Agriculture conditions weighing on USMC diesel demand

Late planting amid flooding earlier this year could have rippling effects on diesel demand in the upcoming harvest season.

Agriculture activity is a heavy supporter of diesel demand in the US midcontinent, and the region's planting season was slowed by persistent flooding and heavy rains last spring. Precipitation totals for the majority of the region were classified as "above average" or "much above average" between January and April, per data from the US National Oceanic and Atmospheric Administration (NOAA). Melting snow coupled with the heavy rains to cause flooding from the Mississippi River during the spring.

This has weighed on demand and sent US midcontinent diesel inventories to a 32-week high. Regional ultra-low sulphur diesel (ULSD) stocks rose to 33.9mn bl last week, marking the highest level since late January of this year, according to the US Energy Information Administration (EIA). Meanwhile, regional ULSD inventories rose to the highest levels for any August on record with a weekly average of 32.2mn bl.

The heavy rains from the spring have also caused agriculture conditions to lag behind previous years.

The proportion of US corn at the denting stage was at 55pc by 8 September, down by 29pc from year-ago levels according to the US Department of Agriculture (USDA). Meanwhile, soybeans in good or excellent condition were down by 13pc to 55pc. In the midcontinent, corn at the dented stage in Illinois was down by 42pc to 53pc on 8 September, while denting in Ohio and Michigan were down by 44pc and 39pc, respectively, in yearly comparison. ULSD cash differentials in the US midcontinent are lower ahead of harvest season.

In the lower midcontinent, Group Three ultra-low sulphur diesel (ULSD) differentials against October Nymex have averaged -4.49¢/USG so far this month, down by 6.59¢/USG from September 2018.

Values in Chicago have also fallen. West Shore/Badger pipeline ULSD reached a seven-month low on 6 September at October Nymex -31¢/USG, down from September 2018 averages of +0.61¢/USG. Chicago Buckeye Complex ULSD, meanwhile, was the lowest since January on 9 September with deals from October Nymex -15¢/USG to -10¢/USG.