Farm Diesel Pricing as WTI Climbs

July 19, 2013 09:27 AM

In an earlier Monitor article we discussed spreading price risk by booking only portions of farm diesel at different times throughout the year. That article relied on EIA projections of farm diesel averaging $3.40/gallon for 2013. But the recent runup in WTI pricing prompted me to revisit the farm diesel outlook, and sure enough, the projected WTI price sticks out like a sore thumb.

I have outlined data from Kansas State University on the table below. I have included historical data collected by Kevin Dhuyvetter from KSU based on average Kansas pricing. What I have done is figure what percentage is the price of farm diesel as a percent of front-month WTI. The average percentage since 2008 has been a very consistent 3.388% with a range of .46%.

WTI Crude price
Farm diesel price
F.D. Price % of WTI
2013 Forecast
2013 @ 7/19 WTI actual

crstuss7 19

These numbers get a little scary when WTI wears a $100 handle. The current WTI price at $108.12 leads to farm diesel at $3.663/gallon. Current Midwest averages have farm diesel at $3.35 and if WTI spends much more time at its present price, look for farm diesel pricing to respond with upward movement.

We expect farm diesel to move higher through the summer anyway, and if the average percentage of WTI crude is realized, farm diesel will demand 26 cents per gallon more than EIA and Kansas State U. predict.

The current WTI price is elevated on diminishing supplies in the U.S. -- EIA reported a 6.9 milliondisstuss7 19 barrel decline week-over last week, 10.4 million barrels behind the same time last year. Unrest in North Africa has played its role in elevating the price as have limited sendouts from Alberta due to pipeline disruptions.

Distillate inventories are even lower against the five-year average, but additions to distillate stocks have been enough to keep the upside limited for farm diesel at present, but if WTI stays above $100.00, the added expense will eventually show up on the ground. $3.40 is still achievable, but WTI will have to come down, and the distillate supply will need to continue to pull the wagon until it does.




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