Filling a tractor with red diesel(c) Red diesel

Interest in forward booking fuel has soared as farmers seek to lock in to known costs of production.

The bulk of red diesel deliveries were going on to farm at spot rates of 44-47p/litre this week, 16-20p/litre lower than prices a year ago.

Oil prices dipped below US$50/ barrel during much of January but have since risen to take Brent Crude to just over US$56/barrel midweek.

See also: Oil price plunge means red diesel savings for farmers

At Hull-based Rix Fuels, director and general manager Duncan Lambert said that, off the back of the market lows, farmers had already committed to more than 5m litres of red diesel for delivery from July through to October.

Of this, orders made in 5,000- to 250,000-litre lots looked like being priced at just over 40-42p/litre delivered, with payment made at the time of booking.

With oil prices strengthening, bookings made midweek for July to October delivery would be at 46p/litre-plus, he said.

“Farmers would traditionally be booking these deliveries in June and July,” said Mr Lambert, who would usually expect to do barely any harvest business this early in the year.

The increased demand from farmers to forward-book fuel has led buying group FramFarmers to bring forward the start of its group fuel buying scheme this year, said arable products manager Andrew Merton.

The scheme now offers fixed prices from April through to October and has moved from last year’s payment on delivery to standard 28-day payment terms. Red diesel on this basis is priced at 46-47p/litre delivered.

Those using the scheme were booking anywhere from 50-70% of their requirements, said Mr Merton, and would make up the rest with spot orders to balance the price risk and the risk of overcommitting to volumes that they might not need.

Given the volatility of oil prices, farmers should try to book at least some of their requirements while prices were relatively low, he said.

While oil prices are rising at the moment, no one can guarantee this will continue.

Currency and politics make the oil market very nervous and some market analysts have said prices could still drop well below the previous low seen in mid-January.

“The price has spiked a bit in the past few days, but we’ve still got oversupply,” said Nigel Collen, business manager of Mole Fuel Solutions.

“One concern is the reduction in oil investment in the USA,” said Mr Merton. “If that’s long-term, then we would tend to be seeing the oil price creep up.”

Fuel duty is levied on red diesel at 11.14p/litre, so currently accounts for about 25% of the price on to farm.