Sources of variability in fed-cattle grid pricing

Price variability among carcasses increaseswith a change from live-weight to dressedweightto grid pricing. Grid pricing has thelargest price variability, because the price foreach carcass is influenced by all of the componentsof the grid, rather than all cattle selling forthe same live or dressed price. Therefore,producers selling on a grid need to have knowledgeabout the expected carcass merit of theircattle. We used data on 11,703 head of cattleto determine which grid pricing componentsinfluence price variability the most and to measurehow much price variability increases fromgrid pricing, relative to live and dressed pricing,at the individual-carcass and individual penlevels. The Choice-to-Select price spread hasthe largest influence on price variability perhundredweight, and average carcass weight hadthe largest influence on price variability perhead. Whether price variability increased forboth individual-head and individual-pen levelsdepended on the quality of the cattle sold andthe grid on which they are sold. To manage theincreased price risk created by pricing, producersmust first manage that risk on an individualheadlevel through genetics, management, andsorting methods. The more knowledge producershave about the expected merit of their cattle,the more profit can be enhanced through gridpricing.