Farm Fuels in Focus: Book Diesel, Top Off LP

September 15, 2015 01:20 PM

 

  • LP is down 2 cents on the week to 98 cents per gallon.
  • October 2015 natural gas opened today at $2.76 -- 10 cents above our last Fuels in Focus.
  • Farm Diesel is a penny higher on the week at an average of $2.09 per gallon.
  • October 2015 WTI crude oil opened the day at $44.41 -- 25 cents above our last report.
  • October 2015 Heating oil futures opened the day at $1.51 -- 3 cents lower than our last report.

9152015DieselFarm Diesel -- We added another 30% of coverage to our already booked 30% of farm diesel for harvest. We also advised to book 30% for spring to guard against higher prices. It is unclear how long WTI crude oil prices will remain below $50 per barrel, but it is clear that crude prices will have a hard time violating the sub-$40 price support set just a few weeks ago. Crude oil watchers expect 2016 crude prices to be above those of 2015. Perhaps not dramatically higher, but high enough to support farm diesel prices above $2.09 per gallon. If you can find a price for spring delivery that is close to your current statewide or local bid, pull the trigger on at least 30% of your diesel for spring fieldwork.

As crude oil prices firm, oil producers will bring rigs back online, but we believe the low in WTI has been placed. That is not to say that we expect crude to firm sharply or even much at tall, but, as I said above, $2.08 diesel was likely produced with crude closer to, or below $40 per barrel. Look for crude prices to edge closer to $50 than $40 in the coming months, and for heating oil and farm diesel to follow prices higher.

Last week I mentioned our spread analysis based on retail farm diesel and heating oil futures, and the situation has not changed there -- diesel prices should be unchanged for the moment as heating oil futures have fallen slightly, even as crude firms. It is convenient and timely to point out that every ship at the bottom of the ocean has a chart room, and blind allegiance to a spread analysis amounts to tunnel vision. We know that farm diesel prices have firmed in response to agricultural demand in years past at harvest and we expect this year will be no different. Diesel may not add much more than a few cents to a dime per gallon, but higher prices as farmers fill up is a near certainty. We believe harvest demand will hold greater influence over farm diesel retail pricing than will the spreads, and for that reason we advised this week farmers book another 30% for fall to arrive at 60% filled for harvest, and add 30% coverage for spring delivery in case something happens in crude during the winter.

  • Distillate inventories reported by EIA firmed 0.1 million barrels to 150.0 mmbbl. Stocks are currently 26.6 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.96 in Nebraska and the Midwest high is at $2.19 in Indiana.
Farm Diesel 9/15/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$2.01
$2.02
-1 cent
$2.01
Iowa
Illinois
$1.98
$1.98
9 cents
$2.07
Illinois
Indiana
$2.21
$2.19
-5 cents
$2.14
Indiana
Wisconsin
$2.20
$2.20
-1 cent
$2.19
Wisconsin
Minnesota
$2.07
$2.09
3 cents
$2.12
Minnesota
South Dakota
$2.14
$2.15
-3 cents
$2.12
South Dakota
North Dakota
$2.15
$2.15
Unchanged
$2.15
North Dakota
Nebraska
$1.95
$1.96
Unchanged
$1.96
Nebraska
Missouri
$2.09
$2.09
Unchanged
$2.09
Missouri
Kansas
$2.18
$2.14
Unchanged
$2.14
Kansas
Ohio
$1.98
$1.98
Unchanged
$1.98
Ohio
Michigan
$2.04
$2.04
2 cents
$2.06
Michigan
Midwest Average
$2.08
$2.08
1 cent
$2.09
Midwest Average

9152015LP

Propane -- It looks like we've got a late season downtrend here with prices falling a penny last week and softening 2 cents this week. The near term forecast has been altered recently and now includes hotter, dryer weather as wheels begin to turn for another harvest season. If crops come in drier than expected, propane demand will fall short of expectations and limit price strength. We are currently priced below one dollar per gallon, but that is well above the level at which agricultural propane users booked LP during the summer. Now is the perfect time to fill any remaining needs you might have left out of your summer booking. At these prices, it is a good idea to top off anyway as we have not seen sub-$1.00 per gallon LP prices since we began collecting data.

Energies traders are beginning to murmur about higher prices for crude oil and petroleum products in 2016 and filling LP storage to the brim in this low price environment appears as a low risk way to ensure decent propane prices into the beginning of next winter. Remember, once it is in the tank, LP does not go bad. So, if your agricultural needs are limited by dry harvest weather, or you book more than you need, it will still be there the next time you need it. It is unclear where prices will bottom, but it cannot be far from our current regional average of 98 cents per gallon. Take advantage of this price opportunity and set yourself up to guard against higher prices a year from now, should that turn out to be the case.

  • According to EIA, last week, national propane inventories firmed 0.620 million barrels -- now 20.220 million barrels above the same time last year at 96.344 million barrels.
  • The regionwide low is at $0.79 per gallon in Ohio and the regionwide high is in Michigan and Illinois at $1.29.
LP 9/15/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.01
$0.95
Unchanged
$0.95
Iowa
Illinois
$1.29
$1.29
-4 cents
$1.25
Illinois
Indiana
$1.09
$1.09
-6 cents
$1.03
Indiana
Wisconsin
$1.13
$1.13
-3 cents
$1.10
Wisconsin
Minnesota
$0.94
$0.95
-2 cents
$0.93
Minnesota
South Dakota
$0.84
$0.84
Unchanged
$0.84
South Dakota
North Dakota
$0.84
$0.84
1 cent
$0.85
North Dakota
Nebraska
$0.81
$0.80
Unchanged
$0.80
Nebraska
Missouri
$1.23
$1.23
-19 cents
$1.04
Missouri
Kansas
$0.96
$0.90
Unchanged
$0.90
Kansas
Ohio
$0.79
$0.79
Unchanged
$0.79
Ohio
Michigan
$1.29
$1.29
Unchanged
$1.29
Michigan
Midwest Average
$1.01
$1.00
-2 cents
$0.98
Midwest Average

9152015Spreads