Contracting Can Turn a Volatile Variable Cost into a Predictable Fixed Cost

Jan 20 2014

Contracting now will not guarantee you’re getting the low price, but in 8 out of 10 years, this period is a ‘sweet spot’ that will give you some of the best fuel values of the year, according to North Central Co-op price risk manager Blaine Duxbury.

 

 

 

Duxbury encouraged farmers to consider contracting at least a portion of their diesel fuel needs. He said that doing so could help level out the highs and lows of the diesel fuel market and turn a volatile variable cost into a predictable fixed cost. He also said that the next few weeks were a good time to do so.

 

“Contracting now will not guarantee you’re getting the low price, but in 8 out of 10 years, this period is a ‘sweet spot’ that will give you some of the best fuel values of the year,” he said.

 

“With a contract you have a price locked in, even if the price goes up drastically,” he said. “And you do need to take delivery of the contracted amount by the end of the contract. But if the cash price falls below the contracted price, then you have the option to tell your driver, ‘Let’s hold off on the contract fuel, I want to pull some at the cash price this time.’”

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