Determine beef quality

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, 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.