Farm Diesel Advice Updated

Posted on 06/10/2020 4:01 PM

 

This week's price action prompts us to issue advice. While the economic recovery is still in question, we have been looking for a clear sign a price floor has been forged in retail farm diesel. We are up a nickel this week. Our heating oil futures/farm diesel spread collided with our line in the sand last week, and this week confirmed farm diesel prices are headed higher. We realize this comes as demand is likely to soften post-planting, but since our regional average price fell so low, a correction does seem to be in order.

Our advice is to fill remaining summer needs and fill at least 50% of harvest needs at current prices. OPEC+ did make a deal to extend production cuts last weekend, but some members have bucked the output cuts, and compliance may actually fall during the extension of the agreed-to cuts.farm diesel price chart

In addition, last week EIA reported the rapid, aggressive national distillate supply build slowed sharply. We are leaving some room for prices to fall between now and harvest, but that is unlikely. We remain slightly cautious about booking 100% of harvest needs, but we do acknowledge there are equal chances of higher and lower prices ahead. Actually, by "lower prices," I mean to say that a near-term price rally may retrace back to the downside, but certainly the retail average is unlikely to reach the low price posted last week at $1.39.

So get on the stick and book some diesel. Measure your appetite for risk on harvest prices. Commodities are currently working on a timid price increase, but some believe that price strength will fade soon as it does not reflect commodity market fundamentals. In other words, every penny saved on inputs like fuel will lend itself to improving profitability on the current crop.

Book 100% of your summer and pre-harvest needs at current prices and book at least half of your expected harvest diesel needs. If your appetite for risk or harvest is small, book 100% of your harvest needs at current prices.

Farm Diesel --

  • Our regional average farm diesel price rebounded a nickel per gallon this week.
  • Missouri led gains firming 35 cents per gallon. Ohio gained 8 cents and Indiana added 5 cents per gallon. While 5 states were unchanged, Iowa and Michigan each softened a penny per gallon to $1.45 and 1.41, respectively.
  • July heating oil futures opened today -- Wednesday June 10 -- at $1.14, well above its lockdown low of 77 cents, placed on April 28.
  • According to EIA, national distillate stocks firmed 1.6 million gallons in the week ended June 5 propane price chartafter having firmed nearly 10 million barrels the week before.
  • Our heating oil/futures spread indicates upside risk for retail farm diesel.

Propane --

  • Our regional average propane price softened 6 cents per gallon this week.
  • Price action was driven by a Sharply lower price in South Dakota as Iowa fell a penny.
  • Minnesota propane firmed 2 cents per gallon, but all other states were unchanged.
  • According to EIA, national propane stocks fell 1.048 million barrels in the week ended June 5. Stocks remain near the midpoint of the five-year average supply range and 17,000 barrels above the same week last year.
  • We are not yet ready to book propane for harvest and winter, but I would advise, if you do not already have an idea of your fall/winter needs to put pencil to paper on that.

Fuel
5/25/20
6/1/20
Week-over Change
Current Week
Fuel
Farm Diesel
$1.48
$1.39
+5 cents
$1.44
Farm Diesel
LP
$1.12
$1.19
-6 cents
$1.13
LP

heating oil/farm diesel spread chart

 

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