Farm Fuels in Focus: Diesel Falls Amid Crude Oil Uncertainty

September 22, 2015 12:45 PM

 

  • LP is up 4 cents on the week to $1.02 per gallon.
  • October 2015 natural gas opened today at $2.57 -- 19 cents below our last Fuels in Focus.
  • Farm Diesel is 5 cents lower on the week at an average of $2.04 per gallon.
  • November 2015 WTI crude oil opened the day at $44.41 -- $2.28 above our last report.
  • October 2015 Heating oil futures opened the day at $1.50 -- 1 cent lower than our last report.

Farm Diesel -- More uncertainty in the U.S. crude oil business. After sinking below $40 per barrel, WTI has firmed to a range in the mid-$40s on falling rig counts. According to Baker Hughes, the U.S. rotary rig count 9222015Rubyhas fallen 56.4% from the same time last year as of Sept. 18. Operational efficiencies have since then propped up production, but production began to show mild declines late in August, and this week, EIA reported total U.S. crude production at 9.117 million barrels per day in the week ended Sept. 11. That is still 5% above the same time last year, but declines in both rig counts and production have traders nervous about the United States' ability to maintain profitability at such high production levels for much longer.

Commitments of traders have been largely flat since July indicating traders are sticking with their established positions. Updates later this week from EIA and oilfield service providers may set off some fireworks in WTI futures if any dramatic changes are reported.

Meanwhile, distillate stocks continue to climb as demand wanes. We have been expecting a pre-harvest jump in Midwestern farm diesel prices, but so far, our spread analysis, coupled with surging supplies give us little indication that seasonal support will arrive. We filled another portion of our diesel for harvest to guard against the impacts of higher crude oil prices, but farm diesel is bucking the trend at the moment, and we see no need to extend coverage just yet.

The outlook into 2016 is for firmer crude oil and distillates. We have booked 30% of our diesel for spring delivery to guard against upside potential.

  • Distillate inventories reported by EIA firmed 3.1 million barrels to 154.0 mmbbl. Stocks are currently 26.2 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.95 in Nebraska and South Dakota and the Midwest high is at $2.18 in Wisconsin.
Farm Diesel 9/22/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$2.02
$2.01
Unchanged
$2.01
Iowa
Illinois
$1.98
$2.07
Unchanged
$2.07
Illinois
Indiana
$2.19
$2.14
-15 cents
$1.99
Indiana
Wisconsin
$2.20
$2.19
-1 cent
$2.18
Wisconsin
Minnesota
$2.09
$2.12
Unchanged
$2.12
Minnesota
South Dakota
$2.15
$2.12
-17 cents
$1.95
South Dakota
North Dakota
$2.15
$2.15
-18 cents
$1.97
North Dakota
Nebraska
$1.96
$1.96
-1 cent
$1.95
Nebraska
Missouri
$2.09
$2.09
-7 cents
$2.02
Missouri
Kansas
$2.14
$2.14
Unchanged
$2.14
Kansas
Ohio
$1.98
$1.98
Unchanged
$1.98
Ohio
Michigan
$2.04
$2.06
-1 cent
$2.05
Michigan
Midwest Average
$2.08
$2.09
-5 cents
$2.04
Midwest Average

 

Propane -- Indiana prices surged this week and influenced the regional average price higher. The Dakotas each fell 5 cents and the majority of states were unchanged. Propane demand may be a disappointment to 9222015LPretailers this year at harvest as early bushels are coming off the field drier than expected. We booked our propane in the summer when farmers were looking forward to a potentially wet harvest. If crude oil and distillate prices are going to firm into 2016, propane will likely go along.

Most growers I have talked to were able to book propane well below $1.00 per gallon. We do not expect to see prices as low as they were this year next summer at the seasonal low. Bear in mind that propane in the tank will still be useable next fall, or whenever you might have the need. If this year's LP prices do turn out to be below next year's, and harvested grain requires less propane to dry, farmers who have booked large supplies will be ahead of the game next year.

EIA reports a mild decline in propane exports out of the U.S. as of June (their most recent data). National stocks continue to climb and are far above the five-year average supply. That will keep a lid on propane through harvest and through the coming winter. If winter 2015-16 is a mild one, next summer's prices may dip to levels close to what we saw during summer 2015. Some forecasters are calling for a mild winter -- including the woolly bear caterpillars who have been suspiciously brown this fall. Until supplies fall back to near the five-year average, prices will remain under pressure especially if winter and harvest demand are low, as many expect.

  • According to EIA, last week, national propane inventories firmed 1.137 million barrels -- now 20.255 million barrels above the same time last year at 97.693 million barrels.
  • The regionwide low is at $0.79 per gallon in Ohio and South Dakota and the regionwide high is in Indiana at $1.67.
LP 9/22/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.95
$0.95
Unchanged
$0.95
Iowa
Illinois
$1.29
$1.25
-4 cents
$1.25
Illinois
Indiana
$1.09
$1.03
-6 cents
$1.67
Indiana
Wisconsin
$1.13
$1.10
-3 cents
$1.10
Wisconsin
Minnesota
$0.95
$0.93
-2 cents
$0.96
Minnesota
South Dakota
$0.84
$0.84
Unchanged
$0.79
South Dakota
North Dakota
$0.84
$0.85
1 cent
$0.80
North Dakota
Nebraska
$0.80
$0.80
Unchanged
$0.80
Nebraska
Missouri
$1.23
$1.04
-19 cents
$1.04
Missouri
Kansas
$0.90
$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
$1.00
$0.98
4 cents
$1.02
Midwest Average

 

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