Putnam County, Ill. | Reuters — A disappointing planting season due to massive flooding in the U.S. Midwest this spring is expected to have spillover effects on diesel demand during harvest season, analysts and traders said.
Heavy storms that lingered over the Midwest left millions of acres unseeded and put crops that were planted late at a greater risk for damage from severe weather during the growing season, which is expected to reduce overall harvested acres in the fall.
Usually, Midwest diesel demand jumps during corn and soybean harvest season around September and October as farmers rely on equipment that runs on the fuel. Now, market participants expect demand will sag in those months.
“The delayed planting will push the demand period back by about a good month. For the volume of product used, that should be down from last year,” said Rich Nelson, chief strategist at Allendale, a commodities brokerage in McHenry, Illinois.
The delayed planting season sapped demand and prices for diesel in the region, leaving behind a glut of supply. Midwest distillate stockpiles are at 32.6 million barrels, the most seasonally since 2017, U.S. Energy Information Administration data shows.
In the cash markets, Chicago ultra-low sulfur diesel sank to 18 cents per gallon below the NYMEX futures benchmark in mid-June, lowest seasonally on record, according to Refinitiv Eikon data going back to 2011 (all figures US$). While it has gained since then, to nine cents below futures, it is still the weakest on record for this time of year.
Group Three diesel, priced out of Tulsa, Oklahoma, is at 7.5 cents per gallon below futures, the lowest for early July since 2015.
The effects of the flooding could ripple through the remainder of this year, according to diesel traders and grain sellers.
The day after the July 4 holiday, Rob Colby, who sells corn and soybeans across north-central Illinois, assessed a field of corn in Putnam County and estimated the crops to be three to four weeks behind schedule. The delayed planting will push back harvest season, which will then push back autumn tillage, when fields are prepared for the next season of planting.
“This year there probably won’t be much fall tillage done, which will delay progress into next spring even. So the lasting effects of this year are going to be probably two years until we’re fully recovered,” Colby said.
— Stephanie Kelly reports on U.S. oil and fuel markets for Reuters from New York.