Fuel contracting opportunities ahead

Temperatures are on the rise and the first signs of spring are presenting themselves across the Midwest. This means shed doors will soon be open and producers will start prepping for the 2021 season. The farming community has been on a roller coaster ride for the past few years as it had to contend with China trade wars and a worldwide pandemic.

However, improved commodity prices have proven to be a bright spot for the agriculture community. In the past year, soybean prices have gained more than $6 and corn prices have gained more than $1.50.

While the improved commodity prices are welcome, it certainly does not mean producers can stop planning, budgeting and preparing for the upcoming growing season. One piece of preparation is locking in diesel contracts for anticipated fall fuel needs.

Along with commodity prices, the energy markets have been on a roller coaster ride following the pandemic. Energy prices plummeted last March with demand drying up as the U.S. went into an economic shutdown. Last April, the heating oil market put a bottom in at 58 cents, but with the nation starting to reopen and vaccinations being distributed, prices have been on a steady increase and have gained approximately $1.40.

However, just because the heating oil market has rallied, it certainly does not mean good fuel contracting opportunities are not available. The green circles in the heating oil chart indicate prices during the fall months. As you can see, fuel prices typically tend to peak during the fall months, as demand is the greatest from the agriculture community. Therefore, getting your fall fuel needs locked in the near term may be beneficial.

This past summer, distillate stocks peaked as demand remained limited due to the pandemic, which translated into the dip in prices. However, stocks have been coming back down as demand has picked up, which should support energy prices going forward.

As always, we are never a proponent of contracting 100% of your fuel needs, but work with your local FS representative to establish a plan for your operation.

Bridget Chinowth serves as a GROWMARK Senior Energy analyst.