Market Signals Transmitted by Grid Pricing
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Grid pricing improves the flow of information to producers, but market signals sent by grids may not be clearly understood. This study uses a two-stage Coefficients of Separate Determination process, four sets of fed cattle carcass data, and sensitivity analyses to identify market signals sent by grid pricing. Weight sends a stronger market signal than carcass quality characteristics such as quality and yield grade. Although grids are shaping production, market signals indicate that lower quality carcasses are penalized more than higher quality carcasses are rewarded. Sensitivity analyses suggest changes in quality and yield grade discounts have the greatest impact on market signals.