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Off-road diesel prices at highest since May 2015

GREENTOWN, Ind. — When Bryan Kirkpatrick put in two additional large diesel fuel storage tanks on his corn and soybean farm in 2008, he wondered if he was doing the right thing.

He wonders no longer, as the decision has paid for itself. “All the other inputs cost more, but in the farm business, we’ve got to save every penny we can wherever we can.

“It’s just one piece of the pie, but I saved $450 in one day on a semi truck load when the price went down 6 cents. All the dollars add up to your net profit,” Kirkpatrick said last week, as gas and diesel prices hit their highest point since 2015.

Kirkpatrick fills his tanks – with a total of 36,000 gallons capacity – when diesel prices hit a low point, potentially saving him hundreds of dollars or more per year on his operation in Greentown, near Kokomo.

The USDA records off-road diesel prices in Illinois, which are representative of prices throughout the Midwest. Dated Oct. 26, the biweekly report recorded an average price of $2.45 per gallon, the highest since May 28, 2015. That price is also 18 percent higher than the $2.08 recorded on Aug. 3, 2017.

“Crop margins are very tight now, and farmers are watching every dollar, so they will notice the change in fuel prices,” said Chris Hurt, ag economist and professor at Purdue University.

Mike Foster, salesperson for Co-Alliance – a north-central Indiana supplier of Midwest fuel cooperative CountryMark – said that normally prices in November start to go down, but they are still rising this year.

Some factors influencing the increase in diesel and gasoline prices are the disruption of supply and damage to refineries in Texas when Hurricane Harvey hit. Another is that a gas pipeline from the Gulf of Mexico to Chicago has been disrupted. Also, many refineries have slowed production, while demand for petroleum continues to be high from farmers in the field and an increase in demand for heating oil.

By Oct. 29, 83 percent of soybeans nationally were harvested, but corn harvest had further to go, at only 54 percent completed on the same date. Hurt said growers still need to do more fall tillage and fertilizer application, for which more fuel will be needed.

If producers only need 15 percent more fuel for the year – with a rise in cost of 18 percent (since August)  – he estimates it could add 46 cents to the cost per acre for corn and 27 cents for soybeans.

While this is a modest increase, fuel prices can go higher yet. Foster said he’s seen gas prices twice this price before, so it’s possible they could climb, especially if another calamity hits. But if trends continue as they usually do, he expects prices to go back down in January and February 2018, a good time to buy fuel.

“Investing in storage can be important,” he said. “We at Co-Alliance are big on contracting. When prices are low, there is no charge to lock in a price.”

Patrick DeHaan, petroleum analyst with GasBuddy, an online price tracker, said his business helps consumers know when to buy gasoline. He said similar factors influence diesel and gas, including refineries, regulations and Organization of the Petroleum Exporting Countries’, or OPEC’s, control of supply, which it has tightened recently.

While gas prices tend to be more volatile than diesel, the world is changing, he said. “Twenty to 30 years ago fuel prices were far less volatile. Now you see prices all over the place.

“One way to distribute volatility is to store fuel yourself as long as you can. It’s well worth it to have some control over price,” DeHaan pointed out.

Kirkpatrick’s upfront costs to build a storage facility were fairly high, as he said he did not cut corners. He did the research to make sure the larger storage tanks met all codes, with dikes built underneath to catch any potential leaks.

He did stop short of saying that fuel storage is a must-have for every farmer. “Everyone is different. It works well for me, and I’m thankful I made the choice and it’s worked out. Twenty years ago I didn’t worry about the cost of fuel because it wasn’t that expensive. The price has come up significantly,” he explained.

Stronger energy prices could be an indication of a better world economy that is demanding more fuel – a positive sign for corn, Hurt said. “Some of the same factors strengthening fuel prices could help corn prices rise in the longer run,” he noted.