Extension Communications
3614 Administrative Services Building
Ames, Iowa 50011-3614
(515) 294-9915
3/17/00
Contacts:
Daryl Strohbehn, Iowa Beef Center, (515) 294-0847,
stroh@iastate.edu
Gary Fike, Iowa Beef Center, (712) 263-4697,
x1fike@exnet.iastate.edu
Tracy S. Petersen, Iowa Beef Center, (515) 294-5672,
tracyp@iastate.edu
The Risks and Rewards of Marketing Cattle On A Grid
AMES, Iowa -- Carcass data collected during the past two years show Iowa beef producers can profit from marketing their cattle on a grid, a method of selling cattle based on their true -- rather than estimated -- value.
According to the data collected in 1999, producers who marketed on a grid would have equaled or beaten the Nebraska weighted average 88 percent of the time. Even accounting for grid fees of $3 per head, producers would have beaten the Nebraska weighted average 83 percent of the time.
The IBC grid demo project, conducted in 1998 and 1999, contains data on 5,700 cattle.
"Selling into a grid market is not a guarantee to profit, but it's the only way to get paid for true value," said Daryl Strohbehn, extension beef specialist with the Iowa Beef Center at Iowa State University.
Grid marketing transfers the risk of quality grade, yield grade, off-weight carcasses, bruise trim and condemnations from the packer to the producer. The premiums vary widely depending on the grid market, so analysis of cattle with known historical carcass performance can pay dividends.
"Grids can be beneficial and provide valuable premiums to producers who raise high-quality beef," said Gary Fike, extension beef specialist in Denison, and a member of IBC. "However, a train wreck can occur if cattle are sold on a grid and do not fare well."
Despite the risks, more and more producers are considering grid marketing, Fike said.
"Everywhere you go, beef producers are talking about grids," he said. The reason is the potential for premiums.
In 1991 and 1995 the National Cattlemen's Beef Association conducted national packing plant audits to determine the quality of the nation's cattle. The cattle in the two IBC grid demo projects beat the National Beef Quality Audits by 18 or 19 percent in the USDA prime and choice grades. The grid demo cattle also exceeded the audits in yield grades 1 and 2 by 2 to 4 percent.
IBC used a grid calculator to determine that the average premium on the cattle in the project averaged $13.97 to $23.17 per head, depending on the grid.
The groups of cattle in the grid demo project were tested against four different grids offered to Iowa producers. Each uses a base price for low choice, yield grade 3 carcasses weighing between 550 and 950 pounds. Premiums and discounts are applied for the various quality and yield grades and off-weight carcasses. The base price is determined by the Nebraska weekly averages for dressed basis sales and the reported price spread between Choice and Select cattle.
"The formula for the grid must be compared to a price paid in the country," Strohbehn said. "This price might be the in-the-beef price quoted without grade and yield premiums. Most grids use a weighted-average price from the week prior to delivery of the cattle."
Fike offered a few tips to producers thinking of marketing their cattle on a grid: "It is extremely important to know what the base price is and what the premiums and discounts are," he said. "In addition, a sharp eye and the ability to evaluate cattle in terms of market readiness -- quality and yield grade -- is extremely important."
For more information on grid marketing, visit the Iowa Beef Center at web page at www.iowabeefcenter.org or call (515) 294-BEEF. Or contact the Extension Distribution Center to order the publications Grid Demo-1999: A Summary of Carcass Data (IBC-6 2000) or Grid Demo-1999: How the Demo Cattle Fit Grid Markets (IBC-7 2000). The Extension Distribution Center may be reached at 119 Printing and Publications Building, Iowa State University, Ames, Iowa 50011-3171; (515) 294-5247.
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