Farm Fuels In Focus | Fuels Uncertain, Bearish Case Can Be Made

Posted on 01/26/2018 11:53 AM

 

  • February 2018 natural gas opened today at $3.19, up 16 cents from our last report.
  • Farm Diesel is 4 cents lower on the week at an average of $2.33 per gallon.
  • February 2018 WTI crude oil opened the day at $63.74, up 24 cents from our last report.
  • January 2017 Heating oil futures opened the day at $2.06, off 2 cents from our last report.
  • Propane is 2 cents lower at $1.49 per gallon regionally.

Farm Diesel -- Farm diesel was supported by strength in Iowa to the tune of 7 cents per gallon. No other state posted a price change on the week.

This week's farm diesel price action very closely reflects WTI crude oil and heating oil futures price action. All of these markets are conflicted, and the outlook is uncertain. While bullish sentiments rule all three, there are technical and fundamental reasons why we are willing to wait for the time being, expecting fuels and crude oil to fall.diesel

Technically, crude and heating oil are both overbought according to the nine-day relative strength index. The overbought condition could be corrected by time, if prices spend enough time at or above current levels. According to Pro Farmer Senior Economist Dan Vaught, "...momentum indicators been slipping lately, suggesting a growing divergence and potential reversal."

But fundamentally, even though world demand is expected to continue to rise, U.S. production surged to a new all-time weekly high of 9.9 million barrels per day (bpd) this week. EIA expects U.S. production to easily crest 10 million bpd. We also have to keep in mind the large amount of drilled but uncompleted wells that can easily be switched on, which would support even higher U.S. production. There have also been recent murmurs that, although Russia agreed to comply with OPEC production cuts, their interest in playing ball is waning. If Russian production surges, the global crude oil re-balancing will skid to a halt, and crude futures will soften.

In addition, there is lingering risk through winter that periods of frigid temperatures could support higher heating oil futures, which would, by extension, support higher farm diesel prices. But Vaught believes, "...heating oil traders are probably more aware of the potential cold wave than just about anybody else, which suggests the market reaction to the onset of cold weather may not be all that large."

So as we contemplate booking farm diesel for spring fieldwork, we believe it is prudent to continue to wait for the market to swing our way.


  • Distillate inventories reported by EIA firmed 0.6 million barrels to 139.8 mmbbl. Stocks are currently 29.3 mmbbl below the same time last year.
  • The regionwide low currently lies at $2.10 in Ohio. The Midwest high is at $2.71 in Missouri.
Farm Diesel 1/26/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$2.31
$2.31
+7 cents
$2.38
Iowa
Illinois
$2.76
$2.31
Unchanged
$2.31
Illinois
Indiana
$2.45
$2.45
Unchanged
$2.45
Indiana
Ohio
$2.10
$2.10
Unchanged
$2.10
Ohio
Michigan
$2.23
$2.23
Unchanged
$2.23
Michigan
Wisconsin
$2.19
$2.19
Unchanged
$2.19
Wisconsin
Minnesota
$2.32
$2.32
Unchanged
$2.32
Minnesota
North Dakota
$2.45
$2.45
Unchanged
$2.45
North Dakota
South Dakota
$2.35
 
$2.35
 
Unchanged
 
$2.35
 
South Dakota
Nebraska
$2.23
$2.23
Unchanged
$2.23
Nebraska
Kansas
$2.35
$2.35
Unchanged
$2.35
Kansas
Missouri
$2.71
$2.71
Unchanged
$2.71
Missouri
Midwest Average
$2.37
$2.33
+1 cent
$2.34
Midwest Average

propane

Propane -- As with diesel, this week's propane price was driven by Iowa, which softened 4 cents per gallon. No other state posted a price change in LP.

National propane stocks are within the five-year average range but slipping, according to EIA. This week's price action is indicative of the moderating temperatures across the nation and the fact that most consumers likely have near-term needs filled. That has LP in a holding pattern, and if temperatures continue to stay closer to the norm in southern areas, propane prices could easily fall again next week under the weight of other states joining Iowa in trending lower.


  • According to EIA, national propane inventories fell 4.015 million barrels -- now 14.220 million barrels below the same time last year at 53.992 million barrels.
  • The regionwide low is at $1.20 per gallon in Wisconsin, and the regionwide high is in Missouri at $1.82.
LP 1/26/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.44
$1.43
-4 cents
$1.39
Iowa
Illinois
$1.69
$1.43
Unchanged
$1.43
Illinois
Indiana
$1.49
$1.49
Unchanged
$1.49
Indiana
Ohio
$1.35
$1.35
Unchanged
$1.35
Ohio
Michigan
$1.56
$1.56
Unchanged
$1.56
Michigan
Wisconsin
$1.20
$1.20
Unchanged
$1.20
Wisconsin
Minnesota
$1.62
$1.62
Unchanged
$1.62
Minnesota
North Dakota
$1.34
$1.34
Unchanged
$1.34
North Dakota
South Dakota
Not Reported
 
Not Reported
 
Unchanged
 
Not Reported
 
South Dakota
Nebraska
$1.35
$1.35
Unchanged
$1.35
Nebraska
Kansas
$1.78
$1.78
Unchanged
$1.78
Kansas
Missouri
$1.82
$1.82
Unchanged
$1.82
Missouri
Midwest Average
$1.51
$1.49
-1 cent
$1.48
Midwest Average

spread

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