Impact Of Alternative Grid Pricing Structures On Cattle Marketing Decisions

Quality grade, yield grade, and other feedlot performance factors explain much of the variation in profit under grid pricing. Thus, feedlot owners can change profits by adjusting time on feed to influence these performance factors. This research uses growth models, logistic regression, and an optimization process to determine how the optimal number of days on feed changes under different grid pricing structures. It was found that large quality or small yield discounts increases the optimal number of days on feed and small quality or large yield discounts result in fewer days on feed. Losses associated with a grid having large quality discounts are minimized as cattle fed for more days are able to obtain Choice premiums despite the discounts for more Yield Grade 4 and 5 carcasses. Given small quality discounts, cattle fed for a shorter length of time can obtain the Yield Grade 1 and 2 premiums without a large loss in revenue due to grading Select or Standard. Under cash pricing, cattle are fed for very long periods because there are no discounts applied to the carcasses and, therefore, the more weight they gain, the more revenue they generate. During periods of low feed prices, cattle can be fed longer so more cattle grade Prime but also have more Yield Grade 4 and 5 cattle.