Grader Bias in Cattle Markets? Evidence from Iowa

Live cattle are increasingly priced as an explicit function of U.S. Department of Agriculture yield and quality grades. Human graders visually inspect each slaughtered carcass and call grades in a matter of seconds as the carcass passes on a moving trolley. We examine whether there is systematic bias in grade calls using a sample of loads delivered to three different midwestern packing plants during 2000–2002. Overall, results indicate that indeed there is a bias, and that grading standards vary significantly across packing plants. Results also are consistent with a behavioral model where graders are more accurate when grading relatively low-quality carcasses. Key words: cattle markets, decision-making bias, grading, human-judgement error. Slaughter cattle prices in U.S. markets increas-ingly depend on carcass quality measures used in “grid-pricing ” mechanisms (e.g., McDonald and Schroeder 2003; Whitley 2002). The car-cass attributes most widely used are U.S. Department of Agriculture (USDA) “quality” and “yield ” grades. These two grades reflect meat palatability and the quantity of usable meat in relation to total carcass weight. Al-though the adoption of explicit grid-based pricing is relatively recent,1 very little has changed in the way the USDA grades car-casses. Grading is usually done by visually inspecting each carcass, without any physical measurement