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Diesel prices on verge of a slide?

Farm diesel fuel prices have gained $1 per gallon, or more, in the last three and a half years, depending on your location. But what's more notable in that price trend, at least in one location recently examined by a Kansas State University ag economist, is a mile-wide window of variety in the price for diesel compared to crude oil.

In January of 2010 in southwest Kansas, farm diesel was less than $2.50 a gallon. Today, it's just shy of $3.50 per gallon. During that time frame, the discrepancy between diesel prices and crude oil prices has closed, according to K-State economist Kevin Dhuyvetter. In 2010 when diesel was around $2.50, crude oil was in the upper $70s and $80s per barrel. Today, with diesel at $3.50, crude oil is in the $90s, meaning those two prices have converged. (See the chart below.)


Chart courtesy Kevin Dhuyvetter, Kansas State University.

Looking ahead, Dhuyvetter sees diesel prices moving lower into the first half of 2014, moving south at a steeper pace than crude oil, which he also sees slipping in the next few months. Is that changing your diesel-buying habits? Some farmers say more than just price goes into how they approach buying fuel, making it more of a reflection of other factors like weather and crop management systems and strategies.

"Our need for diesel varies greatly, driven by rainfall. Most of it is consumed for pumping lagoons, and we also have more hay to cut and save when precipitation both boosts forage growth and causes us to fertigate more frequently," says Farm Business Talk senior adviser Kay/NC, who farms in North Carolina. "In a dry year, very little diesel is needed. In a wet year like this one, we needed more. But it has turned very dry since mid-September. We also added a second reel last summer, so we move twice the water at once. That cut our diesel purchases tremendously. With so much variability, we order as needed, and pay within seven days to get their discount."

Adds Kansas farmer and Farm Business Talk veteran adviser Shaggy98: "I buy it as I need it. Switching to no-till has really decreased my diesel usage the last three years. I've got a bulk storage tank, but rarely do I have it filled completely full anymore.  Having the co-op just a couple miles up the road that gives me a bulk price each time I use my fuel card helps out with less on-farm storage as well."

Other farmers say they pinpoint the winter months for most of their diesel-buying and pricing. Based on Dhuyvetter's look at southwest Kansas diesel prices over the last four years, that's a good strategy, though looking longer-term, there's not as much of a clear trend to dictate buying fuel during a specific time frame. Still, it's worked well for some farmers.

"I usually fill up storage in January or February and sometimes contract more for summer delivery at that time. If I am not priced and need more, I'll look to buy on a dip," says Farm Business Talk senior contributor clayton58.

Adds veteran adviser Jim Meade / Iowa City: "Around here, bulk fuel prices are best in December-February every year. I've saved good money buying then. A couple of times, including this last year, I haven't done as well, but often I'm driving 50-cent-cheaper gasoline in the summer than is priced at the pump. Diesel, it's pretty much spring and fall. I try to buy in the winter, too. It hurts if I run out at peak season because the price is up.

"Yes, I look ahead on fuel buying maybe better than I do on some other inputs," he adds.

What's your diesel-buying strategy? Add your comments below or join the discussion in Farm Business Talk!

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