Contracting energy: Have a plan, not a crisis

The traditions of the holiday season are very important in many families. Along with Thanksgiving, hunters are out looking for “the big one” as the hunting season is in full swing.

There also is a great tradition in contracting energy products.

Seasonal studies suggest that the diesel fuel and gasoline markets tend to bottom in the Thanksgiving to Valentine’s Day time period. Following that seasonal price slump, prices tend to rally into spring and summer of the next year.

Research suggests those patterns work in about seven or eight out of 10 years. Past performance does not guarantee future results, but the seasonals are a good road map to follow.

For farmers and other end users, now is the time to get a plan in place for contracting product for next year. The old saying is “Winners have a plan while others have a crisis.” End users need a plan for 2012 as the fundamental situation in the diesel fuel market has changed recently.

Diesel fuel stocks in the U.S. have been above average levels for many months. There was almost a glut of product as the U.S. economy was weak for the past several years. That situation began to change in late summer/early fall. Since early October, stocks have fallen well below the average level for this time of year.

Since summer, diesel fuel demand has been strong and well above average levels. Some segments of the U.S. economy seem to be improving. The over-the-road trucking industry accounts for more than half of the total diesel demand in the this country.

Exports of diesel have been strong. The weak US dollar has helped increase exports along with strong overall demand from other areas of the world.

Export destinations include many Central and South American countries. Diesel fuel export demand was not much of an issue until 2008. Since then, as the dollar weakened, exports have increased.

In summary, now is the time for holiday traditions as well as contracting traditions. End users may want to begin hunting for bargains in the energy markets.

The fundamental supply/demand situation in diesel fuel has changed in 2011.

What is your plan for contracting your 2012 fuel needs? Talk to your local FS member cooperative about the contracts offered and have a great Thanksgiving holiday.
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Harry Cooney is GROWMARK’s manager of energy customer risk management. His e-mail address is hcooney@growmark.com.