THE IMPACT OF RISING FUEL PRICES ON CALF PRICES
P.J. Rathwell, Extension Ag Economist
H.D. Hupp, Extension Animal Scientist
S.G. Clements, Distinguished County Agent, Greenwood County

What's happening to fuel prices? In the fall of 1999 diesel prices were between $1.05 and $1.15 per gallon in the up state of South Carolina. Today diesel prices are over $1.40 and rising. What affect will the increase in diesel prices have on cattle producers in the Carolinas? Will this increase in diesel prices significantly affect the price Carolina cattle producers receive for their calves this fall? Let's try to answer this question by looking at the cost structure of commercial trucking in the U.S.

From my investigations, fuel cost estimates range from 10% to 20% of the total costs of operating a commercial truck. Table 1 shows the cost of operation. Fixed costs of operation are estimated at 65.38 percent of total truck costs. Fixed costs consist of depreciation, interest, insurance, taxes, driver cost, and owner overhead and management expenses. Variable costs (31.62%) include fuel, maintenance, tires and miscellaneous costs. It is apparent that there is more to operating a truck than just "fuel." But, fuel (16.09%) is a significant cost component, and changes in fuel cost directly affect the overall operating cost of a commercial truck.

Table 1. Truck Cost Categories per Mile Driven

Fixed Costs

Percent

	Interest Tractor/Trailer		2.37%
	Depreciation/Interest		1.19%
	Management/Overhead		12.60%
	Insurance		8.15%
	Licenses		7.41%
	Vehicle Depreciation		4.45%
	Driver Expense		29.21%
	Total Fixed Costs		65.38%

Operating Costs

	Fuel		16.09%
	Maintenance		11.64%
	Tires		1.93%
	Miscellaneous		4.97%
	Total Variable Costs		31.62%
Total Cost			100.00%

Now that we understand the costs of operating a commercial truck, what is the affect of changes in the price of diesel fuel on total truck costs? Let's use an example to examine this question. Assume that we are trucking a load of calves from the foothills of the Carolinas to western Kansas, a distance of about 1300 miles. The tractor-trailer's fuel efficiency is 5 miles per gallon. The truck will use 260 gallons on the trip. Table 2 shows the change in the cost per mile driven as the price of diesel fuel increases. As the cost of diesel fuel increases from a base rate of $1.25 per gallon to $2.50 per gallon fuel cost per mile increase from $0.25 to $0.50 per mile. Total truck cost per mile increases from $1.76 to $2.01; an increase in total truck costs per mile of 14 percent.

Table 2. Cost per Mile for Selected Diesel Prices

Price per gallon	$1.25	$1.50	$1.75	$2.00	$2.25	$2.50
Fuel cost per mile	$0.25	$0.30	$0.35	$0.40	$0.45	$0.50
Other cost per mile	$1.51	$1.51	$1.51	$1.51	$1.51	$1.51
Total cost per mile	$1.76	$1.81	$1.86	$1.91	$1.96	$2.01

What affect does this increase in truck costs have on the price that a cattleman in the Carolinas receives? Using our Kansas example the 1300-mile trip would cost $2288 for this 48,500-pound load. Table 3 shows the range in transportation costs (from a base diesel fuel price of $1.25 per gallon) per head and per hundredweight for a 650-pound calf at different diesel prices. At a diesel price of $1.25 per gallon the transportation cost is $30.51 per head. The cost of transportation increases to $34.84 per head as the price of diesel fuel increases to $2.50 per gallon.

To evaluate the impact of rising diesel fuel prices on the price that Carolina cattle producers receive, we need to put our calulations on a hundredweight basis. Let's assume that we are shipping 650-pound calves to Kansas. The truck would handle seventy-five 650-pound calves. An increase in diesel fuel from $1.25 to $2.50 per gallon would increase the transportation cost from $4.69 to $5.36 per cwt. This is an increase of $0.67 per cwt.

Table 3. Change in The Cost of Transportation of a 650-Pound Calf from a Change in Diesel Fuel Prices

Price per gallon	$1.25	$1.50	$1.75	$2.00	$2.25	$2.50
Cost per Load	$2,288.00	$2,353.00	$2,405.00	$2,483.00	$2,548.00	$2,613.00
Cost per Head	$30.51	$31.37	$32.07	$33.11	$33.97	$34.84
Change per Head		$0.86	$1.56	$2.60	$3.47	$4.33
Cost per Cwt	$4.69	$4.83	$4.93	$5.09	$5.23	$5.36
Change per Cwt		$0.13	$0.24	$0.40	$0.53	$0.67

It is apparent that an increase in the price of diesel fuel to the trucking firms that transport Carolina calves out of the region will affect the price cattle producers will receive. Table 3 also shows the change in trucking costs as diesel fuel changes by $0.25 increments, i.e., the change in diesel fuel from $1.25 to $1.50 per gallon will increase the cost of transportation of this calf by $0.86 per head or $0.13 per cwt. This change is small at this level but if diesel prices increase to $2.50 per gallon the change in transportation cost per head and per cwt would be $4.33 and $0.67, respectively.

Who will ultimately absorb these increases in diesel costs? It doesn't take a rocket scientist to know that the price paid for Carolina calves will be reduced by this increase in trucking cost. We are the bottom of the marketing channel and can't pass this cost increase along to anyone else.

For some people this potential price decrease is not alarming. It isn't very large. But is this increase in transportation costs just a start? Fertilizer, chemicals, electricity, i.e., are made from petroleum. Increases in petroleum prices will ultimately affect the price cattle producers pay for these products, too.