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Tidbits & Rain Days, Russia-Ukraine, Diesel Fuel 02/14/2022

Two weeks ago, 1,700 soldiers of the 82nd Airborne Division were sent to Poland as a show of support for Ukraine. Two days ago, another 3,000 airborne soldiers were sent to Poland. The White House will not confirm that Russia will invade Ukraine on Wednesday, but it appears the market expects invasion that day.


2022 corn planting has started in South Texas.


 

Should you lock-in 2023 diesel fuel?

The reasons 2023 fuel prices should be locked-in are:

Inflation. All prices will continue higher for the next several years (at the least).

The Federal government and the EU are doing their best to curtail fossil fuel use. The USA has gone from a net exporter of crude oil 13 months ago to a net importer 12 months ago.

It looks like public pressure (or the 2022 fall elections) will force the government to resolve supply chain issues, which will improve factory production, transportation tonnage and increase demand for fuel in the USA in 2023.

Many, perhaps most, crude oil market analysists expect crude to easily move above the all-time crude oil price of $147 per barrel and many are saying crude oil will reach $200 in the coming year.

The reasons 2023 fuel prices should not be locked-in are:

The US Energy Information Administration (EIA) predicts diesel prices will average $3.33 a gallon in 2022 $3.27 in 2023. Predictions say natural gas prices will also rise in 2022 and drop in 2023 (think nitrogen fertilizer) but electricity will be higher in 2022 and 2023.

Iran will soon be allowed to export crude oil as Biden has said economic sanctions will soon be lifted.

Crude oil prices are already up more than $60 a barrel from a year ago. That will encourage more oil production. Even though Biden banned shale oil extraction by fracking that may change after the 2022 elections. About $70 is the price needed to make extracting shale oil profitable.

Our recommendation:

If you can lock-in the price of diesel and a gasoline without paying for it upfront, by all means do it. Get the price locked-in now with dollar value more valuable than the dollar value will be next year. If inflation is 7% in the coming year as it was the past year, you will be paying for fuel in 2023 with dollars only worth 93 cents of today’s dollar value.

Consider buying diesel fuel futures or, better yet, call options, especially if your supplier requires upfront payment for 2023 guaranteed prices. March 2023 ULSD is at $2.54, 40 cents lower than March 2022 diesel.

If you buy a March 2023 ULSD $2.60 call option and, a year from now, March 2023 ULSD is at $4.60, you can sell the call for $2.00 a gallon; if ULSD is below $2.60 next February, you will be buying cash diesel for less than $2.60 and your loss with the option will be what you paid for it up front.

It is possible your fuel supplier may buy the options for you if you pay the supplier for the call option premiums. If you do not ask, the answer will always be “no”.

Below is the March 2022 ULSD March futures chart:



 

Market Data


This morning: Crude oil is at $93.79, up 0.75 The dollar index is at 96.11, up 0.03 March palm oil is at 5810 MYR, up 106. The contract high was made on February, 7th, at 5,876 MYR. Palm oil owns 32% and soybean oil owns 28% world market share. March cotton is at $124.75, up 0.168. The contract high was made February, 1st at $129.37 per cwt. Cotton competes with soybeans and corn for acres. March natural gas is at $4.109, up 0.051. The contract high was $6.132 at October, 6th, 2021. Natural gas is the primary cost to manufacture nitrogen fertilizer. March ULSD is at $2.9343 per gallon, up 0.0234. The contract high was $2.9605 made today.


 

Rain Days Update


Rondonópolis, Mato Grosso, in the heart of Brazil's most productive soybean area, received 0.6 inches of rain yesterday; 0.3 inches a year ago and 0.4 inches two years ago (one inch = 24.5 mm). Yesterday's high temperature was 85°F. Day time highs the next ten days will range from 83 to 88°F (100°F = 38°C). Yesterday, in the dry areas of South America: Santa Maria high temperature 82°F with 0 inches rain. Cordoba high temperature 84°F with 0 inches rain. Salto high temperature 82°F with 0 inches rain. Total rainfall and temperatures expected in the next ten days: Santa Maria 0.19 inches, 85 to 92°F. Cordoba 0.91 inches, 73 to 91°F. Salto 0.34 inches, 79 to 97°F. The Western Corn Belt has 5 more rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 4 more rain days than yesterday.



Explanation of Rain Days


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