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Grid Marketing Sorting out the numbers

Grid Marketing Sorting out the numbers. Cattle-Fax Mike Miller Bill Chandler. A Balancing Act. Premiums. Feed Conversion. Cattle Market. Quality Grade. Maximum Profit. Daily Gain. Discounts. Cattle Age. Yield Grade. Carcass Weight. Base Price. Grid Marketing . General Overview

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Grid Marketing Sorting out the numbers

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  1. Grid MarketingSorting out the numbers Cattle-Fax Mike Miller Bill Chandler

  2. A Balancing Act Premiums Feed Conversion Cattle Market Quality Grade Maximum Profit Daily Gain Discounts Cattle Age Yield Grade Carcass Weight Base Price

  3. Grid Marketing • General Overview • Grids: How they work • Cattle Markets • Trends in grid marketing • Helpful Tools

  4. What is the industry target? • Quality Grade • Yield Grade • Carcass Characteristics • Weight

  5. The Target Yield Grade 1Yield Grade 2Yield Grade 3Yield Grade 4Yield Grade 5 Prime $16.20 $13.70 $12.20 $(4.80) $(9.20) CAB $11.20 $8.70 $7.20 $(7.80) $(12.80) Choice $7.20 $4.70 $3.20 $(11.80) $(16.20) Select $0.80 $(3.30) $(4.80) $(19.80) $(24.20) Standard $(11.00) $(13.50) $(15.00) $(30.00) $(35.00) 550 Carcass Weight Range 950 *Ch/Sel Spread $8.00 *60% Choice Grade

  6. How Grids Work • Premiums • Prime • Upper 2/3 Choice (i.e. CAB) • Choice • YG 1 • YG 2

  7. How Grids Work • Discounts • Select • Standard • YG 4 • YG 5 • B-Maturity • Dark Cutter • Weight (either light or heavy)

  8. How grids work • Other Factors • Freight • Base price determination • Quality grade base • Weight limits

  9. What is your target? • Quality Grade • Red Meat Yield • Natural • Seek out a program that fits your cattle

  10. Grid Marketing Basics • Grid marketing does not guarantee a premium • Discounts can be substantial • It transfers risk from the packer to the owner of the cattle • Grids change constantly

  11. How do you maximize returns? • Understand your cattle • Be honest • Understand the market • Just because your marketing on a grid or formula does not detach you from the cattle market • Understand the program • Premiums versus discounts

  12. Cattle • Do you have some history on the cattle? • Performance in the feedlot • Carcass characteristics • Be conservative when you estimate future performance

  13. Importance of performance • Don’t overlook feedlot performance

  14. Market Fundamentals • Seasonal supply and demand • Choice/Select spread • Timing of marketings

  15. Steer and Heifer Slaughter 2003 5-year average

  16. Weekly Average Beef Production 2003 5-yr avg.

  17. Choice/Select Spread

  18. Ch/Sel Spread Seasonality 5-year average spread

  19. Seasonality of Fed Cattle Prices

  20. Choosing the right program • What fits your cattle? • Change the grid to the cattle not the cattle to the grid • Quality grade versus yield grade • Where will the cattle be fed? • How much does it cost?

  21. Choosing the right program • Analyze the premium/discount structure • Fixed grade base vs. plant averages • How is the Choice/Select spread determined • Base price determination

  22. Trends in Value Discovery • Gathering more information • Fine tuning management • Impact on genetic selection

  23. Value Discovery Changing +6 Premiums Additional Premiums for: -Prime -CAB or Similar Specs -Choice 2000 +2 1990’s +1 PAR 1980’s -10 Discounts -12 -16 yg1 yg2 yg3 yg4 yg5

  24. Grid Marketing • Pricing Method: Pricing on Value of Beef and the By-Products Produced • Message: “Some Cattle are Better than Others” • Result: Produce More of the Better Cattle

  25. Beef Industry Structure: The Way it is Evolving Sharing Information Cow/Calf Retailer Packer Consumer Feedlot Stocker Food service Processor Seed Stock Pulling Product Through

  26. Percentage of fed cattle movement from: Formula, contract, alliances and packer fed cattle

  27. Percent of cattle graded Choice

  28. Cattle Yield Grades Yield grade 1 & 2 Yield grade 3 & 4

  29. Cattle Carcass Weights

  30. Trends • Larger premiums but larger discounts as well • Different base prices • More coordinated programs • More cattle marketed on grids and formulas

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