscling, gender and age. A below average dressing percentage may be overcome by having better-than-average carcass premiums. Cattle with the most fat usually have the least muscle and red-meat yield. “That combination 20 California Cattleman March 2021
FIGURE 2.
