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Keep an eye on fuel prices

Agriculture.com Staff 09/15/2006 @ 12:05pm

Fuel prices have taken a major slide over the last month. This needs to be watched by farmers looking to lock in longer term needs. Many of the energy analytical advisory firms are suggesting that a pull-back in energy prices will likely be temporary due to a longer term supply concern.

The outlook for energy prices will change daily, but common sense suggests that, with the world economy growing and demand at a record level, it would be unusual to expect prices to continue to slide long term. Look at percentage changes. The October heating oil futures contract, which most closely mirrors diesel fuel prices, has made a significant slide after peaking in July at just under $2.25 a gallon and trading down to $172.50 as of this writing. That is a change of 49.5 cents, or just under 23%.

Generally, a change of 20% to 25% bears watching in any market. As an example, for corn producers, a 25% change in value upward from $2.50/bushel equals $3.12, and a 25% drop in value equals $1.87. This is the difference between a great and lousy year.

While there is no sign yet that a bottom is in place, a very rapid sell-off could be followed by a rapid recovery. One hurricane could change the picture dramatically. With fund liquidation and expectations for increased inventory of energy products due to consumer slowdown, the market has made a significant enough correction already. Farmers need to keep a close eye on energies to lock in long-term needs.

If you have any questions or comments or would like more detailed strategies for your situation, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

Fuel prices have taken a major slide over the last month. This needs to be watched by farmers looking to lock in longer term needs. Many of the energy analytical advisory firms are suggesting that a pull-back in energy prices will likely be temporary due to a longer term supply concern.

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