CHS is kicking off the new year with a series of educational grain marketing webinars.
Tune in to hear from grain experts across CHS as they dive into all aspects of grain marketing, from futures to basis and all things in between. They will also be discussing grain marketing contracts and the benefits and strategies behind each type. All of this is designed to help you get the most out of every bushel.
Do I really need to contract? When is the right time to contract? How do I know if I’m getting a good price? Why is the price of the contract higher than today’s price?
Over the years, there has been a lot of discussion and even a slight bit of controversy over the subject of fuel contracting on the farm. Let me tell you this, there are no right or wrong answers to these questions. I honestly don’t know if these are even the questions you want to be asking yourself when thinking about contracting.
This time last year crude oil was hanging out around $60/barrel, which was about the average for 2019, and the beginning of 2020. Until Covid hit the US, and along with it came the potential for an economic disaster that could top the Great Depression. On April 20, 2020 the crude market made history; closing the day at -$36.98. For 1-day crude oil was worth less than nothing! What a day, filled with fear and uncertainty. Since this day the markets have seen a slow steady recovery, very slow. Non the less, we are currently hanging out around $45/barrel. With no sign of complete economic recovery in the near future, the market has bounced a bit in the past few months; but seems to really like that $45/barrel marker.
Though the energy markets seem very content under $50/barrel right now, we have to ask ourselves, what does the next 9 -12 months actually have in store for us? Will the US continue to struggle financially? Will Covid continue to rule the energy markets? Will the new administration bring in new changes that will ultimately affect the markets? The unknown can be quite scary.
So, let’s go back to the original questions:
Do I really need to contract?
That depends, how will you be affected by a price spike that could bring diesel fuel up over $1+/gallon higher than the current price?
Does contracting give you piece of mind? Do you like to gamble? When is the right time to contract?
There is no right or wrong time to contract. Historically, pricing is at it’s best between December & March…but history doesn’t always repeat itself! If 2020 taught us anything, it taught us that! Leaning on your energy sales consultant is the best idea.
How do I know if I’m getting a good price? What is a good price?
The question you really need to ask yourself is; does this price work with my annual budget? In other words, can I spend this much for fuel and still make the necessary profit for my business.
Why is the price of the contract higher than today’s price?
Contract prices can sometimes be higher than the current rack price (not always) because we are buying “futures”. With “futures” purchase there is always a risk, and risky behavior comes with a higher price-tag! Speculations of the futures markets can also wreak havoc on contract pricing-will there be supply issues in spring or fall? Will there be a bumper crop and cause for higher demand for fall? Will the prospect of a new administration cutting US drilling cause prices to skyrocket? These types of conversations will definitely raise eyebrows and lock in pricing!
Back to the original question of “is contracting your fuel important?”
The answer is = YES, it is important, but it is not the best option for everyone. Only you can make that decision if contracting is right for you.
One statement I make to my customers: DON’T LOOK BACK! What I mean by this, if you lock in your fuel at a price that you are comfortable with, stop shopping. There is no reason to waste precious time looking for the cheaper price, there is always going to be a cheaper price, but there is always going to be a higher price too. For your own piece of mind, lock it in and forget about it. DON’T LOOK BACK, you might trip over something in front of you!
Written by Kim Leisner, Certified Energy Specialist
On Jan., 6, 2021, CHS Inc., reported net income of $69.7 million for the first quarter of fiscal year 2021 that ended Nov. 30, 2020. This compares to net income of $177.9 million in the first quarter of fiscal year 2020.
The results for the first quarter of fiscal year 2021 reflect:
Revenues of $8.7 billion compared to revenues of $7.6 billion for the first quarter of fiscal year 2020.
Impacts in the CHS Energy segment that included:
Exceptionally low crack spreads and other unfavorable market conditions in our refined fuels business, driven primarily by the COVID-19 pandemic, resulted in volume and price declines that significantly reduced earnings in our Energy segment compared to the same period of the prior year.
Decreased propane demand that resulted from warmer and drier fall weather during the first quarter of fiscal 2021 compared to the same period of the prior year.
Impacts in the CHS Ag segment that included:
Improved relations between the United States and foreign trading partners that drove increased volumes and margins for grain and oilseed.
Favorable weather conditions during fall harvest compared to the prior year that drove increased volumes and margins across much of our Ag segment.
“Our employees’ commitment throughout the first quarter allowed us to consistently deliver products and services to our owners and customers around the world,” said Jay Debertin, president and CEO of CHS Inc. “A good growing season led to a good harvest season, and we saw commodity price rallies from spring and summer carry into fall. Those good weather conditions led to the highest volume fall fertilizer season we’ve seen since 2013 despite volatility in the nitrogen and phosphate markets.
“Improved trade opportunities with China and improved trade activity in Europe and Africa helped drive first quarter improvement in our global grain business. Our animal nutrition volumes also saw growth in the first quarter of fiscal year 2021,” Debertin said. “We saw year-over-year increases in premium diesel sales with rural America continuing to rely on us for their energy needs. However, our overall Energy segment experienced ongoing challenges on refined fuels margins as the pandemic continues to challenge the energy industry. Throughout the remainder of our fiscal year, we will remain focused on our key priorities including protecting the financial health of CHS, caring for those who depend on us and bringing efficiencies to how we run our businesses and deliver products.”
This document and other CHS Inc. publicly available documents contain, and CHS officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Report Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on CHS current beliefs, expectations and assumptions regarding the future of its businesses, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of CHS control. CHS actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Important factors that could cause CHS actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed or identified in CHS filings made with the U.S. Securities and Exchange Commission, including in the “Risk Factors” discussion in Item 1A of CHS Annual Report on Form 10-K for the fiscal year ended August 31, 2020. Any forward-looking statements made by CHS in this document are based only on information currently available to CHS and speak only as of the date on which the statement is made. CHS undertakes no obligation to update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise except as required by applicable law.