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Houston — From winter storms to spring floods, severe weather this year in the US Midwest has kept farmers from planting crops, cutting regional diesel demand as a result.

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But even with prices at multi-month lows, the market is unlikely to quickly to reverse course due not only to high stocks of diesel and jet fuel, but because farmers will be unable to plant as much or as quickly.

"Although some additional acreage will be planted in the next few weeks, it is now clear that a significant amount of corn acreage will not be planted," according to S&P Global Platts Analytics.

Commodities Focus podcast: Wet weather delays fieldwork, drop US Midwest diesel prices

Indiana, for example, planted just 67% of its expected corn acreage the week ended June 10, down from 100% this time last year, the US Department of Agriculture's Crop Progress Report showed. Only two states of the top 18 reporting states -- North Carolina and Texas -- met or exceeded their five-year average for corn acreage planted, according to the report.

As a result of farming inactivity, Midwest cash diesel prices have plummeted since June began. Barrels on Chicago-area pipelines were assessed lower for the ninth consecutive day Tuesday at NYMEX July ULSD minus 18.50 cents/gal, a five-month low.

Prices have fallen less precipitously for Chicago's Buckeye storage complex (BCX), where traders can store barrels and wait for what contango will eventually appear. Demand to keep barrels in storage had pushed BCX diesel prices to a 7.25-cent premium over the pipeline market, also a five-month high.

But that contango could be slow to develop, as stocks continue to build, refineries return to full rates and farmers run out of days to plant.

"I wouldn't expect a demand surge," one market source said. "The outlook is grim for ULSD in the next couple of months in my opinion."

Alongside the lack of demand, refineries have sprung back to service after disruptions from seasonal maintenance and weather-related issues.

The largest Midwest refinery, BP's 413,500 b/d plant in Whiting, Indiana, recently went back online after performing maintenance. HollyFrontier's 125,000 b/d Tulsa, Oklahoma, refinery returned last week after being shut down due to flooding.

The additional output will add to an already saturated market. Midwest ULSD stocks were at 31.47 million barrels the week ended June 7, up 513,000 b/d from its five-year average during the period, data from Energy Information Administration showed.

"I don't see an obvious reason for things to rally back higher in the short term," a second source said.

JET FUEL PREMIUM GROWS

The Midwest region is also awash in jet fuel. Stocks were at 7.28 million barrels last week, up 475,600 barrels from the five-year average.

"With HollyFrontier coming back up, it just means more product in Group," a Midwest jet fuel trader said. "Differentials will decline further as long as inventories remain high."

While the ample supply has pressured differentials in both Chicago and the Tulsa, Oklahoma-based Group 3 over recent weeks, the price drops have been less severe than for diesel.

Chicago pipeline jet fuel was assessed Tuesday at July futures minus 6 cents/gal, a one-month low. Platts does not assess BCX jet fuel.

Summer travel demand has helped boost overall US jet fuel prices.

Chicago jet fuel commanded Tuesday a 12.50 cents/gal premium over diesel, the widest spread in five months. That spread on the Gulf Coast peaked June 7 at 2.15 cents/gal, also a five-month high.

--Joshua Brown, joshua.brown1@spglobal.com

--Margaret Rogers, margaret.rogers@spglobal.com

--Daron Jones, james.jones@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com