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Agriculture

Ag Informer – Freight Costs to remain High

Freight costs are likely to remain elevated through the winter, despite the recent decline in crude oil prices, says Altin Kalo, senior economist at Steiner Consulting Group.

The U.S. Energy Administration’s recent update put inventories of diesel and heating oil at just 106 million barrels, well below the five-year range and also at the low end of the range for the last 40 years.

“Tight inventories continue to underpin diesel and heating oil prices,” Kalo said. “The average heating oil price for the week was pegged at $5.704/gallon, up 68% compared to a year ago.”

The severity of the winter weather this year will determine the trajectory of fuel oil prices. While diesel prices seemed to ease a bit towards the end of the summer, Kalo noted they have started to climb again. For the most current week the average price of diesel fuel in the US was $5.341 per gallon, up 9.2% in the last four weeks and 44% higher than last year. For diesel, the Gulf coast was the low point at $4.987 per gallon, while California was the high price at $6.331 per gallon.

But the spread of diesel vs. crude has widened significantly this year as the market has been unable to bolster supply quickly enough to match up with demand.

In its October outlook EIA noted that diesel prices for 2022 will be up about $1.7 per gallon vs. the previous year and only $0.7 of the increase is due to higher crude oil prices. The rest has gone to a larger wholesale and retail margin.

Higher labor and other costs are already baked in, Kalo noted, and those costs will continue to flow through into the various products traded and ultimately paid for by the US consumer.

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