The feedlot marketing a large number of cattle on a live basis has similar incentives to market a large portion of the showlist to a single buyer in one transaction. Pricing cattle on a live basis is appealing to some cattle feeders who want to maintain flexibility in cattle pricing until the transaction price is established. However, because meat quality and carcass dressing percentage are difficult to accurately predict on live animals, premiums and discounts paid on a live basis generally do not reflect the true cattle value associated with the final product yield and quality. In other words, high quality cattle are often undervalued and low quality cattle often overvalued. When cattle are marketed on a dressed weight basis, the cattle buyer does not need to estimate dressing percentage of cattle.
Price is established based on the actual hot carcass weight.
In principle, this price will be comparable to a live price adjusted for dressing percentage for the same pen of cattle. The incentives for packers to buy complete showlists and feedlots to sell complete showlists at one dressed price are the same as for live weight pricing. This practice reduces costs associated with procurement for the packers and marketing for the feedlots. However, it distorts market signals and tends to reward inferior cattle and penalize superior cattle by trading all cattle at one average price. However, even though the dressed price will be equal across all pens, pens with higher yielding cattle, higher dressing percent, will receive greater revenue for the same live weight of cattle.