Episode 5 | Fueling Confidence: Markets, Contracts & Winter Prep with CVA Energy

Intro: Welcome to at the Table with Central Valley Ag, transparent leadership perspectives, innovative strategies and actionable insights designed to help you grow your operation and strengthen your foundation for long-term success. Whether you're in the field, in the office, or thinking about what's next, this is where ideas grow into action. 

Kane Kuehl: Welcome to at the table with Central Valley Ag where we bring real conversations about our cooperative. Straight to you. I'm Kane Kuehl, energy sales manager here at CVA and your host for today's episode. Joining me are Jeff Ingles, senior vice president of Energy and Chatrice Dahl Energy Advisor. In this episode, we'll talk about contracting, what to know about the markets and tips for winterizing. Also highlight how CVA energy is not only serving agriculture, but also commercial residential customers as well. Let's get started. Jeff, tell us about your background and how you ended up as senior VP at Central Valley co-op. I can start for you if you'd like a long, long time ago. 

Jeff Ingalls: Thanks, Kane. I don't feel that old, but anyways, I've been involved in the cooperative industry pretty much my entire career. Graduated from UNL back in 1992, so I want to add it up. It's a long time ago. But anyways, started out in the feed division of Farmland Industries as a salesperson and stationed me up in Southeast South Dakota for a few years and had the opportunity to come back to Nebraska and manage a feed division. So you're going, okay, why is this guy running an energy division that's been in feed? Well, like a lot of other cooperatives and smaller cooperatives, you end up kicking lots of hats on, and so that was part of it is I took over the energy division, the cooperative I was at, and led both the feed and the energy for that cooperative for about 20 years. I worked at that cooperative and had the opportunity after about in 2015 to get the opportunity to come at CVA and run the lead the energy division here and has been here since then. So I always tell everybody my initiation in the energy was September 11th, 2000, 2001. Everybody remembers that day. It was a tough day and it was certainly a challenging day for energy because all of the financial institutions were shut down and really had no idea what the markets were going to settle. So it was a crazy day. So I got initiated that way.

Kane Kuehl: A day we'll never forget. Yep. Thank you. Chatrice, welcome. Most of our viewers know you as Chatrice White. Congrats on recently getting married. So tell us about your transition from a basketball star to becoming an energy advisor at CVA.

Chatrice Dahl: Yeah, so thanks for the shout out on the name change. So it was a good summer. We had a great time at the wedding. But yeah, my original background, sometimes I told people I majored in basketball when I was in college and for the most part that was probably true, but eventually, so went to college, played basketball at the University of Illinois for a couple years and then finished up at Florida State University. So from there I went and played professionally in Europe for five seasons, and it was really during that time that I knew that I wanted to be back home and that I missed Nebraska and small town life being back at the farm and big ag community growing up. So I knew what that was like and knew that there was actually a lot of opportunities job wise to come back to.

Kane Kuehl: That's quite the story, so we're glad you moved back home as well.

Chatrice Dahl: Yeah, thanks.

Kane Kuehl: What about you Kane? My background, well, I started in the cooperative system back in 2010. I worked for CHS and sales and then transitioned over to CVA as operations manager, and now I'm the sales manager. So really enjoyed my time. I've worked for Jeff for quite a while and CVA is a great company to work for, so thanks for asking. So let's get started on our conversation. I thought we'd kick it off with markets. Jeff markets can be extremely volatile. What has the most impact on the energy markets?

Jeff Ingalls: There's a lot of different parts of that market that can be affected. Supply and demand of course is probably the biggest driver of all those, but anymore it seems like geopolitical events throughout the globally can have that effect on the markets from what's going on overseas and Russia and Ukraine to what's going on in the Middle East. It all depends on that. We're fortunate in the last 15 years, the United States has become pretty much energy independent. Prior to that, if you remember Hurricane Katrina came through and devastated the Gulf and you've seen prices of oil double in price and just that one timeframe and we've never looked back from there. And the good thing about that, that got to the American oil industry to start investing in the infrastructure to start fracking and adding that additional supply and now that we're oil independent and while the prices globally still affect us, it just certainly doesn't have nearly affected it used to have 15, 20 years ago. But those would be the biggest factors. There's always going to be local issues with either supplies of terminals and stuff like that, but they certainly don't have the biggest effect as some of the global things do.

Kane Kuehl: Okay. Talk about the differences when you first started your career as an energy manager. The market swings versus what we can see today.

Jeff Ingalls: In early 2000's, we would see a penny move it to market and that would be a big deal. See, diesel, solar, gas move from 1 cent, just a penny, it would be a big deal, but anymore if it doesn't move more than three or 4 cents, it's not that big a deal. And for instance, we have days now that 10 or 15 cent moves during the market day. The volatility is so much greater than it used to be, and that makes it even more challenging for our producers and even for us to manage our positions to make sure that we're covering their needs.

Kane Kuehl: Okay, thank you. As a customer, where can I go to see what the markets are doing or what do you follow Throughout the days,

Jeff Ingalls: Everything is based off the NYMEX, which NYMEX was of course the trading instrument and the New York Stock Exchange. So I would suggest any of your DT NS or any of the other products out there that carry those, most of your websites have the energy markets out there to follow that.

Kane Kuehl: Let me add to that. As a customer, if I want to go follow diesel or gas, what would I look for?
 

Kane Kuehl: Thank you. How does CVA manage risk and stay competitive in these markets?

Jeff Ingalls:  Well, we manage our risk internally. Our company does a lot of hedging for just our company use, but also for our customers also use a combination of either fixed forward contracts or we use products that are paper contracts I call 'em, or NYMEX exchange contracts. So the challenge with all those is that you've got to be able to know where you're at and what you're selling to be able to adjust and make sure you're buying and selling at the proper levels and maintaining a margin. So that's probably a fallacy. A lot of customers probably think is that when the market goes down, we have the opportunity to make more money. Well, not necessarily. If we have a contracted, we go out and we buy the product at the same time and our margin is fixed no matter what. So that's our challenge is to make sure we're able to generate or keep that margin at a good level so it doesn't give us the mark of volatility, might give us some opportunities, but it doesn't give us the opportunity to make a lot more margin. So

Kane Kuehl: I'm sure that creates opportunities, but also some issues as well with the markets moving as quickly as they do.

Jeff Ingalls: And that's one thing about contracting. I always encourage people to contract just for the fact that when you do have those market moves and it is like during the harvest season and the market moves up 50 cents a gallon, well, if you have your fuel contracted, you don't have to worry about that. But if you don't, then you're going to have to worry about trying to absorb that cost into the price of your cost of production.

Kane Kuehl: Okay, thank you. That brings us into our next topic, Chatrice contracting. What is it?

Chatrice Dahl: Yeah, so contracting is just looking ahead and knowing basically a rough guess of what your inputs are going to be for the year and whether that's your usage, you can go off of your usage reports, which as an energy advisor, I'm giving those to customers all the time based off of their last couple years of production. And then like Jeff said, using contracts as a risk management. So you lock in your price at a certain volume to cover at least a portion of your usage for that year. Some people like to layer it in at a time and we'll do maybe 25% here when they think the price is right. And then we will lock in another 25 to 50% as they go on. So it's a great way to manage that risk and to know what your input costs are going to be for the year. As far as fuel goes, sometimes obviously in a year we've had in the past, there's not a lot of irrigation sometimes, so sometimes people overbook just based off the previous years. And with energy, there's a lot of factors that go into knowing what your usage is going to be and it's just a rough guess, but it's nice to at least know what you're going to pay when you have it delivered.

Kane Kuehl: Absolutely. What about, are there different types of contracts or different options? Tell us about that.

Chatrice Dahl: Yeah, so we have a couple different options for contracting, and this goes for diesel gas delivered bulk or at the pump. We can also contract a certain price if you want to do that ahead of time, as well as propane, both for your house and for irrigation or drying seasons. So a couple different options we have are a hundred percent prepaid and usually you get a discount for paying upfront. So we like to push that if people are able to do that and get a lower price that way. So that's one of our options. And then another one is a 15 cent down option is just kind of a deposit on your usage for that year. And from there you pay the remaining balance as it's delivered, but that price is still locked in regardless. And we like to have both of those options for customers based on their situation.

Kane Kuehl: Absolutely. It's very important, be able to cover your bottom line.

Kane Kuehl:  Okay. Chatrice, as an energy advisor, do you work with customers to cover their needs? And if so, how do you do that?

Chatrice Dahl: Yeah, so I'm out on the farm talking to new customers, talking to prospective customers, as well as being the face for energy in my area to our existing customers. So I'll go out to the farm, see 'em in person, maybe give them a hat if they're lucky and just say hi and appreciate their business. So to do that with a lot of our customers as well as making phone calls, just touching base maybe with however many remaining gallons they've got left on contracts or talking about where the market's at for next year and locking in some more fuel. So we love to hear any compliments that we have about our drivers, and I get those sometimes. So I love to hear that and making sure that everything's running smoothly, but I'm kind of the behind the scenes as far as billing discrepancies or contract needs, usage reports. That's kind of my role. So that'll either be face-to-face in the office, on the farm or over the phone.

Kane Kuehl: Thank you. Thank you. Next topic, let's talk about winterization. It's starting to get cold out. We know it's coming. What should our customers or fuel customers do to be prepared for winter?

Chatrice Dahl: That one for me, Jeff. All right, I'll take it. No, i'll it. So a couple tips and tricks that we like to suggest for our producers is just to change out their filters. Usually after harvest is a good time to do that both on their tank and in the equipment. So that's important. The job of a filter is to catch water that's coming out, and so that can be a way to reduce the chance of gelling or freezing, anything like that. So especially if you're going to be using your equipment in the wintertime when it's cold, that's important to do that ahead of time as well as, I mean all kinds of tank maintenance is very important, but starting usually in middle of October, we start delivering our fuel with A CFI and that CFI is cold flow improver and what that is, it just basically drops the pour point and how low the temperature is for operability.

So that addition to the fuel doesn't cost a whole lot, but it is nice to have when it gets cold and will bring your operability down to about zero degrees. So it's a good way to start as it gets colder. And then as the fall and winter progress, we also start blending at the pump usually middle of November. So that's about the time we do that. And 70 30 is usually where we start and we can deliver 70, 30, 70% number two, 30% number one to the farmer as well as we have that at the pump. But we've got a lot of different options to avoid the dreadful jelling,

Kane Kuehl:  Try to avoid those phone calls at all costs.

Chatrice Dahl: Yeah, not fun.

Kane Kuehl: You talked about the coal flow improver. I like to tell producers that it's cheap insurance, it's a penny or two, and it drops that profitability down to about zero, like you said, breaking down those wax crystals. And you mentioned blending, excuse me. If a producer calls in and wants to customize their blend, is that an option or can they get straight number one diesel? Jeff, can you talk about that a little bit?

Jeff Ingalls:  Yeah, I mean, we carry both strain number one diesel or it can blend it in, like Sharisse mentioned, a 70 30 bland, a 50 50 blend, all depends upon what the weather conditions are. A lot of times at our fuel pumps as Sharisse alluded to is our card shows we start at 70 30 and we watch the forecast and see if there's going to be any cold weather moving in. And usually we don't start doing that until we see some Sub-Zero weather moving in and try to take care of our customers the best we can. Part of the challenge is that we can get it in our tank, but if they don't get it into their truck soon enough, it is kind of a null point because they've got to get it through their system too. So it's a challenge, but the tough thing about using number one is it's more expensive and it's also a drier fuel. So it also causes challenges with your engines that it may not just performance is going to go down with it. So we try to avoid using it as much as we can, but we also know it's one of those things you have to use.

Kane Kuehl:  Absolutely. Like you mentioned, it's very important to make sure you get it in the system early and you make sure you order the number one before the number two is already jelled, otherwise you'll put fresh fuel on top of jelled fuel. So thank you. When people think of CVA, they think of agriculture, which that's our core. Tell our listeners and our viewers about our broad customer base and what other industries we service, Jeff.

Jeff Ingalls:  Yeah, our core, as Kane mentioned there, is serving our ag producers and we have to figure out how our ag business is. Actually, it's a business that we continue to try and grow with customers, but our customers every day continue to use less and less fueling across their farms. So our diesel usage is always going to be challenged on volume. We're going to have to increase oh two or 3% a year on customers just to maintain our volumes. So to continue to be a relevant energy division, we needed to look outside of ag in order to grow our company and grow our energy division. So we started looking at commercials, which is like construction companies to fleets and other types of operations. Along with that, we have a pretty robust home heat business with our customers there. So we're a little more diversified than probably a lot of the other divisions within CVA, but part of that is because we want to continue to try and service our customers in the best way we can along with growing our business and be able to be able viable energy business for our customers. And that's kind of our goal going forward and keep growing like that and adding more and more of those types of businesses.

Kane Kuehl: Absolutely. When I first started, we were always very busy in the spring and fall, obviously spring and harvest, and that was part of my goal, was to go after the other sectors to keep us busy during our other times during the summer and during the winter. So I think it's really helped grow our business and diversify everything.

Jeff Ingalls: Yeah, you're right. And anymore of our assets, a new truck is extremely expensive, a new refined delivery truck and to only have needed only what four, three or four months of the year or maybe five months out of the year, we have to figure out how are we going to grow that business so we can utilize that piece of equipment year round and to keep that driver busy, fully employed year round. And that's where that opportunity gives us steam. That gives us the opportunity to keep those businesses, that piece of equipment running longer.

Kane Kuehl: Okay. Chatrice, what specifically do we do to make sure that we can keep up with all these commercial accounts? Residential? Is there anything that we're doing to watching as far as watching tank levels, making sure we're running efficiently routing? Talk about that a little bit.

Chatrice Dahl:  Yeah, something that's really helped our residential home heat is routing and having tank monitors on everybody's house tank. So it's not that it's mandatory, but it definitely is preferred. It makes our job easier as delivery and routing. It also makes the customer's life easier that they don't have to keep an eye on their tank and having it run out inopportune time. So that's a really a big thing that's helped us in our efficiencies and we provide that service free of charge for our customers. So it's something that we like to do and we can keep an eye on it that way. We can also give that vision, I guess, to, or visibility for the customers to see where their tank level is at through the CVA Connect app. So that's another nice feature that we have. People can log onto their account and go to their energy tanks and see where their tank monitor's at without even stepping outside the door. So while we do have a lot of trust in our drivers, keep an eye on it. It's good that they can see that from their phone as well.

Kane Kuehl: Sounds like peace of mind and just a win-win for everybody.

Chatrice Dahl: Yep. Exactly.

Kane Kuehl: Awesome. Thank you. Well, I appreciate your time today and coming out, and that's kind of a wrap for us today of our episode of At the Table with Central Valley Ag. Thank you, Jeff and Chatrice for joining the conversation and sharing your expertise. We hope this gives you a better picture of how CVA energy works for our members, whether in agriculture, commercial, or residential. Thank you for listening and we'll see you next time at the table with Central Valley Ag.

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