Grid Pricing of Fed Cattle

*Assistant Professor and Extension Economist–Management, and Professor and Extension Economist–Livestock and Food Marketing, The Texas A&M System; and Professor and Extension Economist, Kansas State University. Grid prices, or value-based marketing, refers to pricing cattle on an individual animal basis. Prices differ according to the underlying value of the beef and by-products produced from each animal. Schroeder et al. have reported that pricing fed cattle on averages is detrimental to the industry because it does not send appropriate price signals to cattle feeders, stockers and, ultimately, cow-calf producers. However, incentives to sell cattle on averages and problems associated with identifying beef quality have inhibited the development of value-based pricing. Both cattle feeders and packers have been reluctant to change from a live animal pricing system to a carcass pricing system. Opportunities to profit from better matching fed cattle prices to value have encouraged packers, alliances and producers to use carcass-based pricing. Now, there are several value-based fed cattle pricing systems, including formula pricing, price grids and alliances. Is there one “best” pricing method? How are live weight, dressed weight and grid or formula prices related? The purpose of this publication is to help producers decide which form of fed cattle pricing may be most profitable for them.