When history sorts the grain of truth from the chaff of emotion, chances are grid pricing didn't blow the lid off value discovery like many had hoped. Nor did it blast holes in the guts of price negotiation and leverage like some predicted.
But there is no question grid pricing is helping some producers retrieve more dollars for their cattle, while building a more consumer-friendly product.
"The cattle we sold on the grid last week brought $16.45 over live price," says Gary Teague. Teague, along with wife Laura, owns and operates Teague Diversified, Inc., Fort Morgan, CO.
"As a commercial feedyard, if I can cost-effectively help customers put more dollars in their pocket, then it's a good deal," says Teague. He started using grids five years ago. Today, he markets 90% of his 30,000-head, one-time capacity on a variety of grids.
"Eighty percent make a premium and 20 percent don't. But the ones that don't bring a premium relative to the cash market are still getting paid what they're worth." The same cattle discounted on the grid would also have been discounted in the cash market.
Tom Feller, owner and manager of Feller and Co., Wisner, NE, markets half of his lot's 18,000-head, one-time capacity via grid pricing. He's had some cattle make $50 per head on grids, and others lose $30-$40 per head.
He began using grids in 1985 for some of the early branded beef programs. "One reason we love branded cattle is because they're all such high quality. You have higher performance and no death loss. It's fun to work with good cattle," Feller says. Grids Attract Quality Whether destined for specific branded beef or packer grids, quality is exactly why the minority of cattle are traded on a grid basis.
"If your mindset is to buy average calves and market them for as close to average price as possible, then the hoops are too big and the stakes are too high," says Don Schiefelbein, coordinator of the Gelbvieh Alliance for the American Gelbvieh Association. "Grids will only be a discount mechanism for you." But for producers with cattle and the expertise, "it's just like clipping a coupon," he says.
Since 1995, 133,602 cattle have been sold on the Gelbvieh Alliance grid. The average live premium is $9.79 per head.
Even with quality, however, grids offer no guarantees, Feller says. "Grids are like golf. When you really hit it, you're enthusiastic about it, when you don't ... 'The slice can be wicked.' One set of cattle, we think we have it figured out, and the next ones won't work from the same owners. What changes?" says Feller. The better question may be: What doesn't change?
While premiums and discounts within a grid may remain static, everything else is dynamic. The Choice/Select spread fluctuates, turning quality-based grids into yield-based ones; the grading base moves, altering quality premiums; feed prices go down and cattle get pushed longer.
The bottom line is there is no such thing as the same set of cattle two turns in a row. If that wasn't vexing enough, the nature of grids prevent some producers from trying them.
For one thing, the discount hammer swung by grids can quickly obliterate any premiums because the carrots that grids dangle probably wouldn't get a sniff from Bugs Bunny.
"I'm not a big fan of grid marketing because I don't think there's enough money to make it attractive," says Daryl Tatum, professor of animal science at Colorado State University (CSU). "I think for people experienced at selling on a grid and who understand it, there are opportunities to gather more dollars, compared to selling live. For people who haven't sold on a grid, don't understand it, or have average cattle, the risks far outweigh the benefits."
CSU Study Shows Value Of Weight Earlier this year, CSU released results of a study conducted for the National Cattlemen's Beef Association (NCBA) which underscores thepoint. Average carcass performance from 8,369 lots representing 1.4 million head were applied to three different grids:
* A composite of 20 different current industry grids (Table 1).
* A representative yield-based grid (Table 2).
* A representative quality-based grid (Table 3).
In sum, 60% of the cattle earned a net discount on Grid 1-2, while 80% did on Grid 3. Average discounts ranged from $0.20-$3.23/cwt. Average premiums for the top 20% on each grid ranged from $0.75-$1.74/cwt.
The study indicates current grids do reward high quality grading, higher yielding cattle that fit conformance specifications, while discounting low quality, lower yielding. But on a gross price basis, the premiums and discounts could not offset the value of weight. In other words, weight still drives the pay check.
Most all grids pay the same money. The total premiums offered in the study grids ranged from $18-$20/cwt., while total discounts ranged from $88.38-$94.20/cwt.
"It's like having a fleet of half-ton pickups, the same brand, painted different colors. You get the same gas mileage, however you paint them. We're defining value at the packer level based on weight," says Tom Field, another CSU researcher who worked on the grid project. "Right now, there is neither a huge incentive nor a clear strong message about what one ought to do in their breeding program."
And, if there is a message, it may be the wrong one.
"Producers feel obligated to hit this very specific target, and when you think about it, it doesn't make any sense at all," explains the Gelbvieh Association's Schiefelbein. Rather than aiming down the middle of the road, he believes the industry is telling producers to gun for either quality or yield.
"I think the people who have the most long-term success with grids are the ones who decided, 'I'm going to feed good cattle, cattle that will do most things right, a good balance between lean and muscle,' " he says. "The ones who get into the most trouble are the ones who go to an extreme."
Avoid Outliers More than anything, the right kind of cattle on a grid are those that don't run the red lights of non-conformity. Regardless of the grid you sell on, you've got to avoid outliers. That's what kills you, Teague says.
In fact, outweight, Standard grade and dark cutter discounts account for half of discounts on most grids. That's why Teague says, "I don't think it's practical to sell on a grid unless you sort them."
At Teague Diversified, cattle are fed to a constant fat endpoint. Once cattle reach the target, they're sorted out of the pen. Remaining animals are moved to a smaller pen so pen utilization and feedlot efficiency is maintained.
Sorting at Feller's yard works the same way. "I've got strict standards to hold the integrity of these branded programs. That costs money." There are extra scales, more pens and extra labor involved in sorting. In return for the added effort, Feller believes branded grids offer more incentive than packer systems.
"At the end of the day, do we feel better about what we're doing?" asks Feller. "Probably. We're sending exactly what consumers say they want. What concerns me is if I've given up efficiency to be in the grid to try to do a better job delivering a consistent, quality product? Can I trust the integrity on the other end?"
Do Grids Meet Consumer Needs? But really, can the industry trust that grids are discovering and rewarding what has value to consumers?
"Until we establish value closer to the consumer, we're a commodity, weight-driven game," says CSU's Field. Of course, trying to recover value further up the chain won't be easy.
"You can't make it happen. If I want to run 500 more cows or feed another 500 head, I can. But you can't make the decision and just make it happen in the retail business," says Feller. He's learned the capricious nature of retail first hand, experimenting with some partners to add value to the chuck and round with case-ready products.
Teague says the industry has to be ready to assume the responsibilities and liabilities that accompany marketing directly to retailers. Currently, a food safety audit stops at the packer door. Responsibility increases with each step producers take toward consumers.
At the very least, current grids can provide a necessary step in that direction. "The best things grids have done is put the idea of improved quality and consistency on the table," says CSU's Field.
"I don't think this is the final way we'll sell cattle, but in the interim it works," says Teague. "I feel we're putting dollars in our customers' pockets that wouldn't have been there."