Farm Fuels In Focus | Fundamentals Force Firmness

Posted on 10/05/2018 1:18 PM

 

  • November 2018 natural gas opened today at $3.18, up 41 cents since our last report.
  • Farm Diesel is 5 cents higher on the week at an average of $2.56 per gallon.
  • November 2018 WTI crude oil opened the day at $74.67, higher $6.79 from our last report.
  • November 2018 Heating oil futures opened the day at $2.40, up 20cents from our last report.
  • Propane is 5 cents higher on the week at $1.37 per gallon regionally.

Farm Diesel -- Farm diesel was supported by North Dakota and Missouri which each gained 12 cents per gallon as Ohio firmed a dime. Three states were unchanged as no state posted a lower farm diesel price on the week.farm diesel price chart

The fundamentals in the the farm diesel market are sticking up to suggest near-term upside price risk. One fundamental is, of course, harvest demand. While distillate production through the summer months was very strong, the Midwestern seasonal demand push will keep a floor under diesel prices through late December.

But there is also WTI crude oil which has surged well above $70 per barrel. But futures have softened through the first week of the month as some view the recent futures price strength as having been overdone. Talk of sanctions against Iran and hints from Saudi Arabia that production curtailments are on the table have contributed to that strength. We must always remember that WTI futures are very subject to headline chasing, and we expect that market to remain very volatile for the foreseeable future. Incidentally, in case you missed our comparison between nitrogen price firmness and strength in WTI and natgas, you can jump to it by clicking here.

Heating oil futures have also heated up, firming alongside WTI crude. That will also help keep a floor under farm diesel prices for the time being.

The long and the short of it is if you have not yet booked harvest supplies, I reiterate our advice from Sept. 7, get on the stick. the downside for farm diesel is limited and while we do see the potential for a seasonal farm diesel price collapse around Christmas, the upside is open between now and then.


  • Distillate inventories reported by EIA fell 1.8 million barrels to 136.1 mmbbl. Stocks are currently 0.7 mmbbl above the same time last year.
  • The regionwide low currently lies at $2.19 in Wisconsin. The Midwest high is at $2.77 in Indiana.
Farm Diesel 10/5/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$2.60
$2.63
+5 cents
$2.68
Iowa
Illinois
$2.31
$2.31
Unchanged
$2.31
Illinois
Indiana
$2.69
$2.69
+8 cents
$2.77
Indiana
Ohio
$2.27
$2.29
+10 cents
$2.39
Ohio
Michigan
$2.45
$2.47
+4 cents
$2.51
Michigan
Wisconsin
$2.19
$2.19
Unchanged
$2.19
Wisconsin
Minnesota
$2.61
$2.63
+1 cent
$2.64
Minnesota
North Dakota
$2.63
$2.63
+12 cents
$2.75
North Dakota
South Dakota
$2.54
 
$2.58
 
Unchanged
 
$2.58
 
South Dakota
Nebraska
$2.54
$2.63
+2 cents
$2.65
Nebraska
Kansas
$2.56
$2.57
+2 cents
$2.59
Kansas
Missouri
$2.52
$2.52
+12 cents
$2.64
Missouri
Midwest Average
$2.49
$2.51
+5 cents
$2.56
Midwest Average

Propane -- Propane was supported this week by sharp price increases across the Midwest. Kansas added 18 cents, Michigan firmed 9 cents and Iowa added 7 cents per gallon. Three states were unchanged on thepropane price chart week as Illinois fell 4 cents and Minnesota softened a penny per gallon.

Propane prices are firming seasonally as well. Harvest demand is likely to be very high in areas where heavy rains have rolled through. Then, there is talk of a harsh winter spurred by El Nino. That could mean a ump straight from hefty harvest demand to hefty demand for home heat. As with farm diesel, the fundamentals are stacking up to point propane prices higher.

I interviewed a propane expert from CHS the other day. You can listen to the roughly 6-minute recording by clicking here. The gist of the expert's advice to farmers was to consider your total needs for drying, confinement operations and home heat, and keep your storage full. Sound familiar? That has been our advice since the great propane headache of 2013-'14, and according to this expert, the best way to manage propane price risk is to guard against supply shortages with a full complement of propane booked and filled ahead of peak demand season.


  • According to EIA, national propane inventories firmed 2.364 million barrels -- now 0.718 million barrels below the same time last year at 78.722 million barrels.
  • The regionwide low is at $1.05 per gallon in North Dakota, and the regionwide high is in Indiana at $1.66.
LP 10/5/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.23
$1.23
+7 cents
$1.30
Iowa
Illinois
$1.39
$1.39
-4 cents
$1.35
Illinois
Indiana
$1.63
$1.63
+3 cents
$1.66
Indiana
Ohio
$1.35
$1.35
Unchanged
$1.35
Ohio
Michigan
$1.40
$1.39
+9 cents
$1.48
Michigan
Wisconsin
$1.20
$1.20
Unchanged
$1.20
Wisconsin
Minnesota
$1.28
$1.36
-1 cent
$1.35
Minnesota
North Dakota
$1.05
$1.05
Unchanged
$1.05
North Dakota
South Dakota
$1.47
 
$1.47
 
Unchanged
 
$1.47
 
South Dakota
Nebraska
$1.14
$1.16
+5 cents
$1.21
Nebraska
Kansas
$1.18
$1.18
+18 cents
 
$1.36
Kansas
Missouri
$1.41
$1.43
+3 cents
 
$1.46
Missouri
Midwest Average
$1.31
$1.32
+5 cents
$1.37
Midwest Average

spread

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