A Technical Analysis of Farm Diesel Price

Posted on 02/13/2020 1:02 PM

 

Farm Diesel --farm diesel price chart

  • Farm Diesel softened 6 cents per gallon on the week.
  • Ohio led declines falling 17 cents per gallon as Illinois and Missouri each softened 14 cents on the week. All other states were either unchanged or lower.
  • March heating oil futures closed on Friday Feb. 7 at 1.64 and EIA reports national distillate supplies slipped 2 million barrels in the week ended Feb. 7. Stocks remain 1 million barrels above the same week last year.
  • Our farm diesel/heating oil futures spread analysis indicates a great deal of downside potential as we wait for retail farm diesel to reflect the sharp downturn observed in heating oil futures.
  • Meanwhile, front-month crude oil futures dipped below key $50 on Monday. As of this writing, crude has firmed back above $50, but the upside may be limited on concerns over the spreading coronavirus.

I have posted some charts at the very bottom of this page for your consideration. In case you have not seen the chart lately, you can trace the price path of front-month heating oil futures. Many farmers, however, have taken note of the steep decline in heating oil futures and voiced questions as to why retail farm diesel has not followed the downturn. The second chart at bottom is our heating oil futures/farm diesel spread chart. We have found this to be an excellent means to predicting near-term farm diesel prices.

We record a sharp decline in regional farm diesel prices and expect more of the same for another week next week. When looking at the spread chart below, make note of the spread's position relative to our "line in the sand." that line in the sand is the level at which our spread analysis indicates downside potential for retail diesel when the spread rises to a premium. So when the spread is higher than our line in the sand, farm diesel will eventually soften. When the spread falls below the line, farm diesel goes up. That chart was due for an overhaul and the turn of the first of the year gave us a good opportunity to restart the analysis afresh. This analysis has served us very well over the years.

As you will see, the spread is at a stiff premium to the line in the sand indicating downside potential for retail farm diesel. As we wrote for the Pro Farmer newsletter last week, we have observed a lag between moves in the futures market and retail diesel price moves. Since posting a high in the first week of 2020, March heating oil fell roughly 22%. Futures bottomed on Feb. 3 and turned mildly higher. We do not expect farm diesel prices to fall 22% from its most recent high. Realistically, we will consider ourselves fortunate to capture half of that move. An 11% decline would put the average whiteboard diesel price at $2.25. This week's year-ago price is $2.31 so we expect retail prices to fall to somewhere between $2.25 and $2.35. A lot will depend on how aggressively heating oil futures firm from the Feb. 3 low. So far, that climb higher has been at a turtle's pace, and that bodes well for retail diesel.

The longer it takes heating oil futures to recover, the lower farm diesel will go. That being the case, we are by no means ready to book spring and summer supplies. There are a number of fundamental factors that could move the diesel market, but sincepropane price chart many favor a strictly technical approach, we embrace that analysis in this week's post. Perhaps next week we will explore some of those fundamentals to give us a well rounded viewpoint. But this technical analysis has retail farm diesel pointed lower, and is giving us no incentive to book needs at current prices.

Propane --

  • Our regional average propane price firmed a penny on the week.
  • Price moves were fairly mild from state-to-state with Iowa up 8 cents and Nebraska firming a nickel per gallon on the week. Illinois propane softened 6 cents as Minnesota slid a penny per gallon.
  • According to EIA, national propane stocks plummeted 6.172 million barrels during the report week. But stocks are at a level 19.105 million barrels above the same week last year.

Fuel
1/27/19
2/3/20
Week-over Change
Current Week
Fuel
Farm Diesel
$2.53
$2.48
-6 cents
$2.42
Farm Diesel
LP
$1.47
$1.46
+1 cent
$1.47
LP

heating oil futures chart

heating oil/farm diesel spread chart

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