A new approach to purchasing fuel

Bruce from Can. · Apr 23, 2018

I buy my tractor fuel from the Co-op , and they offer
the opportunity to book your fuel at what ever the
current price is, for the next 6 months. I do have to
pay a .04 cent administration fee up front on the
amount that I lock in. If the price goes down, then I
get to pay the lower price, but I will never pay more
than the booked price. So I have done the booking,
believing the fuel price to be on the way up. Any
one else do this kind of thing?

john in la · Apr 23, 2018

"If the price goes down, then I get to pay the lower price"

That seems like a win win for the buyer and a raw deal for the co-op.
I must be missing something as I see no reason for the co-op to do this.

Andy Martin · Apr 23, 2018

I do this with propane, although there is no fee. And I have to pay the full price in advance. But with propane it always goes up in the winter so the summer price is usually a real bargain.

I know they buy futures contracts but I don't know how they handle the downside of lower prices. We've only had lower prices one year and thhey honored their deal, selling at the price lower than the summer price.

Bruce from Can. · Apr 23, 2018

This has me puzzled some what too. I am thinking they buy a large enough contract that based on previous years they don?t face a loss. When was the last time you saw fuel price drop sharply?

rrlund · Apr 23, 2018

No. I didn't even ask the price when I called them this morning. The office must have called the driver on the road because he was here within half an hour.
From the look of crude prices,I fear you're right about the price heading north.

DoubleO7 · Apr 23, 2018

Are you required to take delivery of a minimum amount over the next six months?

SVcummins · Apr 23, 2018

Wish I could do that I?d have locked it when it was under 2.00$

paul · Apr 23, 2018

I did one year, similar deal, but my coop offers a 10 cent discount if you pay within 15 days of delivery. They don't offer that dime off on prepay, said I was the first one ever asked about it.

Seems like I'm really prepaying when I book months ahead, seemed like an odd deal to me.

I find fuel, while expensive, is down below fertilizer, seed, herbicides, and iron on my costs, so I end up not worrying about the fuel so much compared to the rest.

Paul

Bruce from Can. · Apr 23, 2018

While i am not a organic farmer, I use very little spray. Only spray Round Up on 25-30 acres of corn. Usually don?t need to spray my 50 acres of grain, I swath anyway. And we have enough manure, and do short rotations on hay ground, growing legumes, so fertilizer is not something I buy either. I really like to keep a close eye on what it cost me to produce per hundred of milk. And knowing my fuel cost for growing forage crops, really is a help to keep writing with black ink vs the red stuff during these rather volatile milk price times.

Bruce from Can. · Apr 23, 2018

I have to book a minimum of 1000 litres , about
enough to fill all of my tractors from empty to full
once

paul · Apr 23, 2018

Dairy farmer, you have to do everything you can right now.....

Didn't mean to put down the idea, I think you are in the right time frame to precook fuel now, or a little before now.

Good plan.

When I tried it, fuel prices actually kinda went the other way, or flat, and I lost the dime discount one normally gets, so kinda made me focus on other things, in my situation is all.

Paul

ajl · Apr 23, 2018

Fuel prices always peak out in late May so this is the worst time of the year to lock in fuel. If a salesman is around to get you to lock in it is because they think it is going down. So long as interest rates are rising oil prices will never (never say never) go to $100 USD per barrel. The price was that high because of expectations of inflation when central banks are printing money so suppress rates. Now they are allowing them to rise marginally and a stronger currency keeps commodity price inflation at bay. This is the time of year when oil prices peak so I expect them to decline for most of the rest of the year unless of course WW3 breaks out or something like that. Bought died fuel today east of Edmonton and to my surprise at 0.93 cdn it was cheaper than I though it was going to be. Last year it was around 0.77 but it is still cheaper than a few years back when it was over a buck per litre.

Ronnie Budd · Apr 23, 2018

The local Co-op here has offered that type of service for a long time, and many people take advantage of it. I worked for them for about 8 years as a fuel transport driver. The way it works is that they buy a fuel contract from their suppliers to cover all the contracts they sold to their customers, effectively locking in the stated price. They always contract a percentage of their total expected business, and buy on the open market for a percentage. So, they cover the contracts they sell to their customers and have to buy on the open market for the customers who do not contract ahead. Both the Co-op, and the un-contracted customers take the gamble on whether the prices go up or down on the open market. Both pay fluctuating prices on the open market.

Bruce from Can. · Apr 23, 2018

It is a buck and a quarter at the pump now for diesel, and $1.30 per liter for gas, this is Ontario. I don't think are markets work the same as yours do in the west,excluding BC. Our price will continue to climb through the spring and into summer, particularly around holiday weekends. With the Canuck Buck in the decline , fuel price go up at the pump. Guess we will see who is right , hope it is me ,lol.

centash · Apr 23, 2018

Don't forget the upcoming provincial election, Bruce. In spite of their promises, the massive provincial debt has to be reduced somehow....and you guessed it, fuel taxes will be part of it.
Ben

john in la · Apr 23, 2018

When was the last time you saw fuel price drop sharply?

The day Flying J lost their rear end in the futures market and had to sell a big chunk to Pilot to pay bills.

hydro70guy · Apr 24, 2018

You cannot be hurt to much. You are paying 4 cents to lock in a ceiling, I assume you still do not pay for fuel till delivered.

BarnyardEngineering · Apr 24, 2018

(quoted from post at 11:58:13 04/23/18) "If the price goes down, then I get to pay the lower price"

That seems like a win win for the buyer and a raw deal for the co-op.
I must be missing something as I see no reason for the co-op to do this.

It's called a bunch of whiney customers raised holy heck when they locked in the price, then fuel prices went down. "It's nooooooot faaaaaaaaaair!"

But it's fair for the co-op to eat the extra cost when the prices go up. I should be amazed but I'm not, because that is the general attitude these days across the board. Suppliers need to make money too, or they won't be there to supply you what you need next time around. So many people seem to think that businesses should just give everything away.

Bob in SD · Apr 24, 2018

4/100 of a penny? Per liter? Per gallon?

I'd go for it, but don't see how the co-op is making it work at that rates. They've got no cushion if the price drops.

BrianV_ · Apr 24, 2018

(quoted from post at 06:06:13 04/24/18) 4/100 of a penny? Per liter? Per gallon?

I'd go for it, but don't see how the co-op is making it work at that rates. They've got no cushion if the price drops.

That would be per litre since Bruce is from up here in Canada. So that's close to $0.15 / gal.

ajl · Apr 24, 2018

Huge spread between died fuel price and the clear pump price here as well. Pump diesel is around 1.21 in this area.

Bob in SD · Apr 24, 2018

$ 0.15 or 0.15 cents per gallon ( $0.15 per 100 gallons)?

If he meant 4 cents/liter and lock in during the high months that should give the Co-op some cushion. 0.04 cents not so much.

A new approach to purchasing fuel

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