The vast majority of fed cattle are sold with the price determined on a carcass value basis. Your pen of live finished cattle are harvested, carcasses are weighed and USDA yield and quality grades are assigned. Optimum combinations of quality and yield grades result in more dollar value per pound of carcass weights sold. Price docks occur if carcasses are too light or too heavy.
An example grid is shown in Figure 1. Down the first column are the quality grades, which indicate the tenderness, juiciness and flavor of cooked beef. Prime is the highest quality grade, and therefore it is worth more dollars per pound than the lower quality grades listed below it. Across the top row are the yield grades, which indicate cutability, or the percentage of closely trimmed red meat yield from the beef carcass. A yield grade of 1 indicates the highest level of cutability and is worth more dollars per pound than the lower yield grades following it in that row.
[inline_image file=”4b08a041066c9f604a16b9c962a6d899.png” caption=”Figure 1.”]
Beef, like nearly all other ag-produced commodities, is sold according to standard assumptions about the product. This includes acceptable hot carcass weight (HCW), which typically falls somewhere in the range of 600-1,000 lbs. In addition, the typical carcass combines a yield grade of 3 with a quality grade of lower-thirds Choice. Historically, the biggest value difference occurred between Choice and Select carcasses. Likewise, quality grades have been the bigger driver of carcass value compared to yield grades.
It’s worth noting the breakout of the Choice quality grade into thirds. Most quality-based, premium-branded beef products require the upper two-thirds of Choice (or Prime) quality grade status to meet their specifications. For example, Certified Angus Beef, a premium-branded program, has 10 specifications, one of which is a quality grade of upper two-thirds Choice or Prime.
Characteristics of beef pricing grids include:
• Better-than-average combinations of quality and yield grades receive premiums over the commodity price. Poorer-than-average combinations receive discounts.
• Value of the carcass = HCW x price per pound (as determined by the grid).
• There are many types of grids designed by packers to stratify and incentivize different types of carcasses; however, there is typically more economic incentive for quality.
• Prices (premiums, discounts, acceptable HCW) can and do change weekly relative to the supply of fed cattle and consumer demand.
Knowing the history and genetic potential of your cattle is critical when deciding if retaining ownership and selling on a grid is best for your operation. — Mark Z. Johnson, Oklahoma State University Extension beef cattle breeding specialist
