Yes that is what they are supposed to be eating. Their digestive systems have evolved over millions of years to eat grass, and if they eat grass they will be healthier animals, and their meat will taste like real beef and not like tasteless cardboard. I pretty much stick exclusively to grass-fed beef. There are all these complex chemical compounds in grass that flavor the meat and give it rich and distinctive notes -- as the other commenter said, read Omnivore's Dilemma. The cattle are supposed to be able to walk around, too.

The reason it's not done is cost. Grass fed beef is easily twice as expensive as corn-fed beef. The cheapest way to raise cattle is to raise them in a CAFO, and feed them the cheapest possible feed, which has been corn for quite a long time. The farmer who is feeding his cattle candy is really just feeding them yesterday's corn, as most American candy is made from high fructose corn syrup. Walk into a supermarket sometime and count the number of products that use HFCS -- it's staggering. The price of corn going up is actually really big news -- if it's a sustained trend it's going to have a far-reaching impact on American agriculture.