While diesel fuel prices are expected to remain fairly steady through at least the first half of 2010, locking in prices on at least part of their fuel needs for the year is still good strategy for most ag producers, says Marty Wieland, director of energy risk management for Growmark, Inc., Bloomington, IL.
“Even when prices appear to be stable, like now, we advise people to think about forward pricing to lock in a certain percentage of their needs for the year,” says Wieland. “It gives you a little protection in case some outside event – like political turmoil in the Middle East or a hurricane – comes in and disrupts the market.”
There can be other benefits to forward-pricing, he adds. “It’s a good planning tool. You have a better idea of what your input costs for the entire year are going to be. Once you lock in the price you don’t have to worry about it.”
Weak demand, due mostly to slow growth in the U.S. economy, has been the key factor holding diesel fuel prices in check, says Wieland. “There’s plenty of inventory right now. And until the general economy picks up, demand isn’t likely to be all that strong.”
In its Short-Term Energy Outlook for February, the U.S. Department of Energy projected that retail diesel prices in the U.S. will average $2.95/gallon in 2010. That’s up from $2.46/gallon last year but down from an average price of $3.80 in 2008.