Speer: Profiting From the Grid

Bettin’ On The Grid:  Last week’s column highlighted recent feedyard marketing trends.  Cattle feeders are increasingly swapping from selling cattle live to selling cattle via a negotiated grid.  Last year’s negotiated grid transactions comprised 11% of the slaughter mix –up over 3X versus just a few years ago.  The column ended with this observation:  “Better genetics, better management and grid marketing are converging to create opportunity and deliver more dollars.”

 Real Money For Real Value:   With that in mind, let’s step back to a column on the same topic from 2022 (Real Money For Real Value).  It centered around the importance of marbling to the marketplace; it’s the difference maker when it comes to consumers.  And consequently, there are substantial price signals being sent to reward cattle that hit the mark. 

To illustrate that reality, the column highlighted closeouts from customers of Gardiner Angus Ranch.   Fast forward to now.  The table below outlines an updated summary of that same data (17,000+ head of fed steers and heifers marketed through U.S. Premium Beef between January, 2018 and December, 2023). 

Note that over the six years everything has remained remarkably consistent – EXCEPT there’s been substantial improvement over time with respect to marbling and subsequent premiums.  Market premiums tied to quality grade ebb and flow – but over time those dollars add up.  To that end, the average premium during the past three years surged past $200/head.   (see graph below)

Those dollars are the direct result of: 1) producing high-quality cattle, 2) implementing excellent management (starting at calving and throughout the entire feeding period), and 3) selling the cattle into a responsive grid that rewards those efforts.   

Replicate The Process:  Back to 2022, Mark Gardiner commented on the importance of discipline and data-driven decision making around the results (emphasis mine):

And enhanced consumer focus across the business is paying real dividends in the marketplace.  (See Beef Forging Ahead With Consumers)

Profiting From The Grid:   Cattle are NOT fungible – the variance in value across the slaughter mix is enormous.  Accordingly, precision pricing – via a grid – can make a significant difference in closeouts.   That has some important implications for the business.  

Namely, attempts to mandate arbitrary levels of cash trade on a live basis negates that reality.   Ultimately, it reverts cattle back to a commoditized product (while consumers are sending signals for even more de-commoditizing).  Accordingly, it limits the industry’s ability to align price signals coming from the marketplace.  That ultimately erodes the foundation for producer success going forward.  

As noted last week, selling on the grid means the seller assumes most (all) the risk in terms of performance.  There’s no guesswork involved; you get paid on how the cattle perform after the fact.  Full stop. But along with that risk comes reward. 

To that end, one reader responded to last week’s column noting summarizing that, “I sell almost everything on a grid and attempt to sell into specific grids depending on how it best fits the type of cattle I have for sale.  The additional value captured is what makes feeding cattle a viable investment for me…”