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Beef Buzz News


New Research Shows Grid Market System Adds $700 Million in Value to U.S. Beef

Thu, 23 Sep 2021 11:19:03 CDT

New Research Shows Grid Market System Adds $700 Million in Value to U.S. Beef In the early 2000s half of the feedlot cattle sold in the U.S. were sold in a cash market. Today, little more than 20% of the cattle sold in the U.S. are sold that way. New research out of Kansas State University, studied the evolution of the market, especially the rise of grid-pricing of cattle. Radio Oklahoma’s own Ron Hays features comments from the three K-State Researchers who produced the report for the Chief Economist of the USDA.

“Certainly, the changing consumer drove a lot of how our industry has evolved,” Dr. Ted Schroeder, a researcher for the project and director of the Center for Risk Management, Education and Research at KSU, said.

When consumers sent signals back down the supply chain to producers, the beef industry listened, Schroeder said. How consumers purchase items and what they prefer showed U.S. beef cattle producers that value-based, grid-marketing agreements served producers, packers and consumers better than cash-market agreements.

A great example of a value-based agreement program is the Certified Angus Beef program, sometimes thought of as the gold standard for branded beef programs in the U.S. Learn how programs like these drive value back to producers by clicking or tapping here.

Ultimately, the goal of a grid market is to match beef quality with consumer demand, according to Dr. Glynn Tonsor, a researcher on the project and professor at KSU.

“Not all beef is equal,” Tonsor said. “And it is not just the prime vs. choice vs. select component, but even your customers that are in the food service vs. retail vs. export - they are also looking for different things that are not served well by traditional (trading) systems.”

As U.S. beef cattle producers have become masters at their trade, using a grid market simply makes more sense, Tonsor said. Healthy market competition among beef producers drives brand differentiation - just think of the classic black Angus beef vs red Angus beef debate - but commodity-based systems do not serve branding and differentiation well, according to Schroeder.

“The structural shift in fed cattle exchange away from cash-negotiated to (grid-market) agreements was driven by (producer desire) to have access to premiums and discounts that would better match what customers want,” Schroeder said. “The long-run response to that was a dramatic market increase in the quality of beef being produced in the U.S.”

Dr. Brian Coffey, researcher and professor at KSU said the whole point of increasing beef quality and quantity is due to consumer demand.

“We were estimating that because of that higher-quality beef, the possible premium that (has been) added to sellers of beef is about $700 million as of 2019,” Coffey said.

There are tradeoffs, of course, according to Coffey. Producers should decide what is more beneficial to their operation.

Click on the LISTEN BAR below to hear more from Ron Hays Dr. Schroeder, Dr. Tonsor and Dr. Coffey as they discuss their findings.

The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR below for today’s show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.

   

   

Listen to Ron's converstation with the three researchers here.
right-click to download mp3

 

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