Analyst: Lock In Energy Prices
Energy prices have been declining since peaking in December, with August crude oil futures peaking near $57 and now trading under $44 per barrel. This decline of $13 (or near 23%) suggests that longer-term opportunities to lock in fuel and energy needs is becoming increasingly important. Over the last five years, the energy market has experienced extreme volatility, with crude oil prices trading well over $100 and then dropping sharply to near $25 in February of 2016. After washing out, prices recovered into late fall, peaking near $55 on the heels of OPEC cutting production.
We are not expecting crude oil to reach $25, yet a recent pull-back to the low $40s, a 14-month low, is catching our attention. Prices in February 2016 near $25 may have been a once-in-a-decade event. Crude oil prices traded over $100 for nearly five years, which encouraged increased production and the use of new technologies. Eventually, over-supply lead to a significant price collapse. Currently, support is at $40 after recently trading into the low $60s. Low prices for row-crop commodities suggests that every penny for farmers counts. The recent downturn in energy prices may be providing a value to users of energy, and action should be taken soon. The odds are mounting that energy production will be curtailed near $40.
Most will find it advantageous to deal directly with their vendor, executing forward pricing contracts. However, futures contracts are also available for crude oil, heating oil, natural gas, and gasoline. Options can be utilized as well. Find the right tool that works best for you. A comprehensive approach to marketing involves shifting risk for the products you produce as well as the inputs you purchase.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, ext. 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.