CENTRAL ILLINOIS (WCIA) — Scott Wilson, manager of customer risk management in GRIWMARK’s Energy Division, suggests farmers manage their diesel price risk with contracts, instead of spot purchases. But what does one ask for from a fuel supplier?
“The best way is to say if they do any fixed forward contracting,” Wilson said. “Another thing with a fixed forward price is you’ve got is what’s going on in the futures market is dictating a lot of that but you’ve got basis as well and a lot of farmers that know grain, know basis. But essentially the deviation or difference with the NYMAX, which is how global futures are priced for fuel, and what is going on in your particular geographical location. The nice thing about fixed forwards is you are locking in the risk on both of that. You are locking in the futures price and you are locking in your basis, so you are not having that risk from both of those different spots, so asking if there is fixed forward contracting is the best thing to do.”
But Wilson says there are some timing considerations and other strategies…
“There is some seasonality with this too,” Wilson said. “It doesn’t always happen but traditionally, if we look at the winter period is a great time to contract fuel. November, December January. That is when we are the busiest, by far. So that’s a great time. You should always look at it, that’s one of the best times to do it. It’s harder to do it when prices are so elevated, but it’s still a good time to do it, its always a good time. It’s like insurance, right, alleviate risk, not trying to hit a home run, do don’t go into the notion, that it did not work last year, so its not going to work this year. so its not always the case. We usually don’t go crazy with it. The highest we usually recommend for contracting is 30% but that varies, and a lot of farmers, if they are not doing huge amounts, its hard to do that so, its OK to go above those levels, but I wouldn’t lock in 100% with contracting, just like I wouldn’t want to go off the rack for 100% as well, or the spot market either, so in the medium would be a great recommendation, I think.”
We’ll talk with him about fall propane later. That’s our report from the farm. I’m Stu Ellis with WCIA-3.