USING THE CRUDE OIL AND HEATING OIL MARKETS FOR DIESEL FUEL PURCHASING DECISIONS

Agricultural producers and input suppliers must regularly make decisions based on forecasts; however, most publicly available forecasts are for outputs. Research has shown the importance of being a low-cost operator. Thus, focusing on inputs may be beneficial. The objective of this research was to estimate models based on futures markets to forecast diesel fuel prices. Results suggest diesel fuel prices forecasted using the crude oil or heating oil futures market are reasonably accurate, and that this approach is superior to using a historical average. Based on out-of-sample price predictions, producers could profitably use crude oil futures-based models to make diesel fuel purchasing decisions. While the gains from following a model-based decision rule were small, they were positive, suggesting producers would not be worse off following this strategy.