Farm Fuels in Focus: Diesel and Propane Unchanged

February 25, 2016 09:47 AM
  • LP is unchanged on the week at $1.01 per gallon.
  • April 2016 natural gas opened today at $1.83 -- down 29 cents from our last Fuels in Focus.
  • Farm Diesel is unchanged on the week at an average of $1.43 per gallon.
  • April 2016 WTI crude oil opened the day at $32.19 -- higher $2.30 from our last report.
  • March 2016 Heating oil futures opened the day at $1.05 -- unchanged from our last report.

RubyFarm Diesel -- We pulled the trigger on farm diesel this week as our appetite for risk has run out (click here to view the ALERT). Prices are well below the same time last year, and we have noticed an annual price increase right about this time of the year, ahead of spring fieldwork. The chart at right shows both fall and spring seasonal tendencies which support mild increases at times of peak agricultural demand. Working in our favor is the fact that diesel price is so low so it is hard to go wrong, even if prices dip a few cents here or there. I expect summer diesel prices to fall again, perhaps back to these same levels we see today, once spring demand has been satisfied.

As far as crude oil goes, OPEC producers have agreed to freeze production at January levels, but OPEC produced an average of 32 million barrels per day during that month which is an extremely high level. The production freeze will do very little if anything to trim the global oil glut. EIA reported Canada has actually increased their production and U.S. production is still at elevated levels. Producers are looking to make up for low prices in volume, but as storage space begins to run short, some fresh demand will have to show up before prices rebound.

So far, price moves to the upside have been the result of rumors of production cuts, but none of those rumors have turned out to be true. I expect traders to continue to work this market within its range between $27 and $35 per barrel until something happens to support a fundamental shift. Until then, bulging global supplies of oil will limit the upside in crude oil markets. The upside in farm diesel is very limited as well, but seasonal demand will support higher prices for a short time. Book spring/summer diesel at current prices to stay ahead of any potential short-term price strength

  • Distillate inventories reported by EIA fell 1.7 million barrels to 160.7 mmbbl. Stocks are currently 36.0 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.36 in Kansas and the Midwest high is at $1.55 in Indiana.
Farm Diesel 2/25/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.45
$1.39
3 cents
$1.42
Iowa
Illinois
$1.45
$1.45
Unchanged
$1.45
Illinois
Indiana
$1.57
$1.55
Unchanged
$1.55
Indiana
Wisconsin
$1.63
$1.63
-13 cents
$1.50
Wisconsin
Minnesota
$1.53
$1.46
Unchanged
$1.46
Minnesota
South Dakota
$1.38
$1.38
Unchanged
$1.38
South Dakota
North Dakota
$1.39
$1.39
Unchanged
$1.39
North Dakota
Nebraska
$1.31
$1.31
7 cents
$1.38
Nebraska
Missouri
$1.46
$1.46
Unchanged
$1.46
Missouri
Kansas
$1.42
$1.36
Unchanged
$1.36
Kansas
Ohio
$1.39
$1.39
Unchanged
$1.39
Ohio
Michigan
$1.44
$1.40
Unchanged
$1.40
Michigan
Midwest Average
$1.45
$1.43
Unchanged
$1.43
Midwest Average

LP

Propane -- Propane prices are unchanged this week as winter winds down in the western and central Corn Belt. Eastern Belt growers would dispute my claim that winter is winding down, and as some pretty serious winter weather rolls through Illinois Indiana and parts north and east, propane demand will increase as folks reach for the thermostat. But the farther east one travels, the more reliant homeowners are on heating oil rather than propane. We have seen heating oil futures firm above $1.00 which indicates demand is strong. A cold snap in the Central and western plains would have more of an impact on propane pricing than eastern winter weather and our expectation is for propane prices to cruise through the rest of the winter basically unchanged.

Once summer arrives, propane price action will be driven by crude oil and since we see little change on the crude oil front near-term, the same is true for our propane outlook. National LP supplies have been in decline for several weeks now, but remain above the five-year average range.

  • According to EIA, last week, national propane inventories fell 3.718 million barrels -- now 7.502 million barrels above the same time last year at 66.740 million barrels.
  • The regionwide low is at $0.87 per gallon in Kansas and the regionwide high is in Indiana at $1.36.
LP 2/25/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.92
$0.92
2 cents
$0.94
Iowa
Illinois
$0.94
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.32
$1.36
Unchanged
$1.36
Indiana
Wisconsin
$1.00
$1.00
Unchanged
$1.00
Wisconsin
Minnesota
$0.99
$1.00
Unchanged
$1.00
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.95
$0.92
Unchanged
$0.92
North Dakota
Nebraska
$0.89
$0.89
-1 cent
$0.88
Nebraska
Missouri
$1.11
$1.19
Unchanged
$1.19
Missouri
Kansas
$0.93
$0.87
Unchanged
$0.87
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$1.19
$1.19
-3 cents
$1.16
Michigan
Midwest Average
$1.01
$1.01
Unchanged
$1.01
Midwest Average

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