Better late than never may be the strategy for producers still needing to lock in fuel for spring fieldwork and planting.
The bitter cold winter kept energy prices higher than normal, longer than normal this winter. A break is finally underway but farmers may be racing the clock trying to book supplies before ag demand kicks in strong.
USLD supplies built by 2.2 million barrels this week, but most of the increase came along the East Coast. Supplies at the Gulf dropped, as more fuel is exported in the face of high global prices, international tensions and strong demand. Midwest supplies rose modestly, gaining 264,000 barrels due to slow demand despite a drop production.
Basis, however, strengthened, as futures broke sharply, working off some of their excess from the winter. Basis is likely to strengthen further as ag demand picks up, unless the lingering winter delays the start to fieldwork long enough to let supplies keep building. That's a game a chicken that could end badly.
The big question hanging over the market is whether futures can continue to slide with international tensions still raw from Russia's move against Ukraine over the weekend. Both crude oil and USLD pulled back to support Wednesday, following release of the latest inventory data from the government. A 10 to 15-cent break may be all the market can muster to the downside in the short-term unless peace breaks out all over.
We previously recommended locking in 50% of spring fuel needs. Lock in another 25% of spring needs on a break to $2.95 by the Mid-Continent or Group 3 benchmarks and be 100% covered at $2.85.
Maybe the propane market can set an example. After surging past $4, the break accelerated with wholesale costs below $1.10. Propane is still expensive at the farmgate level, but costs should continue to ease into spring and early summer, providing a good opportunity to lock in fall drying needs.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
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