Winners will be announced in BEEF's January issue.
The objective of the 2002 Beef Quality Challenge was for participants to learn more about marketing cattle on a packer grid. A packer grid is a list of prices that a packer is willing to pay for different types of carcasses.
The 2002 Beef Quality Challenge presented two groups of five steers (pen A and pen B). Both pens were purchased from a Central Texas livestock market auction. Steers in pen A had an unknown pre-auction market history, while steers in pen B had been managed using a VAC-45 type program before sale at the auction barn. Pen B cattle were preconditioned a minimum of 45 days after weaning, wormed and vaccinated and boosted to prevent calfhood diseases. Steers in both pens A and B were placed on feed at the Texas A&M University Research Center McGregor Feedyard.
Contestants were asked to match each steer to the optimal packer grid. The steers were sold on the carcass packer grid basis. Table 1 shows how the 10 steers performed on grids A and B, which are shown in Table 2.
When considering selling your cattle on a grid, it is important to test the grid using data from different groups of cattle and determine which cattle fit best on each grid, much in the same way we have done in this contest. Let's use the cattle data presented in Table 1 to better understand grid marketing.
Playing In The Grid Game
There are many considerations when choosing the packer grid on which you plan to sell your market cattle. These include the current live price, the base price and base carcass specifications used on the grid, the amount that will be offered for discounts and premiums, the price paid for “out” cattle, freight costs, environmental conditions and the carcass data of prior groups of cattle that you have shipped.
Step One — Live Price And Carcass Specifications
When you begin to compare grids, it's important to know the current live price that the packer is offering for cattle and the carcass specifications the packer requires for you to receive the base carcass price. This live cash price often reflects the average value of cattle that the packer is willing to pay for all cattle they purchase. Producers may not realize that when they take the live cash cattle price they are getting an average price for all cattle harvested.
Packers determine the live prices by first determining the week's average percent USDA Choice, Select and other quality grades, Yield Grades 1, 2, 3, 4, and 5, and outs (i.e. dark cutters, heavyweight and lightweight carcasses, and carcasses with other abnormalities such as excess mud or bruises).
Then the packer determines what those carcasses are worth and comes up with a composite price/cwt. for all carcasses harvested. The final average live price that is offered is calculated by multiplying the composite carcass price times the average dressing percent for the plant.
Example: $102 plant composite carcass price/cwt. × 0.647 average plant dressing percent = $66/cwt. live price.
|Steer ID||Pay weight||Dressing percent||Carcass weight||Quality grade||12th rib adjusted fat||Yield grade||Carcass value/cwt. grid A||Carcass value/cwt. grid B||Carcass value grid A||Carcass value grid B||Sort to the optimal grid||Live cash price||Which grid is optimal?|
|75||1149||59.8||687||Choice -||0.24||2.8||$109.00||$109.00||$748.83||$748.83||$748.83||$758.34||A OR B|
|Total carcass income||$7,401.38||$7,434.87||$7,472.86||$7,680.42|
From this point the packer considers other important information, such as the current supply of fed cattle and the boxed beef orders they will need to fill in the future.
The base carcass price for both grid A and B is based on a USDA Choice, Yield Grade 3 carcass weighing 550-950 lbs., which makes comparisons easy. Not all grids use this basis. One Texas Panhandle packer uses 50% Choice as its base carcass price. If your pen of cattle exceeds 50% Choice, then premiums are paid; if the pen fails to produce 50% Choice carcasses, then the producer receives discounts.
The base is only the first component of the grid to be examined. Grid A has a higher base carcass price than grid B, but seven out of the 10 steers received a higher carcass price on grid B.
The most common discount assessed on grids is for USDA Select carcasses. The most common premiums paid are for Yield Grade 2 carcasses.
There are seasonal differences in the price spread between Choice and Select carcasses (see Table 3). Generally, the spread begins to widen in May and is at its largest between Thanksgiving and New Year's. When the spread is narrow, Yield Grade becomes more important, and often grids favor high cutability cattle; when the spread widens, the grids tend to favor high quality grade cattle.
In the last year, there has been an increase in the number of grids targeted to specific types of cattle. You will hear the terms “quality grid,” which is geared to pay more for cattle producing high Quality Grading carcasses; and “cutability grid,” which gives greater rewards for USDA Yield Grade 1 and 2 carcasses. Grid A is a quality grid; grid B is a cutability grid.
Step Three - Outs And Other Discounts
The term outs is used for carcasses that receive the greatest discounts. This term originated from the fact that these carcasses were sold and shipped out intact and, with the exception of No Roll, not fabricated into boxed beef in the originating packing plant. The most common “out” carcass categories include No Roll, dark cutters, hardbone (advanced carcass maturity), Yield Grade 4, and heavy and light carcasses. A few of these out carcasses with $15-$30/cwt. discounts can negate a greater number of carcasses receiving premiums at $2-$6/cwt.
In the Beef Quality Challenge, Steers 1 and 5 were USDA Standards and Steer 6 was discounted for producing a Yield Grade 4 carcass, resulting in $220.11 worth of discounts when sold on the optimal grid. Grid A penalized Yield Grade 4 carcasses less than grid B, while grid B penalized USDA Standard carcasses less.
If cattle are managed for a quality grid then that pen may increase in the number of Yield Grade 4 carcasses because of the perception that as you feed cattle longer the percent Choice increases in that pen. Unfortunately, the simultaneous effect is that the number of Yield Grade 4 carcasses also may increase. Similarly, if cattle are managed for a cutability grid, then those cattle may increase in the number of No Roll (USDA Standard) carcasses. The general rule is that more muscular cattle tend to produce more USDA Standard carcasses, especially when they are not fed long enough in the feedyard.
Most often, Yield Grade 4 and No Roll carcasses are the result of feeding pens of mixed types of cattle. It is not unusual to find pens of cattle that have wide differences in weight, frame size, muscling and breed types. When these pens are harvested on the same day, they produce a significant number of out carcasses and have considerable variation in carcass merit. Therefore, a mixed pen can be disastrous to the owner when sold on a packer grid basis.
Step Four - Making The Sale
Once you thoroughly understand how each grid works on different groups of cattle, it's time to match the cattle to the best marketing option. Ten years ago, most feedyards had only one or two marketing options for their fed cattle. Today, feedyards can sell market cattle in multiple ways. For example, C-Bar Feedyard in Plainview, TX, with a one-time capacity of 17,000 cattle, has at least five different ways to sell finished cattle. These include live cash, Excel Bid-a-Grid, Swift grid, IBP/Tyson real-time grid and the Ranchers Renaissance Alliance.
Having these options is one thing, but taking advantage of them is quite another. Accurately predicting the types of carcasses that a pen of cattle will produce will permit you to match the cattle with the optimal marketing option.
Today, matching cattle to a packer grid is most often an art. The feedyard manager visually examines the pen and reviews the feeding records to determine when and where the cattle should be harvested. Matching cattle to the right marketing option is easier if the manager has some previous history on the cattle from a particular ranch.
In the future, this decision will be based more on science than art. New technologies like ultrasound, video imaging, electronic and biological ID systems, and infrared will give the feedyard manager more objective information. Also, the explosion in the number of information transfer industries is making it easier for ranchers to get the carcass and feedyard performance data on their cattle and helping ranchers better understand the data they receive.
In hindsight, for the steers in the Beef Quality Challenge, it would have been best to sell them on a live-cash market basis. It was impossible to overcome the fact that only two steers produced carcasses that graded USDA Choice, and three received substantial discounts for producing out carcasses.
It would have been even better if we could have sorted these cattle into different groups and managed them to their individual optimal endpoints, rather than harvest the entire group on the same day. The average adjusted 12th rib fat thickness on all 10 cattle was 0.42 inches, which is right on target. Feedyards often attempt to sell their cattle when the pen is thought to have on the average 0.4 - 0.5 in. of fat at the 12th rib. The range in 12th rib adjusted fat thickness among the Beef Quality Challenge cattle was 0.12 in. to 0.88 in.
Thus, seven of the 10 steers were not marketed at their appropriate endpoint, two steers were fed too long, and five were fed too short of a time in the feedyard. This demonstrates that it takes good cattle genetics in combination with optimal management to maximize the return on the packer grid. There have been reports from both universities and businesses that producers can increase returns up to $25/head by appropriate sorting at either pre-feedyard, reimplant or harvest times.
|Base live cash/cwt.||$66.00||Premium/ |
|Base dressing %||64.70%|
|Base carcass, $/cwt.||$107.00|
|Base is a Choice YG 3 Carcass|
|Top Choice Program||$110.50||$3.50|
|Quality grade, yield grade, and weight premiums and discounts are additive.|
|Base Live Cash/cwt||$66.00||Premium/ |
|Base dressing %||64.20%|
|Base carcass, $/cwt.||$106.00|
|Base is a Choice YG 3 carcass|
|Top Choice program||$108.00||$2.00|
|Quality grade, yield grade, and weight premiums and discounts are additive.|
Tornados And Timing - Close-up Look At The Challenge Steers
Comparing The Pens
The VAC-45 steers in pen B performed considerably better than the steers of unknown pre-auction history in pen A (Table 4). Pen B steers entered the feedyard ready to grow and perform. They were healthier, grew faster and more efficiently, and lost less money than pen A. Of course, given the current economic situation, all but the two fastest gaining steers lost money in this year's challenge. Steers 1 and 4 got sick and required treatment while none of the cattle in pen B got sick. Steer 2 in pen A had a very low average daily gain (Table 5).
Information from the past several years of the Texas A&M University Ranch to Rail Program demonstrates that calves backgrounded at least 45 days and vaccinated and revaccinated with an effective animal health program have a reduced death loss and morbidity. They gain faster and are less apt to produce out carcasses. In an analysis of four years of Ranch to Rail data, sick calves on average lost $31.97, while calves that never got sick had a net return of $61.23. On a 571-lb. feeder calf, that equates to a sick calf being worth $16.32/cwt. less than a healthy calf. Some feeders have carried that out to estimating that VAC-45 type calves may be worth about $8/cwt. more with the assumption that 50% of the non VAC-45 calves might get sick.
|Pen A||Pen B||Difference|
|Initial total value price||$2,770.56||$2,920.32||$149.76|
|Cost of gain||$0.55||$0.49||($0.06)|
|Average daily gain||2.95||3.25||0.30|
|Days on feed||140||140||-|
|Net return (expenses - carcass income)||($271.30)||($171.98)||$99.32|
|Net return/cwt. initial wt.||($7.64)||($4.59)||$3.05|
|Pen||Steer ID||Initial price||Processing medicine costs||Cost of gain||Total expenses||Daily gain||Carcass income||Net return|
In this year's challenge, the VAC-45 cattle only were worth $3/cwt. more initially, not counting the heavier incoming weights for the cattle in pen B. Possible reasons for this might be due to the timing of selling the cattle and to a tornado that came through the feeding facility one night. The tornado tore down the fences and destroyed the feedbunks. The steers were finally regrouped and fed in a new location on-site after a few days. Pen B's rate of gain was observed to decline later in the feeding period.
Also, pen B grew faster at the beginning and most likely reached its growth plateau in the later parts of the feeding period while pen A had not reached that plateau. There is a point in a market steer's life, usually after the rapid fattening phase begins, where rate of gain becomes smaller. The growth curves for pen A and B in Figure 1 show that pen B was about one month ahead of pen A, most likely because pen B had been through a VAC-45 program.
Steers 2 and 6 lost the most money. Steer 2 had the poorest average daily gain. Steer 6 produced a Yield Grade 4 carcass.
Note that both the highest net return and the lowest net return steers were from pen A. This demonstrates the tremendous variation that can be found in a pen of cattle. The 10% Rule, which states that the poorer performing 10% of the rancher's cattle can reduce income by 20-30%, can devastate the rancher's bottom line. If a rancher — through performance testing, selection and utilizing best management practices — could identify and eliminate the poor performers, then the bottom line could be improved considerably.