From the prices for fertilizer and feed, through those for eggs or steak, energy prices profoundly affect agricultural production and the entire food industry, both directly and indirectly. One of the most direct impacts for beef producers is the cost of moving cattle from one place to another.
According to the American Trucking Associations, commercial trucks consume 52.8 billion gallons of fuel each year. About 72 percent of that is diesel, with gasoline accounting for the remaining 28 percent. Fuel typically can account for about 25 percent of operating expenses for trucking companies, but record prices recently have pushed that level even higher in many cases. A one-penny increase in the price of diesel annualized over one year, according to ATA, costs the trucking industry an additional $381 million a year. The organization reports that commercial truckers spent $103.3 billion on fuel during 2006, an increase of $11.5 billion from 2005.
2007 has brought further increases. In late November, the U.S. Energy Information Administration listed the average on-highway diesel price at $3.44 per gallon, up nearly 90 cents per gallon from one year earlier.
Richard Yost is vice president of VY Truck Lines Inc., in Sterling, Colo., and serves as livestock division chairman of the Agricultural and Food Transporters Conference of the American Trucking Associations. Yost says fuel prices, higher equipment prices and other operating expenses seriously challenge the ability of truckers to haul cattle profitably.
Truckers, he says, typically try to avoid changing their rates in response to fluctuations in fuel costs, but when prices rise as much as they have this year, they need to adjust to stay in business.
Yost’s company primarily hauls fed cattle from feedyards to packing plants in eastern Colorado —relatively short hauls. In the past, they have done some longer hauls, delivering feeder cattle from ranches and sale barns to Colorado feedyards. “We’re not even doing those longer hauls these days,” he says, adding that they just aren’t profitable.
Yost monitors daily reports of diesel prices and adjusts the company’s fuel surcharges accordingly. With today’s volatility in fuel prices, making those adjustments has become a weekly exercise, he says, rather than monthly or quarterly as it was in the past. Over the past few months, the fuel surcharge has increased from about 25 percent to as high as 37 percent.
Bigger trucking companies gain some economies of scale, but Yost says some one-truck owner-operators have told him they have parked their trucks in response to skyrocketing expenses.
Yost doesn’t expect any relief from high fuel prices anytime soon but stresses that the industry must find ways to adjust. Higher prices need to filter back from retail food through each production stage, including trucking, to compensate for higher production costs. Without trucks, he says, agriculture in this country cannot function.