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Weekly Energy Review

Last week I recommended using the break in diesel prices to fill up on-farm storage tanks with enough product to last through June. Prices firmed briefly, as refinery outages continue to cause temporary disruptions, but the market appears to have resumed its downtrend on macro level concerns.

It's still a good idea to have enough fuel to last through winter wheat harvest. But producers should also be planning a long-term term strategy to protect against rising prices later this year. I don't expect any turnaround in the market soon, unless Middle East tensions resurface.

Concerns over the potential for Greece to exit the euro zone should remain on the front burner until at least June 17, when new elections are held with a deadline looming for austerity measures needed to secure another round of bailout financing.

Funds have also started liquidating their bullish bet, and that cleansing could continue into the summer. A big spike in the dollar could send crude oil futures all the way down to the $80 level, perhaps even a bit lower, according to my pricing model. That could knock fuel prices another 25 cents a gallon lower, maybe more depending on basis.

Waiting for that basis to weaken seasonally into June or early July, then locking in cash is one strategy. Otherwise, a break by futures to chart objectives, say $2.70 nearby heating oil, would be a signal to buy futures and hold off buying cash until basis nosedives. Setting up financing for a hedge, or a basis contract with your dealer, if offered, should be done now.

While crude oil supplies continue to build, adding to macro-pressure on prices, diesel stocks continue to fade in the Midwest on ag demand, though they're up in the Gulf refinery region. At the same time distillate exports rose 13% in latest four-week snapshot, another reason for falling stocks overall.

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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 Advisor. 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.