8 minute read
Grid marketing Angus cattle
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 is at record high, while FIGURE 1. Select beef share is declining (Figure 1)–consumers are paying to keep high-quality beef on the table.
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 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
FIGURE 2.
demand for high-quality carcasses and determines the premium.
An average of 70 percent Choice leaves potential premiums on 30 percent of the load. If the Choice/Select spread is $10 per hundredweight (cwt.), multiply 10 by 30 percent to get $3/cwt premium for every Choice carcass in the load.
Typically spring and fall are ideal for capturing the most quality premiums, Dykstra said, but CAB carcass trends are impacted by seasonality to a lesser degree.
Even though 36 percent of all eligible black-hided cattle reached CAB last year, packers have paid higher premiums for the brand lately compared to when supplies were historically low.
“When we can sell more product and still keep a premium up there for cattle, that’s a great thing,” he said.
The many moving pieces in grid marketing make it a bit of a chess game, but learning to play opens more opportunity for big wins.
YIELD GRADE STILL MATTERS
Yield grade is the other part of the equation.
Cattle reach their endpoint faster today than 20 years ago, increasing the average YG 4s to 12 percent last year with cases of 20 to 40 percent. The pandemic added to that as cattle feeders and packers worked through the backlog and cattle spent more time on feed.
While grids may incentivize YG 1 (recent average $5.43/cwt. premium), YG 2 is a reasonable target to maintain high grading carcasses, Dykstra said. YG 3 is par.
Yield Grade 4s and 5s now incur smaller discounts than in the early 2000s, he said, “evidence that packers have become more accustomed to a little extra fat thickness to achieve a desired quality grade.”
BRING THE DATA HOME
Dykstra posed the questions: How do commercial cattlemen pursue their share? What numbers need to be achieved to perform well and earn more money in grid marketing?
Start by evaluating traits in your cow herd and bull battery.
Backfat thickness indicates days on feed and total body fatness, while marbling affects quality grade–also the primary driver for carcasses qualifying for CAB. Backfat, hot carcass weight and ribeye area are other measures used to determine YG and CAB eligibility, Dykstra said.
In late 2020, Delegates selected to represent their respective states at the American Angus Association’s 137th Annual Convention of Delegates in Kansas City, Mo., voted in-person and online to elect five new directors, a chairman and a vice chairman to lead the organization. The annual meeting took a virtual twist in 2020 to allow members to conduct business in a format streamlined by necessity due to COVID-19 regulations.
Officers elected
David Dal Porto, Oakley, Calif., was elected president and chairman of the Board. Dal Porto succeeds Don Schiefelbein, Kimball, Minn. Dal Porto and his wife, Jeanene, manage their registered and commercial Angus operation in Oakley, Brentwood and northern California. They have three children — Lindsey, AJ and Dawson. Dal Porto has firsthand experience at every level in the evolution of performance information and how to apply it. He complements that knowledge with a management background developed from experience. Dal Porto and his bull sale partner, David Medeiros, were awarded the 2011 Certified Angus Beef® (CAB) Seedstock Commitment to Excellence Award.
Jerry Connealy, Whitman, Neb., was elected to serve as vice president and vice chairman of the Board. He has served on the Association Board of Directors for six years, this last year as Association treasurer. The fifth-generation cattleman has operated the family ranch since 1981 with his wife, Sharon. The Connealys have four children— Jed, Gabriel, Ben and Hannah. Jerry focuses his cow herd base on productivity traits and manages two bull sales per year, selling 300 bulls at each sale.
Chuck Grove, Forest, Va., who is currently serving his second term on the Board, will serve as the 2020-2021 Association treasurer. Grove became a regional manager for the American Angus Association in 1975, first serving the states of Kentucky and Tennessee. During his 39-year tenure he also covered Virginia, Maryland, West Virginia, Delaware and Ohio. Grove and his wife, Ruth, reside on the family farm and manage their 100-head Angus herd.
Directors elected
Mark Ahearn and his family established Turner Meadow Ranch in East Texas in the mid-1980s. Apart from his 35-year career in law enforcement, Ahearn’s passion has always been raising high-quality Angus cattle. He has studied pedigrees and learned the business from the ground up. His family has grown their herd to about 200 females while being active in the Texas Angus Association, which he has served in a leadership role for 16 years.
Smitty Lamb grew up on a small rowcrop farm in East Georgia where he discovered his passion for Angus cattle at an early age. He followed that drive to the University of Georgia–Athens (UGA) where he earned a bachelor’s degree in animal science and a master’s degree in meat and muscle biology. His career eventually led him to an opportunity in the cotton industry, but he always came home to Angus cattle. His family has owned and operated Ogeechee Angus Farm since 1997, and it has since become one of the most reliable sources for Angus genetics in the Southeast.
Charles Mogck is a third-generation Angus breeder from South Dakota. Mogck has built upon his family’s heritage in the breed and increased their herd to 400 registered females while marketing 120 bulls annually. They farm 2,000 acres of corn, beans and wheat with an additional 2,500 acres of pasture and hay ground.
Darrell Stevenson has strong ties to the Angus breed and a history of activity in the Montana Angus Association. Stevenson’s grandparents were charter members of the Montana Angus Association in 1951, and his father participated in the first National Junior Angus Showmanship contest in 1967. His father was on the Montana Angus Association and American Angus Association boards as well, serving as president from 19921993.
Jerry Theis is a devoted second-generation Angus breeder and lifetime member of the American Angus Association. His parents established April Valley Farms in 1952 in the Salt Creek Valley area of Leavenworth County, Kan. Theis continues his family’s diversified operation, now consisting of Angus cattle, crop and swine production. Cattle are marketed through their annual spring production sale as well as private treaty. April Valley Farms was recognized as a Historic Angus Herd by the American Angus Association in 2019.
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