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Diesel and the high cost of farming

Belzoni, Miss., cotton producer Willard Jack went long on diesel fuel in 2000 and saved 45 cents a gallon. Jack has a 15,000-gallon storage tank for farm purposes that he routinely uses to go long on fuel (purchase the commodity at a low price before he needs it).

But with an annual fuel demand of over 100,000 gallons, it was still necessary to do quite a bit of “as-needed” purchasing for farm needs, especially to run center pivots during dry years like 2000.

Curious about the differences in costs between the two purchasing methods, in 2000 Jack tracked the price he paid ahead of time versus fuel he bought as needed. The difference was 45 cents a gallon.

This convinced Jack to build a second 15,000-gallon storage tank for the farm last fall. “If you burn 100,000 gallons of fuel on a farm and you can save yourself even 20 to 30 cents, that's $20,000 to $30,000.

“It may not be a big thing, but it adds up. Everybody is talking about saving money. It's just one more way that you can manage things a little closer.”

Jack, who was already well-versed on purchasing diesel in bulk through his company, Willard Jack Trucking, tracks heating oil futures to get an idea of where diesel prices are. “Heating oil futures used to track farm diesel real close. It still tracks it pretty close. The only thing is that the fuel prices have become very volatile.

“So far this year the low range of the heating oil futures was 67 cents and the high was 88 cents. That's over a 20-cent trading range, or over 25 percent of the value. So there's some real opportunities there if you watch the trends.”

At one time, fuel suppliers would let Jack and other farmers book ahead on fuel purchases. But the last couple of years, prices have been choppy and suppliers backed off the practice.

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