Retail gasoline prices are on the rise. This may be a sign that refiners have begun the process of switching over to summer blends, and that is generally an indication that diesel prices are due to firm seasonally.
We have received reports that fieldwork in the deep south including Louisiana and Texas is already underway. This week's warm temperatures across the Midwest will melt most of the remaining snow. If there is no March snow event, spring fieldwork could be underway in the heart of corn country in a month. We expect farmers to begin booking spring/summer diesel within the next few weeks. As buyers come to market, prices will be supported by demand.
EIA reported two weeks ago the uptrend in distillate supplies faltered. We have seen inventories rebuild slightly since then, but supplies froze at the top end of the five-year average. Supplies are by no means tight at this time, but if supplies level off at current levels, it is easy to make the argument that prices will level off as well. Our retail price survey shows just that -- we are unchanged this week at a regional average of $1.43 per gallon.
We rely on the heating oil futures, farm diesel spread to indicate diesel price moves (see chart below). Our analysis suggests mild upside risk, but even milder chances for further price softness. We do also expect heating oil futures to soften as crude oil fails to break through key points of resistance in the low $30's. A crude run back below $30 is likely which will pull heating oil futures downward, but seasonally, farm diesel has firmed sharply at this time of year. We believe the cash starved diesel market will take advantage of increased farmer demand and seasonal tendencies for firmer prices per gallon near-term.
The other thing to consider when picking pennies at this low diesel price is how much per acre a few cents will really impact your production budget. We feel strongly that seasonal price tendencies will overtake the fundamentals in the diesel, heating oil and crude markets and support higher farm diesel prices which are currently 34% below the same time last year. In other words, farm diesel is priced at value levels currently and we advise growers take advantage of today's low price.
The next logical question is whether or not to go ahead and book for fall at the same time. While diesel prices are set to firm between now and spring, I believe, unless there is a very dramatic shift in crude oil supplies globally, diesel prices will soften again once the bulk of spring demand passes. Unclear if we will see prices return to $1.43 or even go lower during the summer, but we see no pressing need to book too far ahead on diesel right now.
Get in touch with your preferred retailer today and get ahead of building upside risk by booking 100% of diesel for spring and summer fieldwork.