Farm Fuels in Focus: Crude Oil and Corn Farmers

Posted on 03/09/2017 10:25 AM

 

  • December 2016 natural gas opened today at $2.81 -- down 27 cents from our last Fuels in Focus.
  • Farm Diesel is up a penny on the week at an average of $1.92 per gallon.
  • December 2016 WTI crude oil opened the day at $44.63 -- down $4.98 from our last report.
  • December 2016 Heating oil futures opened the day at $1.45 -- down 11 cents from our last report.
  • Propane is up 3 cents on the week at an average of $1.05 per gallon regionally.

Farm Diesel -- Eight of our twelve surveyed states were unchanged this week as petroleum markets look for direction. Diesel gains were led by North Dakota which firmed 2 cents as Minnesota and Indiana each added a penny. Declines were limited to a 2 cent drop in Michigan.

InputsMonitor.com"Earlier this week on Market Rally, Tommy Grisafi from Advance Trading commented very insightfully on the crude oil market. We have talked a lot about the gamesmanship in the crude oil markets, and how the market always seems to take bullish bait when OPEC or Russia float news of a possible production freeze to rebalance world crude supplies. As people who think and work from a farm-based mindset, Grisafi noted that producers produce the best they can, year in and year out. Corn farmers, no matter how much corn is floating around the nation or the world, will continue to grow corn.

Grisafi said, "Chip its like if you and I said okay listen up farmers... if you want higher prices next year, for every 1,000 acres you farm, I need you to only plant 900." Now, it could be argued that the CRP program is a calculated manifestation of that idea, but the fact remains that farmers prosper when they make their best efforts at crop production. It is no different for crude oil producers. Failure to produce to the best of one's ability leaves opportunities on the table.

So when you read or hear rumors of an OPEC production cut or freeze to rebalance world crude supplies in favor of sellers and producers, think of it through the lens of agriculture. While a farmer in Indiana may seem to have little in common with an oil producer from Iraq, the truth is, the two swim in basically the same waters, and each must make every effort to produce their unique commodities to the best of their abilities. Whether "farming" for black gold, or corn, commodity producers are inherently long the market. That being the case, selling opportunities are mute if farmers and oil producers alike forfeit maximum production in an attempt to game the commodity market with supply-side gamesmanship.

The most direct impact of higher crude pricing was to bring stalled U.S. drilling rigs back online. U.S. crude oil rig counts had risen 16 times in the last 18 weeks as of the last week of October. There are many rigs still sidelined, but the uptick proves the willingness of producers to continue producing in an oversupplied market. A down market for a door-to-door sneaker salesman is the wrong time to knock on fewer doors. In fact, when times are tough, our salesman must knock on twice as many doors to make the same sales marks as in a boom.

With all that said, heating oil futures are following crude oil lower. The warmer start to autumn has limited distillate demand nationwide. We maintain farm diesel will come under post-harvest pressure and offer opportunities in about six weeks.

  • Distillate inventories reported by EIA fell 1.8 million barrels to 150.6 mmbbl. Stocks are currently 9.8 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.49 in Illinois and the Midwest high is at $2.07 in Minnesota.
Farm Diesel 11/4/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.92
$1.93
Unchanged
$1.93
Iowa
Illinois
$1.45
$1.49
Unchanged
$1.49
Illinois
Indiana
$2.03
$2.00
1 cent
$2.01
Indiana
Wisconsin
$1.92
$1.92
Unchanged
$1.92
Wisconsin
Minnesota
$1.95
$2.06
1 cent
$2.07
Minnesota
South Dakota
$1.99
$1.99
Unchanged
$1.99
South Dakota
North Dakota
$1.99
$1.99
2 cents
$2.01
North Dakota
Nebraska
$1.88
$1.88
Unchanged
$1.88
Nebraska
Missouri
$1.91
$1.91
Unchanged
$1.91
Missouri
Kansas
$1.90
$1.95
Unchanged
$1.95
Kansas
Ohio
$1.92
$1.92
Unchanged
$1.92
Ohio
Michigan
$1.93
$1.93
-2 cents
$1.91
Michigan
Midwest Average
$1.90
$1.91
1 cent
$1.92
Midwest Average

 

InputsMonitor.comPropane -- Six states were unchanged this week as Michigan added 17 cents, North Dakota firmed 14 and Indiana added 13 cents per gallon. Nebraska fell a penny per gallon to post our only propane declines.

No rush here to top off winter supplies. The only reason you should be buying propane right now is if you are already running low for some reason, or if your crop is coming in wetter than expected. Beyond that, as with farm diesel, let's wait out this mild price strength and top off at a better pricing opportunity.

  • According to EIA, last week, national propane inventories firmed 0.346 million barrels -- now 1.498 million barrels below the same time last year at 100.913 million barrels.
  • The regionwide low is at $0.91 per gallon in Nebraska and the regionwide high is in Michigan $1.25.
LP 11/4/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.94
$0.94
Unchanged
$0.94
Iowa
Illinois
$1.16
$1.15
Unchanged
$1.15
Illinois
Indiana
$1.16
$1.12
13 cents
$1.25
Indiana
Wisconsin
$0.99
$0.99
Unchanged
$0.99
Wisconsin
Minnesota
$0.97
$1.00
Unchanged
$1.00
Minnesota
South Dakota
$0.95
$0.95
Unchanged
$0.95
South Dakota
North Dakota
$0.93
$0.80
14 cents
$0.94
North Dakota
Nebraska
$0.92
$0.92
-1 cent
$0.91
Nebraska
Missouri
$1.07
$1.07
1 cent
$1.08
Missouri
Kansas
$0.98
$1.07
1 cent
$1.08
Kansas
Ohio
$1.10
$1.10
Unchanged
$1.10
Ohio
Michigan
$1.08
$1.08
17 cents
$1.25
Michigan
Midwest Average
$1.02
$1.02
3 cents
$1.05
Midwest Average

 


 

"

Add new comment