Diesel Places "V" Bottom | Advice Issued

Posted on 07/25/2019 1:15 PM

 

Farm Diesel --

  • Our regional average farm diesel price gained six cents this week, forming a clear "V" bottom. We have been looking for confirmation of a near-term low to book some harvest diesel, and this week's price action delivered just that.
  • Illinois led gains firming a whopping 30 cents per gallon on the week. Missouri added 22 cents and Wisconsin firmed a dime per gallon. Nos state posted a lower price on the week although five states were unchanged.
  • According to EIA, U.S. distillate stocks gained 600,000 barrels in the week ended July 19. Now 15.6 million barrels above the same week last year.

ADVICE -- Book 50% of expected harvest diesel needs at current prices. This week's regional averagefarm diesel chart price at $2.41 per gallon is 15 cents below the same week last year. Our chart indicates farm diesel bottomed with a characteristic "V" formation in the last week of August 2018. Our five-year average chart places a similar "V" in the first week of September. In both cases, prices firmed into harvest.

There are two ways to look at this. The first is that the seasonal pre-harvest low is running ahead of schedule this year. If this is the case, farm diesel will continue to firm before peaking sometime in November, and falling into the first of the year. If that is the case, we will be glad we booked some diesel ahead of harvest demand.

The second way to view this week's confirmation of the "V" formation is related to fuel tax increases that went into effect this month. The Illinois diesel tax was raised a hefty 24 cents this month, for example. If a tax increase is to blame for this week's 6 cents per gallon jump in prices -- note Illinois leads gains in diesel this week -- then there may be some downside left in this market.

Prices had been falling generously until adding a penny per gallon regionally last week. That downtrend may resume and give us a better opportunity in the coming weeks. In that case, we will be glad we only booked 50%.

August heating oil futures have failed to post a close above $2 for the entire month of July so far, and heating oil, like crude oil futures prefer to establish a range and stay in it as long as it can. With $2 shaping up to be tough resistance, the upside for retail diesel may be limited for now. But make no mistake, the retail diesel market will respond to seasonal farmer demand. That much is certain.

So book 50% of your expected harvest diesel needs at current prices, and prepare to fill remaining needs before combines roll.

Propane --propane price chart

  • Our retail propane price fell 3 cents per gallon this week to a regional average of $1.18.
  • Prices were driven lower by Ohio which fell 31 cents per gallon as Illinois and Missouri each fell 2 cents.
  • Previously we had looked for a move below $1.20 to make a move on booking propane. We later adjusted that target to $1.15. We will advise booking harvest and winter supplies on another price break. However, if the market firms next week and places the "V" bottom we report in farm diesel this week, we will book aggressively.
  • According to EIA, U.S. propane stocks gained 1.575 million barrels in the week ended July 19, now 14.570 million barrels above the same week last year.

To keep this thought in the forefront of your propane strategy, we advise harvest could take a hefty toll on regional propane stocks, and prices could run higher with little warning. Get your ducks in a row and prepare to fill your on-farm storage to capacity when you book LP for grain drying and for home heat.


Fuel
7/8/19
7/15/19
Week-over Change
Current Week
Fuel
Farm Diesel
$2.34
$2.35
+6 cents
$2.41
Farm Diesel
LP
$1.21
$1.21
-3 cents
$1.18
LP

 

 

Add new comment