Farm Fuels in Focus: Picking Pennies Ahead of Harvest Price Support

Posted on 03/09/2017 10:25 AM

 

  • October 2016 natural gas opened today at $2.80 -- down 4 cents from our last Fuels in Focus.
  • Farm Diesel is a penny higher on the week at an average of $1.78 per gallon.
  • October 2016 WTI crude oil opened the day at $43.55 -- lower $3.82 from our last report.
  • October 2016 Heating oil futures opened the day at $1.39 -- down 11 cents from our last report.
  • Propane is unchanged on the week at an average of $0.96 per gallon regionally.

Dieselalso"Farm Diesel -- Seven of the twelve states we survey are unchanged on the week. Kansas led gains, firming 6 cents per gallon as Indiana added 4 cents. Iowa was our only decliner, falling a penny. With this week's penny increase in the regional average, I am not ready to call the floor. Had WTI and heating oil not fallen sharply this week I would be more easily convinced to the contrary. But the gamesmanship in the crude oil market is wearing on the opinions of traders who are currently more focused on petroleum fundamentals.

Distillate inventories took a surprising leap this week according to EIA as the trade had expected a supply draw. WTI supplies reported by EIA in that same report rose 2.3 million barrels compared to trade expectations of a 1.1 million barrel build. The U.S crude oil rig count was unchanged on the week but U.S. drillers will bring rigs back online as soon as WTI futures signal potential profitability. I believe that will keep Saudi Arabia from adjusting production levels at this month's meeting.

DieselA reader emailed me this week asking about booking diesel. His state is priced in line with the regional average, and I ran down the bullish and bearish cases for diesel. The seasonals are bullish farm diesel and we have seen a slight price increase over the years starting about the first of October. That is a response to farmer demand for harvest diesel. A look at the chart at right shows the seasonal tendency clearly. We also note that once harvest demand is satisfied, diesel falls right through the first of the year and we have issued advice to top off at the annual Christmas price low.

Note that last year at this time diesel firmed and placed a short-term flat before falling a little farther and eventually firming into October. I suspect this week's penny increase will place the flat spot, but national distillate stocks will pressure diesel to a new short-term low before increasing. It is important to keep in mind that all we really need to do is find a price for diesel that fits into your production budget. We are playing with pennies here and searching for confirmation of a diesel price floor before we book for harvest.

Since diesel is priced so far below year-ago, it can easily be considered a value. If your appetite for risk -- or your on farm diesel stocks -- has run out, these prices are not likely to break the bank. As always, you can manage some risk in this market by booking a portion -- I'd say 50% -- of harvest needs. It is also important to remember that diesel prices are slow to follow WTI price moves so even if WTI does firm sharply in the next week, we will still have some time to get in before diesel follows higher.

Our spread analysis gives us a bearish read as well (see chart at the bottom of this post). Heating oil futures opened today at $1.39 giving us a heating oil/farm diesel spread of 0.39. That spread indicates sideways price action in farm diesel near-term. I would not say I am bearish diesel, but I do favor sideways to lower price action before an October price hump. Like I said above, examine your production budget and you appetite for risk and book accordingly. If we are up more than three cents next week, we will book diesel for harvest. In the meantime, I am content to wait and see if distillate supplies build again next week and if WTI falls closer to $40 per barrel.

  • Distillate inventories reported by EIA firmed 1.5 million barrels to 154.8 mmbbl. Stocks are currently 4.8 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.60 in Missouri and the Midwest high is at $1.92 in Wisconsin, Indiana and Minnesota.
Farm Diesel 9/2/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.70
$1.70
-1 cent
$1.69
Iowa
Illinois
$1.84
$1.76
Unchanged
$1.76
Illinois
Indiana
$1.88
$1.88
4 cents
$1.92
Indiana
Wisconsin
$1.92
$1.92
Unchanged
$1.92
Wisconsin
Minnesota
$1.86
$1.91
1 cents
$1.92
Minnesota
South Dakota
$1.77
$1.79
Unchanged
$1.79
South Dakota
North Dakota
$1.77
$1.78
1 cent
$1.79
North Dakota
Nebraska
$1.71
$1.70
Unchanged
$1.70
Nebraska
Missouri
$1.60
$1.60
Unchanged
$1.60
Missouri
Kansas
$1.69
$1.69
6 cents
$1.75
Kansas
Ohio
$1.84
$1.75
Unchanged
$1.75
Ohio
Michigan
$1.73
$1.77
Unchanged
$1.77
Michigan
Midwest Average
$1.78
$1.77
1 cent
$1.78
Midwest Average

 

LPPropane -- Propane is unchanged on the week with eight of twelve states unchanged. Illinois LP firmed a penny as Michigan added 2 cents and Indiana firmed 6 cents. Kansas was our only decliner, falling 14 cents. You should be 100% filled on propane for home heat but since we are unchanged, we see no urgency this week to book supplies for harvest. We will want to have harvest supplies booked and if you have opted to book some diesel this week, perhaps book at least a portion of your harvest LP while you have your preferred retailer on the phone.

  • According to EIA, last week, national propane inventories firmed 2.375 million barrels -- now 2.166 million barrels above the same time last year at 98.510 million barrels.
  • The regionwide low is at $0.79 per gallon in Nebraska and the regionwide high is in Indiana at $1.14.
LP 9/2/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.91
$0.91
Unchanged
$0.91
Iowa
Illinois
$0.99
$1.04
1 cent
$1.05
Illinois
Indiana
$1.08
$1.08
6 cents
$1.14
Indiana
Wisconsin
$0.99
$0.99
Unchanged
$0.99
Wisconsin
Minnesota
$0.92
$0.92
Unchanged
$0.92
Minnesota
South Dakota
$0.95
$0.95
Unchanged
$0.95
South Dakota
North Dakota
$0.80
$0.80
Unchanged
$0.80
North Dakota
Nebraska
$0.82
$0.79
2 cents
$0.79
Nebraska
Missouri
$1.02
$1.02
Unchanged
$1.02
Missouri
Kansas
$1.08
$1.08
-14 cents
$0.94
Kansas
Ohio
$0.93
$0.93
Unchanged
$0.93
Ohio
Michigan
$1.06
$1.06
2 cents
$1.08
Michigan
Midwest Average
$0.96
$0.96
Unchanged
$0.96
Midwest Average

 

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