Diesel prices finally ease Winter weather and international events could determine your fuel bill for 2018 By Bryce Knorr, senior grain market analyst

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1 Diesel prices finally ease Winter weather and international events could determine your fuel bill for 2018 By Bryce Knorr, senior grain market analyst After rallying to their highest level in nearly three years, diesel prices finally began to pull back this week, at least on wholesale markets after staying strong longer than usual due to the drawn out harvest. But how far fuel falls now depends on myriad factors that won t be easy to predict as farmers wonder when to lock in prices for diesel they ll need in the spring. For one thing, inventories in the Midwest are still fairly tight, falling for the ninth straight week last week. Despite increased production, refineries in the region are running at only 88.4% of capacity as seasonal maintenance begins to wrap up. How fast stocks build depends on turnarounds ending into the winter heating season. Heating oil is still used on the East Coast and the La Nina pattern expected this winter could chill temperatures in a few parts of the Northeast though official winter forecasts out today call for above normal temperatures in the East and South. Cold weather forecast for the Midwest and northern Plains could also be a factor in the broader petroleum market if it builds fears of another polar vortex like the one in Crude oil prices could also swing the product market. U.S. futures are holding above $55 a barrel, which is right on the average price for 2018 forecast by models of supply and demand. But current options volatilities imply crude could trade in a range from $41 to $71.75 in the coming year perhaps hitting both ends of that spectrum. Bulls hope OPEC and its allies will agree to extend production cuts through 2018 as the cartel 2.0 tries to move prices back to $70. Bears point to U.S. production that set a record last week. Rig counts are rising but are running at levels less than half their peak from the first part of the shale oil boom. The International Energy Agency this week said growth in U.S. production will set a record in coming years, even as it cut its forecast of global demand for 2017 and Seasonally, diesel prices tend to weaken into December and January. Basis between Midwest cash prices and futures delivered in New York Harbor tends to bottom in January and February. That could provide opportunities for growers buying a lot of fuel to trade the basis in an attempt to manage fuel bills. This involves either buying the board first, then liquidating those positions and buying cash, or buying cash and selling futures. Gulf diesel prices could average $1.81 to $1.83 in the coming year tack on 35 to 50 cents to those depending on your market. For a typical Midwest grower that means diesel could cost as much as $2.50, say during planting, or as little as $1.95. Whether bargains that deep would be available this winter is doubtful unless crude breaks to the bottom of its expected range. Fears of a new glut, collapse of the OPEC coalition, a meltdown on Wall Street, or a very warm winter could contribute to such a decline. Crude prices also will figure into the cost of propane for drying 2018 crops. Propane s seasonal rally into the heating season is lasting a little longer than normal due to the disruptions from a busy hurricane season, keeping the Midwest benchmark at the highest levels since Prices are unlikely to reach levels from earlier this year, but should work lower from late winter into early summer. Finally, crude could be key for ethanol s fortunes. Production remains near record levels, suggesting USDA is 50 million bushels or more too low on its forecast for 2017 crop corn usage. But ethanol prices pulled back this week on a build in stocks on the dip in crude, which could test margins.

2 net position long/short Crude Oil Futures and Options Managed Money Crude Oil Futures 0 1/1/2014 7/1/2014 1/1/2015 7/1/2015 1/1/2016 7/1/2016 1/1/2017 7/1/2017 $120 $100 $80 $60 $40 $20 $0 Source: CFTC, NYME Crude Oil Commitment of Traders - Crude Oil ,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - Crude Oil Open Interest

3 Stocks WEEKLY ETHANOL PRODUCTION AND STOCKS Production 1100 thousand barrels /1/14 12/1/14 3/1/15 6/1/15 9/1/15 12/1/15 3/1/16 6/1/16 9/1/16 12/1/16 3/1/17 6/1/17 9/1/ thousand barrels/day Ending stocks Daily Production ETHANOL PRODUCTION GALLONS FROM EACH BUSHEL USED Sep 14 Feb 15 Jul 15 Dec 15 May 16 Oct 16 Mar 17 Aug 17

4 Average Corn Belt Ethanol Plant Margins $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $0.50 $1.00 Average Corn Belt Ethanol Prices $2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00

5 U.S. Gasoline Stocks 270 Current 5-Year Min. 5-Year Max. 250 million barrels Days of Gasoline Supplies Current Year Prior Year

6 Refinery Capacity Utilization 100 Current Year Prior Year 95 per cent Total Petroleum Product Exports thousand barrels per day

7 Midwest Diesel thousand barrels thousand barrels/day Stocks Production Mid Continent Diesel Seasonal cents/gal /5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 5/5 6/5

8 $0.20 $0.15 Mid Continent Diesel Seasonal Basis $0.10 $0.05 cents/gal $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 7/5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 5/5 6/5

9 Group 3 Diesel Seasonal /1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1 $0.15 $0.10 Group 3 Diesel Seasonal Basis $0.05 $0.00 $0.05 $0.10 $0.15 $0.20 7/1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1

10 U.S. Diesel Stocks 180 Current 5-Year Min. 5-Year Max million barrels Days of Distillate Supplies 55 Current Year Prior Year

11 Energy Futures Price Curve Crude oil Diesel $57.00 $1.95 $56.00 $1.90 $55.00 $54.00 $1.85 $53.00 $1.80 $52.00 $51.00 $1.75 $50.00 $1.70 Crude oil $49.00 Diesel $1.65 $48.00 $47.00 $ NOV NOV NOV NOV 2020 Diesel Swaps Chicago Group

12 115 U.S. Propane Stocks Current 5-Year Min. 5-Year Max million barrels Days of Propane Supplies 135 Current Year Prior Year

13 Total Propane Supplied (Demand) thousand barrels per day Spot propane prices vs Crude oil Mid-Continent Propane Crude Oil $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0

14 Ave rage 2017 Seasonal propane prices (Mont Belvieu, Texas) Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave rage Seasonal propane prices (Conway, Kansas) Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

15 CME Swaps Curve Mont Belvieu, TX wholesale price $1.10 $1.00 $0.90 per gallon $0.80 $0.70 $0.60 $ Nov 18 Jan 18 Mar 18 May JLY Sep 18 Nov 19 Jan 19 Mar 19 May JLY Sep 19 Nov 20 Jan 20 Mar 20 May JLY Sep 20 Nov 21 Jan 21 Mar 21 May JLY Sep 21 Nov Source: CME Group $1.05 CME Swaps Curve Conway Kansas wholesale price $0.95 $0.85 per gallon $0.75 $0.65 $0.55 $0.45 Source: CME Group