DOES THE PRODUCER HAVE AN INCENTIVE TO SELL FED CATTLE ON A GRID?

Barriers to the adoption of grid pricing by fed cattle producers are investigated over a 206-week period (January 1997 to December 2000). The empirical findings document the following potential barriers to adoption: (1) when fed cattle are evaluated on a grid pricing system versus a dressed weight pricing system, a price differential per cwt. and a per-head revenue differential exists over time, (2) the price differential per cwt. is subject to seasonal variation, resulting in variability in the monetary incentive to market-fed cattle on a grid relative to selling cattle at an average price, and (3) the variability in per-head grid revenue is consistently higher than per-head dressed weight revenue variability over time. The marketing implications for fed cattle producers are (1) the incentive to market on a grid versus selling fed cattle dressed weight is lower in the spring relative to the fall; (2) marketing on a grid does reward producers selling high quality steers and the incentive to market higher quality cattle on a grid has been increasing over the 206-week period of the study; (3) grid discounts levied on lower quality cattle have also been increasing over time; (4) selling on a grid results in higher per-head revenue variability relative to selling fed cattle dressed-weight, indicating that while producers are rewarded when selling high quality cattle on a grid relative to selling at an average price, it is also a riskier marketing option relative to average pricing; and (5) the 4-year trend in the price differential per cwt. for above-average cattle has been positive but negative for the below-average quality cattle. This trend indicates that packers are providing monetary incentives and disincentives based on overall cattle quality when fed cattle are sold on a grid relative to purchasing fed cattle at an average price. Corresponding with this shift in the incentive structure of grid pricing, overall carcass quality has improved in the region from which data was collected. However, the empirical evidence supports the conclusion that the barriers to the adoption of grid pricing continue to exist.