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Does The Producer Have An Incentive To Sell Fed Cattle On A Grid?

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  • Fausti, Scott W.
  • Qasmi, Bashir A.

Abstract

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.

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Bibliographic Info

Article provided by International Food and Agribusiness Management Association (IAMA) in its journal International Food and Agribusiness Management Review.

Volume (Year): 05 (2002)
Issue (Month): 01 ()
Pages:

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Handle: RePEc:ags:ifaamr:34581

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Keywords: Livestock Production/Industries; Marketing;

References

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  1. Feuz, Dillon M., 1999. "Market Signals In Value Based Pricing Premiums And Discounts," 1999 Annual Meeting, July 11-14, 1999, Fargo, ND 35739, Western Agricultural Economics Association.
  2. Fausti, Scott W. & Feuz, Dillon M. & Wagner, John J., 1998. "Value Based Marketing For Fed Cattle: A Discussion Of The Issues," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), vol. 1(01).
  3. Feuz, Dillon M. & Fausti, Scott W. & Wagner, John J., 1995. "Risk And Market Participant Behavior In The U.S. Slaughter-Cattle Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 20(01), July.
  4. Dillon M. Feuz & Scott W. Fausti & John J. Wagner, 1993. "Analysis of the efficiency of four marketing methods for slaughter cattle," Agribusiness, John Wiley & Sons, Ltd., vol. 9(5), pages 453-463.
  5. Feuz, Dillon M., 1999. "Market Signals In Value-Based Pricing Premiums And Discounts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(02), December.
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Citations

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Cited by:
  1. Fausti, Scott W. & Qasmi, Bashir A. & Diersen, Matthew A., 2008. "The Efficacy of the Grid Marketing Channel for Fed Cattle," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6884, Southern Agricultural Economics Association.
  2. Ward, Clement E., 2005. "Supply Effects on Price Discovery and Pricing Choice for Fed Cattle," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19034, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  3. Fausti, Scott & Qasmi, Bashir & Diersen, Matt, 2008. "Grid Marketing and Beef Carcass Quality: A Discussion of Issues and Trends," Staff Papers 080003, South Dakota State University, Department of Economics.
  4. Fausti, Scott W. & Diersen, Matthew A. & Qasmi, Bashir A. & Li, Jing, 2009. "Value-Based Marketing: A Dsicussion of Issues and Trends in the Slaughter Cattle Market," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 28(2).
  5. Steiner, Bodo E., 2007. "Formal beef alliances and alignment challenges: issues in contracting, pricing and quality," Project Report Series 7709, University of Alberta, Department of Resource Economics and Environmental Sociology.
  6. Ward, Clement E., 2005. "Factors Influencing the Extent of Grid Pricing of Fed Cattle," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19035, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  7. Fausti, Scott W. & Wang, Gerald & Diersen, Matthew A. & Qasmi, Bashir A., 2012. "Pricing Fed Cattle on a Grid: An Analysis of the Incentive Mechanism over Time," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119670, Southern Agricultural Economics Association.
  8. Koontz, Stephen R. & Hoag, Dana L. & Brethour, John R. & Walker, Jodine L., 2008. "Production Inefficiency in Fed Cattle Marketing and the Value of Sorting Pens into Alternative Marketing Groups Using Ultrasound Technology," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(03), December.
  9. Fausti, Scott W. & Qasmi, Bashir A. & Diersen, Matthew A. & Stockton, Matthew C. & Adamson, Bill, 2013. "The Effect of Carcass Quality on the Grid versus Dressed Weight Carcass Revenue Differential," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142983, Southern Agricultural Economics Association.
  10. Scott Fausti & Zhiguang (Gerald) Wang & Bashir Qasmi & Matt Diersen, 2012. "Risk and Marketing Behavior: Pricing Fed Cattle on a Grid," Staff Papers 12001, South Dakota State University, Department of Economics.
  11. Hogan, Robert J., Jr. & Carlberg, Jared G. & Ward, Clement E. & Peel, Derrell S., 2012. "Factors Affecting Quality Grade Discounts for Fed Cattle," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119814, Southern Agricultural Economics Association.

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