Diesel Fuel Price as a means of Forecasting Livestock Yardage Costs

Introduction Yardage is the charge placed on maintaining and growing livestock apart from the feed and initial animal value. The yardage charge can be broken into 3 major categories; fixed yardage costs, for example property taxes and building depreciation, which exist regardless of whether livestock are being kept or not. Production yardage costs which are associated with all animals brought on to the farm and would include daily labor, machine and power use. Then incidental yardage charges that vary depending on the group or time of year the animals are present and often is comprised of medical issues and bedding use. Yardage generally is the total of all these non feed variables costs, although it is a wise practice to itemize the incidental yardage portion, and is expressed in the unit of cost per head per day. This provides a simple way of expressing what the cost is of maintaining and growing livestock, but can lead to a degree of economical management complacency due to two issues. The first and more important issue is that the producer cannot know with complete accuracy the yardage cost until the animals are finished and sold since the costs are accrued through the time the animal is on feed until the point when pen cleaned out and repaired. Because of this issue, the next group’s yardage charge is based on historical data which may be lacking in accuracy due to continuous price movement of inputs. The second issue is that the compilation of the real yardage charge is quite tedious due to the many variable costs that enter into the equation and the overlap these costs have with other enterprises in the farming operation. Because of this issue, it is a time consuming process that does not lend itself well to frequent updates. As result a static, flat yardage charge is established at some point. This value may or may not be from an actual calculation and probably does not adjust when necessary to account for changing input costs. The objective of this paper is to provide a means by which a common input, diesel fuel, can be used to forecast and frame probable current and near future yardage charges. Material and Methods Data regarding the raw input values used for this process were taken from 1995 through early 2010. The data sources came from the United States Department of Energy and the International Monetary Fund. These data were converted to a percent change in price from month to month over the fifteen year period collected in order to maintain a consistent unit describing values. After securing a solid database of input values, the first step was to determine an accurate, historical yardage charge from a livestock operation. In this example a cattle feedlot was used. The actual costs within fixed yardage, the production yardage and the incidental yardage categories were determined. Second, a common input with a tangible retail value that had far reaching effects on other inputs was considered. This input was then tested against other raw inputs in order to determine if there was some solid correlation existing and then further tested through an analysis of variance in order to quantify how much of the existing price variation that occurred could be explained by price variation in this common input. The final step then was to determine the common input’s influence on the particular cost items in order to create an index which could adjust the costs appropriately.