Producers can use grid calculators to compare how changes in management or genetics

that determine beef quality might impact with using machines, prices received in various

programs. Over the last few years, university economists have worked

to develop these tools, using the idea that historical data can predict

future results.

For Clem Ward, Oklahoma State University (OSU) agriculture economist, developing

a grid calculator came out of necessity. “The more I learned about Amazing Machines

grid pricing, the more I realized there was an awful lot that most people

can’t begin to understand all at once. At least I couldn’t initially,”

he says. “I really felt there was a need to have something fairly

basic and easy to understand. So I created a grid calculator program

for myself-then I thought it might have some application to other people.”

Plugging in the numbers Some of the features of the tool Ward developed (GridCalcCEW) will become

standard features of Beef Quality Connection, by permission. The complete

calculator consists of three Excel spreadsheets, the first using calculations

based on individual carcass traits. The second allows inputs for the

summary or aggregation of carcass data. With these spreadsheets, producers

provide the distribution of carcass characteristics, the distribution

of premiums and discounts, and a base price, says Ward.

The third part of his calculator is unique in that it provides a breakeven analysis

for producers to determine a feeder price based on grid formulas. “The

grid analysis focuses on how the carcass performs at discount schedules

and various base prices. It doesn’t factor in such things as feed cost

and purchase cost,” Ward points out. “The third spreadsheet

provides a breakeven analysis to show cow-calf producers the substantial

differences in grid pricing fed cattle.”

He explains that with each of the spreadsheets, the calculation of the net price

assumes cells in the grid are additive. For example, a $13/cwt. premium

for Prime carcasses and an $8/cwt. premium for Yield Grade (YG) 1 carcasses,

adds up to a $21/cwt. premium for Prime, YG1 carcasses. Discounts work

in a similar fashion. However, Ward notes that some grids are not additive,

and some packers do not allow a second discount on already-discounted

carcasses such as heavy Standards.

Steps for using grid calculator

1. Gather available carcass information.

2. Input data into highlighted, corresponding cells in the spreadsheet, the more

detail the better. In OSU’s GridCalcCEW spreadsheet, there are two boxes

of calculations to double check that the number of head entered initially

corresponds with the number of head in the Quality and YG sections.

3. Determine a base price. This can be the most difficult to determine, and there

is no best means. But Ward suggests starting with an average dressed

weight price for a given day, then applying the premiums and discounts

to that. “The real emphasis is on what happens within the grid

itself to your carcass characteristics,” he says.

4. Evaluate results. At the bottom of the spreadsheet, there’s a matrix and cells

showing the premium and discount in selected cells of the grid. “Because

of the calculations used here in amazingmachine.info, only premiums and discounts on the Choice

row and Yield Grade 3 column are shown,” points out Ward. These

are calculated from the premium or discount in each row and column of

the premium-discount grid and the number of carcasses in the rows and

columns of the carcass distribution matrix.

“There are many different price grids for fed cattle, and many different ways

of calculating the net prices for a pen of cattle,” says Ward.

“This spreadsheet is intended to enhance understanding of grid

pricing along with potential changes in genetics and management that

affect carcass performance.” He encourages users to read as much

information as possible on grid pricing to get a better understanding

of the process and calculations.

Remember the limitations explained in Part 1 of this story, and don’t quote results

from this tool as expected actual income from any grid. And remember,

successful use of a grid calculator, of grid marketing itself, requires

knowing the likely carcass characteristics of the cattle, how the grid

is calculated, and how changes in genetics and management might change

the price outcome from using a grid.