Buckets and Bottles

Posted on 05/08/2020 11:26 AM

 

Farm Diesel --EIA distillate stocks chart

  • Our regional average farm diesel price fell another 24 cents to $1.60.
  • According to our survey, Missouri and Illinois share the distinction of posting the lowest farm diesel prices in the 12-state region at $1.44 per gallon.
  • Wisconsin led declines falling 71 cents per gallon on the week. North Dakota Ruby fell 58 cents, Michigan dropped 39 cents and Iowa shucked 27 cents to a statewide average of $1.55. Nebraska posted the only price gain on the week, up a penny per gallon to a statewide average of $1.46.
  • According to EIA, national distillate stocks have forged a massive recovery insideEIA gasoline stocks chart the five-year average supply range, up 9.5 million barrels during the week ended May 1. That recovery began in late April with stocks outside the bottom end of the five-year average supply range and here a few weeks later, supplies are testing the upper bounds of that range.
  • We don't talk much about gasoline stocks here, but that five-year average chart has a tale to tell as well (see right).

This sort of action, both on the price side and the supply side, begs the question if it is time to lock in these historically low prices. As an analyst I confess the idea of picking the exact price floor is an alluring prospect. But at this point, I would argue prices are so low it is hard to go wrong even if prices continue lower in the next few weeks. To play it safe and manage risk prudently, I would suggest you book at least some diesel at these prices. If you aren't one to gamble, there would be no shame in filling every bucket and bottle on the farm with Ruby Red right now.Farm diesel price chart

On April 27, front-heating oil futures bottomed at 70 cents. Readers will recall the lag we have observed between heating oil futures and retail farm diesel, a timespan ranging from 7 to 21 days, on average. As of the open on Friday May 8, front Heating Oil futures were at 83 cents, so a recovery is in progress. But we cannot ignore the demand destruction that has taken place in recent weeks. Some states have begun to reopen slowly, but consumer spending in those states has failed to impress and the public appears to be hesitant to embrace "life as it was" just yet. That along with a 14.5% unemployment rate will continue to cut into spending and the related transport of goods over the road and on the sea.

Crude oil can't seem to sort itself out and may have yet another downside run in its future, although another negative print is unlikely. Still, world crude stocks are bulging, keeping a lid on the upside for the time being. While OPEC+ initiated its production cuts as of the first of May, analysts believe the cuts will not go deep enough to match the fall in world demand.

I could argue either side of the risk equation. Higher Farm Diesel prices could result from the recovery in crude oil and heating oil futures. But those recoveries have been mild and remain tenuous. Another concern would be the aggressive retail price declines observed in our survey this week. When we see states discount prices by 78 cents in just one week, it should be assumed that those same prices can go right back up by the same magnitude. So let's not get cocky here.

The argument for the downside revolves around the ongoing economic pressures around the world and in the United States which may have effectively reset fuel pricing structures for the remainder of the summer. Planting progress in key Midwestern areas has been very brisk and farm diesel demand may actually fall slightly in the next two weeks, especially since freezing temps are expected in corn country. The slower we work through this low-priced farm diesel, the slower the recovery will be.

So I would urge caution and, yes, a little math is probably in order. Examine your current supply situation. I would go so far as to say you should have 75% of expected spring/summer needs in the tank, especially if planting has depleted your on-farm supplies to any degree. Like I said, I wouldn't blame you for filling your tanks and every bucket and bottle you can find with this low-priced farm diesel. But if you insist on picking the bottom, you are welcome to roll the dice and give it another week. We are still 40 cents per gallon below $2.00 regionally and distillate stocks are surging to the upside amid dramatic demand destruction.

Propane --propane price chart

  • Our regional average propane price fell 15 cents per gallon this week.
  • Wisconsin led to the downside falling 80 cents per gallon. Michigan dropped 40 cents, North Dakota softened 30 cents and Illinois fell 20 cents per gallon on the week.
  • Kansas posted the only price increase this week, up a penny per gallon to a statewide average of 84 cents per gallon.
  • According to EIA, national propane stocks drifted 2.540 million barrels higher, now 5.178 million barrels above the same time last year.
  • That EIA analysis has stocks near the top end of the five-year average supply range, but following the typical path of supply rebuilding during the summer months. As I said in the diesel commentary, prices may be expressing a price reset which will carry low prices into the summer months. The same may be true of propane so I would hesitate to be aggressive here.

Fuel
4/20/20
4/27/20
Week-over Change
Current Week
Fuel
Farm Diesel
$1.87
$1.84
-24 cents
$1.60
Farm Diesel
LP
$1.34
$1.34
-15 cents
$1.19
LP

farm diesel heating oil futures spread chart

 

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