Such alliances help producers capture more income by allowing them to retain ownership of their cattle through all or part of the industry segments. The increased profit potential in these alliances arises from two strategies. The second strategy for potential profit increase is to insure that cattle are handled correctly throughout the process, thereby reducing losses due to death and sickness. Marketing alliances help producers capture increased returns by rewarding cattle producers for specific carcass traits. These cattle are typically marketed on a formula and grid system.
Cattle then receive premiums and or discounts based on carcass traits.
It is important to understand how these formulas are derived and how the premiums and discounts affect your overall profit potential. The use of formulas and grids is subject to many different variables. Typically, a formula is based on carcass weight, quality grade, and yield grade. Carcass weight usually ranges from 550 to 950 lb. Some alliances want choice or prime carcasses, while others place a premium on leaner carcasses which are higher-yielding in lean beef markets.