Farm Fuels In Focus | Weather, Supplies Muddy Outlook

Posted on 08/01/2018 3:54 PM

 

  • September 2018 natural gas opened today at $2.76, up a penny on the week.
  • Farm Diesel is unchanged on the week at an average of $2.56 per gallon.
  • September 2018 WTI crude oil opened the day at $68.43, up 64 cents on the week.
  • September 2018 Heating oil futures opened the day at $2.09, off 6 cents from the same day last week.
  • Propane is down a penny on the week at $1.27 per gallon regionally.

Farm Diesel -- Farm diesel was unchanged regionally this week. Most states were unchanged. Michigan fell 7 cents and Kansas added 3 cents per gallon.diesel price chart

Distillates are tagged as a major crude oil market mover in a recent article by John Kemp for Reuters. (Click here to read Kemp's Article.) Kemp notes, "Distillates will be at the heart of three developments in the next two years that determine the direction of oil prices as well as the longevity of the current economic expansion."

  • The first key development is global economic expansion and the resulting distillate demand growth. That will put pressure on global stocks, and keep a floor under distillate products, including farm diesel.
  • The second are pollution regulations set to go live in 2020 which will increase distillate consumption for ocean shipping as distillates offer a cleaner burning alternative to current fuels.
  • The third development is higher crude oil prices supported by tightening distillate supplies, which may increase overall inflation and increase business costs.

Meanwhile, WTI crude oil futures are under pressure today (Wednesday) as EIA reported a 3.8 million barrel build in U.S. crude oil supplies on an expected decline of 200,000 barrels. But a great deal of uncertainty remains in the world crude market. Tensions with Iran, unreliable North African output, and Saudi Arabia's attempts to manage OPEC output all have the power to support a rise in crude oil prices, and, by extension, farm diesel.

If what is good for the goose is good for the gander, what is bullish for crude is bullish for distillates, and vice versa. Crude market bulls are growing weary on a technical level, but crude trade has always been a haven for headline trades. Moving forward, expect crude and distillates to maintain a range -- front crude between $65 and $70 per barrel. While there is risk that world news will support a sharp rise in crude, production fundamentals will keep a lid on prices in the meantime.

We expect farm diesel to fall around a dime between now and harvest and present opportunities to book for fall fieldwork around the end of August.


  • Distillate inventories reported by EIA softened 0.774 million barrels to 121.2 mmbbl. Stocks are currently 28.4 mmbbl below the same time last year.
  • The regionwide low currently lies at $2.19 in Wisconsin. The Midwest high is at $2.75 in Indiana.
Farm Diesel 8/1/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$2.63
$2.64
Unchanged
$2.64
Iowa
Illinois
$2.31
$2.31
Unchanged
$2.31
Illinois
Indiana
$2.75
$2.75
Unchanged
$2.75
Indiana
Ohio
$2.54
$2.54
Unchanged
$2.54
Ohio
Michigan
$2.61
$2.61
-7 cents
$2.54
Michigan
Wisconsin
$2.19
$2.19
Unchanged
$2.19
Wisconsin
Minnesota
$2.61
$2.64
Unchanged
$2.64
Minnesota
North Dakota
$2.66
$2.66
Unchanged
$2.66
North Dakota
South Dakota
$2.61
 
$2.61
 
Unchanged
 
$2.61
 
South Dakota
Nebraska
$2.60
$2.60
Unchanged
$2.60
Nebraska
Kansas
$2.57
$2.57
+3 cents
$2.60
Kansas
Missouri
$2.62
$2.64
Unchanged
$2.64
Missouri
Midwest Average
$2.56
$2.56
Unchanged
$2.56
Midwest Average

Propane -- Propane softened a penny to $1.27 with Kansas off 3 cents, and Nebraska down a penny. Michigan propane price chartadded a penny as all other states were unchanged.

While U.S. propane stocks are below the same time last year, supplies in the Midwest reported by EIA are actually slightly above the same week last year. But with national stocks at the low end of the five-year average supply range, there is little hope the summertime low will come in at the same level as last year.

There is also the question of demand for grain drying this fall. Many weather forecasters are hinting at the possibility of an early frost. According to the cicadas around this neck of the woods, the first frost is due on August 17. That's 16 days away and a long shot to say the least. Especially given the forecasts for a hotter, dryer trend through the beginning of the month. But even if the cicadas are off by a full month, a mid-September frost would help cut down on moisture levels, and trim propane demand at harvest.

That said, there is another side to the early onset of autumn weather and that is the fact that propane consumers would also reach for the thermostat earlier in the year. So whatever might be saved by drier air would be consumed in the name of home heat. Keep an eye on the potential for an early shift to autumn weather as it would undoubtedly lead to a run on propane by folks who are not prepared.


  • According to EIA, national propane inventories firmed 0.774 million barrels -- now 1.451 million barrels below the same time last year at 64.482 million barrels.
  • The regionwide low is at $1.05 per gallon in the western Plains, and the regionwide high is in Indiana at $1.50.
LP 8/1/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.21
$1.15
Unchanged
$1.15
Iowa
Illinois
$1.43
$1.43
Unchanged
$1.43
Illinois
Indiana
$1.50
$1.50
Unchanged
$1.50
Indiana
Ohio
$1.35
$1.35
Unchanged
$1.35
Ohio
Michigan
$1.39
$1.39
+4 cents
$1.40
Michigan
Wisconsin
$1.20
$1.20
Unchanged
$1.20
Wisconsin
Minnesota
$1.09
$1.09
-31 cents
$1.09
Minnesota
North Dakota
$1.14
$1.14
-15 cents
$1.14
North Dakota
South Dakota
$1.47
 
$1.47
 
Unchanged
 
$1.47
 
South Dakota
Nebraska
$1.06
$1.06
Unchanged
$1.05
Nebraska
Kansas
$1.33
$1.08
-18 cents
 
$1.05
Kansas
Missouri
$1.45
$1.46
+4 cents
 
$1.46
Missouri
Midwest Average
$1.30
$1.28
+2 cents
$1.27
Midwest Average

 

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