Grid Marketing Sorting out the numbers Cattle-Fax Mike Miller Bill Chandler

A Balancing Act

Grid Marketing  General Overview  Grids: How they work  Cattle Markets  Trends in grid marketing  Helpful Tools

What is the industry target?  Quality Grade  Yield Grade  Carcass Characteristics  Weight

The Target Yield Grade 1 Yield Grade 2 Yield Grade 3 Yield Grade 4 Yield Grade 5 Prime $16.20 $13.70 $12.20 $(4.80) $(9.20) CAB$11.20 $8.70 $7.20 $(7.80) $(12.80) Choice $7.20 $4.70 $3.20 $(11.80) $(16.20) Select $0.80 $(3.30) $(4.80) $(19.80) $(24.20) Standard $(11.00) $(13.50) $(15.00) $(30.00) $(35.00) 550 Carcass Weight Range 950 *Ch/Sel Spread $8.00 *60% Choice Grade

How Grids Work  Premiums  Prime  Upper 2/3 Choice (i.e. CAB)  Choice  YG 1  YG 2

How Grids Work  Discounts  Select  Standard  YG 4  YG 5  B-Maturity  Dark Cutter  Weight (either light or heavy)

How grids work  Other Factors  Freight  Base price determination  Quality grade base  Weight limits

What is your target?  Quality Grade  Red Meat Yield  Natural  Seek out a program that fits your cattle

Grid Marketing Basics  Grid marketing does not guarantee a premium  Discounts can be substantial  It transfers risk from the packer to the owner of the cattle  Grids change constantly

How do you maximize returns?  Understand your cattle  Be honest  Understand the market  Just because your marketing on a grid or formula does not detach you from the cattle market  Understand the program  Premiums versus discounts

Cattle  Do you have some history on the cattle?  Performance in the feedlot  Carcass characteristics  Be conservative when you estimate future performance

Importance of performance  Don’t overlook feedlot performance Pen 1 Pen 2 ADG3.0-10%3.3 Conv %6.6 Cost of gain$.50+10%$ lbs. 500 lbs.$250$275 $25 per head

Market Fundamentals  Seasonal supply and demand  Choice/Select spread  Timing of marketings

Steer and Heifer Slaughter 5-year average 2003

Weekly Average Beef Production yr avg.

Choice/Select Spread

Ch/Sel Spread Seasonality 5-year average spread

Seasonality of Fed Cattle Prices

Choosing the right program  What fits your cattle?  Change the grid to the cattle not the cattle to the grid  Quality grade versus yield grade  Where will the cattle be fed?  How much does it cost?

Choosing the right program  Analyze the premium/discount structure  Fixed grade base vs. plant averages  How is the Choice/Select spread determined  Base price determination

Trends in Value Discovery  Gathering more information  Fine tuning management  Impact on genetic selection

Value Discovery Changing PAR yg1yg2yg3yg4yg5 Premiums Discounts Additional Premiums for: -Prime -CAB or Similar Specs -Choice 1980’s 1990’s 2000

  Pricing Method: Pricing on Value of Beef and the By-Products Produced   Message: “Some Cattle are Better than Others”   Result: Produce More of the Better Cattle Grid Marketing

Pulling Product Through Sharing Information Beef Industry Structure: The Way it is Evolving Seed Stock Cow/Calf StockerFeedlot Packer Processor Retailer Food service Consumer

Percentage of fed cattle movement from: Formula, contract, alliances and packer fed cattle

Percent of cattle graded Choice

Cattle Yield Grades Yield grade 1 & 2 Yield grade 3 & 4

Cattle Carcass Weights

Trends  Larger premiums but larger discounts as well  Different base prices  More coordinated programs  More cattle marketed on grids and formulas