What do you think Pellets will cost in May of 09?

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My starting point is I agree with Eric of Kinsman Stove who stated "the main reason to burn a pellet stove is to save money on home heating". I know there's a great many of you that burn for other reasons including but not limited to environmental reasons, less dependence on foreign sources of fuel, and having a second source of heating for your home, and I commend you for your decisions.
I originally purchased my stove to save at least 25% on my heating bill. I'm into my 6th winter with the stove and I'm pretty sure I've realized my target savings each year. At this point I have recouped my initial investment in the stove, and just about at the break even point and very happy. Today's closing NYMEX price for crude and home heating oil was $65 a barrel and $1.95 a gallon respectively. Historically, at least in normal markets, the cost to have oil delivered to your home is 50 cents above the raw commodity price making today's cost $2.45 per gallon. I've read many different ways to compare the cost of pellets to oil including the webmaster's "just move the decimal point two places" . Based on my experience and calculations I figure one ton of pellets provides the same heat of approximately 120 gallons of heating oil, thus based on today's price of heating oil ($2.45 per gallon) the break even cost of a ton of pellets is $294.00 delivered to your home. Once again my objective is to save 25% on my heating bills, so I would not currently spend more than $220 for a delivered ton of pellets. I guess if I didn't buy my pellets back in May, and had them delivered in August I wouldn't be able to meet my savings objective. Based on the current state of the global economy, it's not much of a stretch to predict oil prices will move another 25% lower by next winter. If that occurs, I think the pellet industry will be in dire straights because many of us will just burn occasionally for the ambience.

As another poster says, just my $0.02
 
I appreciate the comments that you guys are giving me. Based on what has transpired the past couple of weeks, I feel that heating oil will probably be @ $2.50 per gallon this season and maybe $2.00 gallon by next summer (if the financial environment does not improve). This being the case It will cost me @ $1600 to heat my house next season (09/10) if I were to lock my price in the summer like I used to. But the big difference is that I had to average @ 68 degrees when someone is home and 58 degrees at night and when no one is home to only use 800 gallons for my 3300 sqft house. With the pellet stove I am averaging @ 75 degrees when some someone is home (day and night) and 68 degrees when no one is home. Granted I am only heating 2500 sqft of my house but the basement is finished and maintains a temp of 65 degress without the heat running (I use an electric heater when Im working in my office or when the kids are in the playroom). I will never go back to oil if i can help it. I have not been this comfortable in the winter in my house and can't image paying someone to be cold. I agree with the previous posts that with oil coming down alot of people will probably give up the pellet stove because of the work that it entails. This should, IMHO, bring the price of stove and pellets down. I'm hoping to get 4 to 5 tons in the spring for $200 per ton. It will be a big mistake for the pellet industry if they try to charge $300 or even $250 per ton for pellets if oil is $2.00 per gallon. I myself would still pay the $250 but it my cause me to suppliment my heat with pellets and not use it as my main heating source (maybe get 2 tons instead of 4 to maintain the temp I like). This spring can be a turning point for the pellet industry. They could charge less then oil to keep cusstomers like myself using pellets as their main heating source and make the money up on volume or they can try to make as much money in the short term as possible and lose customers. I hope that they remember that people have short memories and even though things are bad now it will be good again and pressing a button for heat instead of lifting 40 pound bags may cause people to forget how bad it really was and how bad it will be again.
 
It's hard to believe it's been two months since I commented on this topic. Just to update you guys, I've used @ 1.5 Tons so far this season and 100 Gallons of oil (just using for hot water and to take the chill off the basement) since my last fillup the first week of September. I still have 3.5 Tons left for the remained of the season and 130 Gallons of Oil. I'm going to wait until March to get another fillup of oil. With all that has transpired since my last post can anyone give me an update on where they feel the price of pellets will be in the spring (April/May 09).
 
"You have alot of individuals stating that there would be more pellets available if people did not “hoard” all the pellets so early in the season."

Sorry...but that's a load of crap started by dealers/manufacturers in an attempt to justify their pricing. Dealers in my area still have pellets, and they're still sitting on them in most cases, at $340-$390/ton. I'm not one of the folks that will burn pellets even though it's more money. That's a choice, but I'm not willing to burn dollar bills in my stove.

Pelletsales.com will sell the same Eagle Valley Premiums (from British Columbia) for $289/ton in my area. Koopman's Hardware is still trying to charge $6.99/bag for Lignetics. When I asked why they were still charging those prices, the first reply was that their pellets were premium!...lol I said "that may be, but PREMIUM heating oil is down to $2/gal, so how many pellets do you think you're going to sell this winter?" No answer to that one. Then I told the person there that I was really surprised, since premium pellets could be purchased in Pa and Oh for about $220/ton, and he told me I was wrong...that pellets at those prices were simply not available.

A few hours later I was at a different hardware store that had a sign up...Premium Pellets: $7.99/bag, Special Ton Price: $390.

I believe that oil will continue to stay at low levels, as global demand has fallen off pretty sharply. Did you notice that when OPEC cut production by 2.2mil barrels/day...the price of oil went DOWN immediately? That tells us that traders believe the supply/demand delta is bigger than that.

Pellet demand will drop, at least somewhat, as more people like me turn the thermostats back up, or just decide that a pellet stove is too much work.

What could potentially change what we're seeing right now, and change it dramatically, will be the cost of purchasing carbon credits. When that comes to pass, all bets are off for any and every form of viable energy save nuclear. From coal to oil to woodstoves and pellet stoves...

Jim
 
For reference today's Nymex oil futures contract is at $39.84/bbl.

Current outlook is for further decrease.
 
+1 the cheaper oil gets the more people will use it, and the less they will use of pellets, which equals price drop.
 
imo, the reason for the shortage in pellets and stoves this year was because people panicked....alot of people went to alternative heat at the same time be cause of oil prices , so something had to come up short.


mike
 
PunKid8888 said:
+1 the cheaper oil gets the more people will use it, and the less they will use of pellets, which equals price drop.

You're 100 % correct in your thought process. however that just won't happen. Pellet producers, distributors, and retailers (Rick Kinsman excluded) have a proven track record of following a crazy business model that includes ".... we would rather sell fewer quantities at the very highest profitability that the market will bear, than selling at a fair market price". Being a member of this forum I can't blame them. How many times have we read " I don't care what the cost is, I hate to hear the oilman filling up my tank". Yeah some of them have the best intentions. Carbon footprint, sending our $$$'s to A holes, let's help our local economies, and the list goes on and on. Bottom line lots of pellet-heads will buy pellets at any price, for their personal reasons, that we must respect. If (and it used to seem reasonable to me) you buy into the pellet hording theory of this past spring and summer, well that was last summer and we're pretty much halfway through this heating season and you would think the hording is over, and we should return to "normal" pricing. I don't know what pellets cost in your area, but in CT if you're lucky, it still cost approximately $350 per ton plus delivery.
 
itworks said:
Pellet producers, distributors, and retailers (Rick Kinsman excluded) have a proven track record of following a crazy business model that includes ".... we would rather sell fewer quantities at the very highest profitability that the market will bear, than selling at a fair market price".
First off there's no such thing as "fair market price" - apparently for you that means "what I'm willing to pay and not anymore than that"...for me, it's probably $25 less than that because I'm a cheap S.O.B. A fair market price is what enough people are willing to pay to take a commodity off my hands - for some folks it's apparently north of $300/ton for pellets. For others, it's not.

That doesn't make it a crazy business model to sell less at a higher price point. In fact, that's an optimally efficient business model that maximizes the company's income for the least amount of effort/cost. Pricing is always a balance between maximizing return this way but not depressing demand. Oil crossed that line to the point that it caused demand destruction (it was possible that it was merely demand reduction which recovers quickly, but despite record decreases and historic lows, demand is still dropping...classic destruction model).

For pellets, we may see that we are at that price now too. Distributors holding onto pellets they cannot sell at $350 have crossed the line and are no longer pricing it at "fair market value" because no one is buying (or so few are buying that they're left with a surplus). They will either lower their price to one people will pay or they will sit on the inventory. At some point, the carrying costs of that inventory are going to exceed any potential profit from the price they can get on the market and they'll be forced to sell (in other commodities, that's how you get the inventory for dollar stores & job lot discounters). I would expect they're waiting for the winter to turn especially nasty and/or oil to recover. We're already a 3rd of the way thru the bulk of the winter season (here in CT anyway) and oil is still dropping. My personal feeling is that they're making a fool's bet, but then I'm not in their shoes.

In the meantime if you don't feel the price is fair, then just walk away. I do that everytime I pass a Mercedes dealer - if they would just price those more fairly I'd but one but not as long as they persist in selling them at the highest profitability the market will bear...same goes for Godiva chocolates....Victoria Secret lingerie...Haagen Daz ice cream...Bertani's 1996 Amarone... :)
 
DiggerJim said:
itworks said:
Pellet producers, distributors, and retailers (Rick Kinsman excluded) have a proven track record of following a crazy business model that includes ".... we would rather sell fewer quantities at the very highest profitability that the market will bear, than selling at a fair market price".
First off there's no such thing as "fair market price" - apparently for you that means "what I'm willing to pay and not anymore than that"...for me, it's probably $25 less than that because I'm a cheap S.O.B. A fair market price is what enough people are willing to pay to take a commodity off my hands - for some folks it's apparently north of $300/ton for pellets. For others, it's not.

That doesn't make it a crazy business model to sell less at a higher price point. In fact, that's an optimally efficient business model that maximizes the company's income for the least amount of effort/cost. Pricing is always a balance between maximizing return this way but not depressing demand. Oil crossed that line to the point that it caused demand destruction (it was possible that it was merely demand reduction which recovers quickly, but despite record decreases and historic lows, demand is still dropping...classic destruction model).

For pellets, we may see that we are at that price now too. Distributors holding onto pellets they cannot sell at $350 have crossed the line and are no longer pricing it at "fair market value" because no one is buying (or so few are buying that they're left with a surplus). They will either lower their price to one people will pay or they will sit on the inventory. At some point, the carrying costs of that inventory are going to exceed any potential profit from the price they can get on the market and they'll be forced to sell (in other commodities, that's how you get the inventory for dollar stores & job lot discounters). I would expect they're waiting for the winter to turn especially nasty and/or oil to recover. We're already a 3rd of the way thru the bulk of the winter season (here in CT anyway) and oil is still dropping. My personal feeling is that they're making a fool's bet, but then I'm not in their shoes.

In the meantime if you don't feel the price is fair, then just walk away. I do that everytime I pass a Mercedes dealer - if they would just price those more fairly I'd but one but not as long as they persist in selling them at the highest profitability the market will bear...same goes for Godiva chocolates....Victoria Secret lingerie...Haagen Daz ice cream...Bertani's 1996 Amarone... :)

Touche you said it better than I did . Many users of pellets are willing to pay higher than the intrinsic value of the commodity and that's why I think in today's environment you really can't compare the cost differential between pellets and HHO, it just doesn't make sense. I believe there are other considerations. I spent $3-4,000 on my stove, I purchased 2-4 tons of pellets @ 300 per ton....I'm going to burn pellets and I don't ever want to hear or see the oil truck deliver oil to my property. BTW, we do agree on the 96 Amarone, in my mind the King of reds is my favorite.
 
I have to agree with you guys. I'd also like to suggest there very well could be a lot of uneducated first year stove owners out there. It wouldn't surprise me at all if a good percentage of new owners have no idea how much heat a ton of pellets will produce, how long they will last, and/or what fair market value for today's pellets should be... so for this first go around, $300-$350 a ton might seem fair to them.

Between the low oil prices and the new stove owners becoming savvy over time, I think we'll see the pellet industry in the toilet for the coming season. They'll have to decide it they want to just hold onto a niche market and sell low volumes at high margin, or drastically cut their pricing and try to stay alive on volume. I personally think keeping prices high and trying to sell to only a niche market is a bad idea for long term market growth. Given the record year the pellet manufactures had for 2008, my guess is many of them have invested capital to increase their production capabilities (while times were looking gloomy for oil and booming for pellets). I don't think many are well suited to thrive producing low volumes, so my guess would be most will drastically drop prices and try to move some volume.

The other unknown (at least to me anyway) is raw materials. It's hard to drive prices down if raw materials are pricey and hard to come by. If there is no raw material inventory out there, may of these guys could find themselves out of business completely for 2009.

Regardless, I suspect 2009 will be a tough year for the stove and pellet industry.
 
I agree with Digger...I've said tons of times, it's just supply/demand. And if you're a business owner, whether it be large of small, you need to maximize profits on whatever you're selling.
Big stores like Lowes/HD HAVE to move inventory, sooner or later. If you don't, you're losing money on it. Dell is the master of this. When you order a computer from them, it goes from raw materials at one end of the plant to YOUR finished product at the other end in about 4hrs.

The thing that slows down the market "response" is the smaller retailers like garden centers and stove shops. They can try to sit on inventory until it sells, because they bought their year's supply up front.

The prices will drop. Might take until Feb...but they'll drop.

Jim
 
unfortunatley for me, my stove dealer does not deliver. i could pre buy in the spring but we know thats not a a good idea, then i have to get the pellets over 60 miles to my house, thats a big job for 5-6 tons of pellets
i am forced t buy from home depot, and they didnt have any stock until early september, i bought whatever they had left at the time, only 3 ton at $249($50 discount per ton)
then bought another ton and 1/2 recently at $300(no discount)
 
I just received a call from a couple of places where I was on the waiting list for pellets. Most of them wanted $325 per ton. I asked most of them if they would offer a discount in the spring (May) of $200 to $250 per ton if I purchased 4-5 Tons up front. Most of them said they would not. But surprisingly some of them stated that they would love to do that but the owners refused to offer that type of discount. I really hope that the pellet industry thinks long term. This is my first year with a pellet stove and I really like the heat it pumps out. I was paying $2.75 per gallon in winter 07/08 and believe pellets were going for @ $200 per ton at that time (I just going by what I heard from other pellet pigs). Oil in the spring/summer next year is more than likely going to be at least half of what it was last summer ($4-$5 per gallon). I know many people that will just turn on their thermostat if oil is $2-$2.50 per gallon. Let's get real, most people will always go the cheaper route and in order for the pellet industry to keep going strong they will have to sell on volume. If they really want to get people they should sell for $150 to $200 per ton. But that's probably a pipe dream.
 
teddy,
I still burn "some" pellets, but usually just during the day, and even then, my stove doesn't run all the time. When I come downstairs, I crank up the thermostat from 60 to 70deg, and hit the start button on the pellet stove. I bought 1.4tons in November, so 70 bags. I probably have 25 or so left?
I filled my oil tank about 2wks ago at $2.19/gal, and it's dropped since then to about $2/gal. Since as stated in other places, 1 bag of pellets is roughly 2.5gal of oil...unless pellets drop to less than $5/bag, or oil goes back up considerably, I won't buy more pellets until the pricing changes to reflect a savings.

Jim
 
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