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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 - PowerPoint PPT Presentation
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Grid MarketingGrid MarketingSorting out the numbersSorting out the numbers
Cattle-FaxCattle-FaxMike MillerMike Miller
Bill ChandlerBill Chandler
A Balancing ActA Balancing Act
Grid Marketing Grid Marketing
General OverviewGeneral Overview Grids: How they workGrids: How they work Cattle MarketsCattle Markets Trends in grid marketingTrends in grid marketing Helpful ToolsHelpful Tools
What is the industry target?What is the industry target?
Quality GradeQuality Grade Yield GradeYield Grade Carcass CharacteristicsCarcass Characteristics WeightWeight
The TargetThe TargetYield Grade 1 Yield Grade 2 Yield Grade 3 Yield Grade 4 Yield 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
How Grids WorkHow Grids Work
PremiumsPremiums PrimePrime Upper 2/3 Choice (i.e. CAB)Upper 2/3 Choice (i.e. CAB) ChoiceChoice YG 1YG 1 YG 2YG 2
How Grids WorkHow Grids Work
DiscountsDiscounts SelectSelect StandardStandard YG 4YG 4 YG 5YG 5 B-MaturityB-Maturity Dark CutterDark Cutter Weight (either light or heavy)Weight (either light or heavy)
How grids workHow grids work
Other FactorsOther Factors FreightFreight Base price determinationBase price determination Quality grade baseQuality grade base Weight limitsWeight limits
What is your target?What is your target?
Quality GradeQuality Grade Red Meat YieldRed Meat Yield NaturalNatural
Seek out a program that fits your cattleSeek out a program that fits your cattle
Grid Marketing BasicsGrid Marketing Basics
Grid marketing does not guarantee a Grid marketing does not guarantee a premiumpremium Discounts can be substantialDiscounts can be substantial
It transfers risk from the packer to the It transfers risk from the packer to the owner of the cattleowner of the cattle
Grids change constantlyGrids change constantly
How do you maximize returns?How do you maximize returns?
Understand your cattleUnderstand your cattle Be honestBe honest
Understand the marketUnderstand the market Just because your marketing on a grid or Just because your marketing on a grid or
formula does not detach you from the cattle formula does not detach you from the cattle marketmarket
Understand the programUnderstand the program Premiums versus discountsPremiums versus discounts
CattleCattle
Do you have some history on the cattle?Do you have some history on the cattle? Performance in the feedlotPerformance in the feedlot Carcass characteristicsCarcass characteristics
Be conservative when you estimate future Be conservative when you estimate future performanceperformance
Importance of performanceImportance of performance Don’t overlook feedlot performanceDon’t overlook feedlot performance
Pen 1Pen 1 Pen 2Pen 2
ADGADG 3.03.0 -10%-10% 3.33.3
Conv.Conv. 6.06.0 -10%-10% 6.66.6
Cost of Cost of gaingain
$.50$.50 +10%+10% $.55$.55
500 lbs.500 lbs. $250$250 $275$275
$25 per $25 per headhead
Market FundamentalsMarket Fundamentals
Seasonal supply and demandSeasonal supply and demand Choice/Select spreadChoice/Select spread Timing of marketingsTiming of marketings
Steer and Heifer SlaughterSteer and Heifer Slaughter
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
J F M A M J J A S O N D
(000) head5-year average
2003
Weekly Average Beef ProductionWeekly Average Beef Production
425
450
475
500
525
550
575
J F M A M J J A S O N D
Million pounds
2003
5-yr avg.
Choice/Select SpreadChoice/Select Spread
$0
$2
$4
$6
$8
$10
$12
$14
$ per cwt.
1990 1992 1994 1996 1998 2000 2002
Ch/Sel Spread SeasonalityCh/Sel Spread Seasonality
$0
$2
$4
$6
$8
$10
$12
$14
$16
$ per cwt.
J F M A M J J A S O N D5-year average spread
Seasonality of Fed Cattle PricesSeasonality of Fed Cattle Prices
88%
92%
96%
100%
104%
108%
J F M A M J J A S O N D
Choosing the right programChoosing the right program
What fits your cattle?What fits your cattle? Change the grid to the cattle not the cattle to Change the grid to the cattle not the cattle to
the gridthe grid Quality grade versus yield gradeQuality grade versus yield grade Where will the cattle be fed?Where will the cattle be fed? How much does it cost?How much does it cost?
Choosing the right programChoosing the right program
Analyze the premium/discount structureAnalyze the premium/discount structure Fixed grade base vs. plant averagesFixed grade base vs. plant averages How is the Choice/Select spread determinedHow is the Choice/Select spread determined
Base price determinationBase price determination
Trends in Value DiscoveryTrends in Value Discovery
Gathering more informationGathering more information
Fine tuning managementFine tuning management
Impact on genetic selectionImpact on genetic selection
Value Discovery Changing
+1
+2
+6
-10
-12
-16
PAR
yg1 yg2 yg3 yg4 yg5
Premiums
Discounts
Additional Premiums for: -Prime -CAB or Similar Specs -Choice
1980’s
1990’s
2000
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
Grid MarketingGrid Marketing
Pulling Product Through
Sharing Information
Beef Industry Structure:The Way it is Evolving
Seed Stock
Cow/CalfStockerFeedlotPacker
ProcessorRetailerFoodservice
Consumer
Percentage of fed cattle movement from: Formula, Percentage of fed cattle movement from: Formula, contract, alliances and packer fed cattlecontract, alliances and packer fed cattle
0
10
20
30
40
50
60
Percent
1995 1997 1999 2001 2003
Percent of cattle graded ChoicePercent of cattle graded Choice
50.5051.0051.5052.0052.5053.0053.5054.0054.50
1996 1997 1998 1999 2000 2001 2002 2003
Percent
Cattle Yield GradesCattle Yield Grades
30
35
40
45
50
55
1995 1997 1999 2001 2003
Percent
Yield grade 1 & 2
Yield grade 3 & 4
Cattle Carcass WeightsCattle Carcass Weights
640
660
680
700
720
740
760
780
1990 1992 1994 1996 1998 2000 2002
pounds
TrendsTrends
Larger premiums but larger discounts as Larger premiums but larger discounts as wellwell
Different base pricesDifferent base prices More coordinated programsMore coordinated programs More cattle marketed on grids and More cattle marketed on grids and
formulasformulas