The Influence of Market Power and Market Trends on Grid Market Signals

Abstract

This article investigates the premium and discount incentive mechanisms in the fed cattle grid pricing system. A pooled cross-sectional dataset containing carcass information on 598 fed steers evaluated weekly on the AMS publically reported price grid was constructed for the years 2001 to 2008 (226,000 observations). Empirical evidence suggests that premiums and discounts associated with specific carcass-quality attributes have been adjusting over time and that the market value of carcass quality declined by $0.50/cwt during periods of packer cooperative behavior in the fed cattle market. Additionally, the average market value of carcasses meeting industry quality standards exhibited a positive time trend.