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Fall energy price opportunities loom large

Getty/iStockphoto large liquid propane tanks
Timing, weather, and production shifts could create a narrow window for farmers to price future energy needs in the coming weeks.

Most of the Heartland is still several weeks away from the peak pollination period for corn and soybeans as this column was being written in early June. That makes it the perfect time to look ahead at future pricing opportunities for both inputs and crops.

Many growers could face some hesitancy when pre-booking crop sales before yields are known this year, especially with a late start to spring planting and looming potential for further weather issues later in the season.

But even with the exact corn and soybean crop sizes still unknown, growers can start to plan now for fall drying costs – and even 2023 input pricing. Warmer weather typically creates lulls in propane pricing for growers who may be anticipating a late harvest.

As of late March, propane inventories across the Heartland were below the five-year average, with notable tightness in the Upper Midwest than the Eastern Corn Belt. Inventories typically replenish over the summer months, which helped shift cash propane prices lower in May.

US propane and propylene ending stocks

OPEC+ also issued forecasts for a 62% crude oil production increase in July and August above previous output upsurges at the early June 2022 OPEC+ meeting. OPEC countries, namely Saudi Arabia, are likely to increase shipping volumes to the U.S., which could help shift propane, diesel, and gasoline prices lower ahead of harvest.

If the lower price trends continue through the summer, it could be an opportune time to lock in fall energy prices. But markets remain skeptical of future dealings with OPEC countries, especially in light of the ongoing Russian military occupation in Ukraine. That price window could be exceptionally narrow this year.

At the same time, without further supply issues from Brazil and the Upper Midwest, corn prices could trend lower as harvest approaches and corn export season wanes. Locking in both new (’22) and old (’21) crop sales this month to cover future expenses could help offset some of the current market volatility at play.

A lucky break?!

A fire at a liquefied natural gas (LNG) export facility in Houston, Texas has shut down one of the biggest LNG export plants in the U.S. following an explosion late last Wednesday evening (June 8). The Freeport LNG plant can process up to 2.1 billion cubic feet of natural gas per day, exporting up to 15 million tonnes per year of LNG. It processes 20% of total U.S. LNG supplies.

The plant will remain shut down for three weeks. About 70% of the Freeport LNG plant’s monthly production over the past few months was exported to the U.K. and E.U., which are already reeling after cutting ties with Russian natural gas suppliers.

European LNG purchases from the U.S. over the past six months have resulted in record U.S. export volumes for LNG shipments. The Freeport LNG shutdown will likely have more dire impacts on European fuel availability and pricing than the U.S.

In fact, the U.S. – and specifically farmers – could stand to benefit from the slower export paces. U.S. natural gas storage volumes are currently 15% below normal levels for this time of year, flirting with an April 2019 low.

With hot temperatures expected across the Heartland and the South in the coming week, the country will be able to endure the heat comfortably while gas and power utility companies can have a much-needed chance to restock LNG supplies.

"U.S. power grid operations might actually benefit from this additional supply," Bernadette Johnson, general manager for power and renewables at Enverus, told Reuters yesterday. "However this is a relatively short-term event and the price impact should be short lived here in the U.S."

The lower natural gas prices could also provide some temporary price relief for fertilizer producers and eventually trickle downstream to farm buyers.

Sell now – or wait?

Even if growers chose to wait and pursue cash sales at harvest, it will likely be a lucrative choice. Strong futures prices driven upwards by tight supplies should help to offset some of the pain felt by smaller corn yields expected this year.

In a year with tight global soybean stocks the fall export season could pay big dividends for U.S. growers.

Barring any potential hurricane damage at the U.S. Gulf this fall, export paces are likely to be hot. As of late May 2022, outstanding new crop soybean export sales were already 63% higher than the same time a year ago. Top buyer China has driven the interest in soybeans, snapping up nearly 2.4 times more new crop soybean purchase orders from U.S. exporters than last year.

It’s not just China interested in U.S. soybeans this fall. Egypt and Algeria have outstanding new crop orders on the books already. European countries also placed early orders.

Canada’s current order for 2022 soybeans is less than half of the volumes booked last year. But canola acreage is expected to decrease this year in the Great White North, where for expanding crush capacity could necessitate more bushels from the mammoth U.S. soy crop.

Pulling the trigger on sales now could result in handsome rewards, but a premium could also be waiting for those harvest sales. Both strategies could be profitable for growers this year, which should help producers navigate these volatile markets with more confidence.

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