Control Your Energy Costs: Dont Fear The Meter

With the financial scars from last winter’s record-breaking natural gas price peaks still fresh in mind, many growers are looking to get smarter about buying fuel instead of getting burned again this winter.

But how to do this? Trading gas futures is a difficult enterprise, like picking a winner in stocks but without some of the clues (such as earnings, history, management etc.) that allow stock market investors to calculate a company’s true  investment potential.

Even the big energy traders, staffed with meteorologists and political scientists, really know no more than the little guy. It makes for a playing field full of potential dangers.

Logic-Free Zone

“I could show you the NYMEX (New York Mercantile Exchange) numbers for the last 15 years, and I defy you to make any sort of sense out of them,” says Bob Bordone, a 32-year veteran of the natural gas industry. Bordone has spent the last decade as a consultant and third-party gas broker at New Jersey-based Woodruff Energy advising growers like Bill Swanekamp of Kube-Pak Greenhouses.

He explains that the deregulated utility system is both simple and complex, and begins with a simple premise. “When you deal with a broker, you can go out and buy your expected volume over a period of time, whether it’s one month or one year. At a time when you perceive the price to be at a relative low, you buy and lock in that low price for that time period,” he says. “This gives you price certainty. In these days of unstable and fluctuating prices, my customers perceive that as important.”

The further out you can buy, the better deal you can get. However, locking down a price is always a gamble. “Hopefully, we’re giving the customer a price that beats the utility price as it rolls up and down over the course of that year, but there’s no certainty to that,” cautions Bordone. “You’re not guaranteeing savings, but you are guaranteeing your budget.”

Obviously, usage of natural gas will vary based upon the weather, but that’s a comparatively small variable, one that Bordone marks as “usually less than a ten percent swing at the end of the year.”

Extreme Check Writing

Not surprisingly, the utility companies plan for extreme weather, adding more complexity (and more dollars) to the equation. “There’s a premium attached to the price of gas in winter months, and a fear factor that has gotten worse since last year,” notes Bordone. If nothing happens either weather-wise or geopolitically by fall, the winter premium could evaporate and leave those who purchased their winter fuel contracts earlier paying more for their gas than those paying month-to-month at the utility.

These days, however, such stability seems a remote possibility, and even if the premium evaporates, third party brokers can offer an average price between existing and future contracts. “If November comes around and there’s been no hurricanes, the Middle East is stable and the price is in the toilet, what I can do is look out at 2008-2009 and add next year’s price in,” Bordone says. “My customer can then buy next year’s gas at this low price. I’ll blend it with the higher price from this year and bring the overall price down.” Bordone points out that, unlike the utilities, his livelihood depends on the success of his customers, and that, also unlike the utilities, energy brokers like Woodruff operate lean enough to survive on what he terms “razor thin” margins.

Over A Barrel

To add further complexity to the matter, there are two separate components to natural gas pricing. The NYMEX price (the cost of the gas itself) is the same price across the country. However, a second component to pricing is transportation – in the Northeast it’s highest, while in the Southwest it’s the lowest. Utilities “bundle” these prices together, while third-party brokers are looking to save for themselves and their customers, whenever possible.

When the purchase is made, and when it is made for are both critical variables. Swanekamp, for example, made a purchase in February and set his price for the year and through 2007. Bordone observes that Kube-Pak’s dual-firing boilers and significant oil storage capability put Swanekamp in a different and better position than many business owners, who are “over a barrel” where fuel options are concerned. Because of this capability, Swanekamp decided to only buy gas from March through December, and skipped the two most expensive months of January and February (when those transportation costs are highest).

Knowledge Is Power

In deregulated states, growers can call their local utility and get a printout of their gas usage over the past 12 months. Armed with that information (and the Wall Street Journal’s futures page), a third-party broker can give an initial price projection. “That’s what was so critical to Bill (Swanekamp),” says Bordone, “This fuel futures purchase is now a part of his operating costs that he can plan for and not be exposed to fluctuating prices.” Although they’ve been doing business for a number of years, and Swanekamp is a recognized green industry authority on energy issues, even he got burned last year, relates Bordone. “Last May and June, we didn’t fix the price for the gas, we just fixed the price for the transportation. Then Bill got clobbered on the gas price after the the hurricanes.”

Maybe it’s due to his long association with Swanekamp, or those razor thin margins he spoke of, but Bordone sounds positively grower-like when he breaks down the greenhouse situation as it stands today. “Dirt is big, seed is big and labor is the biggest, but energy costs are growing all the time.”

For more information on fuel buying and Woodruff Energy Inc., visit www.woodruffenergy.com.

Leave a Reply

More From Finance/Operations...
Bill Lewis grower manager at Delray Plants

August 31, 2015

Delray Plants Takes Preventative Approach To Pest Control With Biological Controls

The 300-acre nursery in Venus, Fla., has made biologicals its first line of control when dealing with pests.

Read More
Fred C. Gloeckner Foundation logo

August 31, 2015

Gloeckner Foundation Awards 15 Research Grants

The Fred C. Gloeckner Foundation recently awarded 15 grants totaling $149,776. Fred C. Gloeckner had a keen interest and firm resolve to facilitate innovation and improve practices in floriculture. It was this vision that inspired him to start The Fred C. Gloeckner Foundation, Inc. 55 years ago. Since the foundation’s inception, more than 66 institutions have been awarded grants for this purpose, and the foundation’s support of floriculture research has totaled $6,525,642. The following grants were recently awarded: $14,000 – Kansas State University, to study the effect of the entomopathogenic fungus, Beauveria bassiana and the rove beetle, Dalotia coriaria, in suppressing populations of the western flower thrips, Frankliniella occidentalis $12,264 – North Carolina State University, for expanding leaf tissue nutritional standards in bedding plants $12,000 – University of Florida, to illuminate Lilium floral fragrance $11,842 – Stephen F. Austin State University, for its herbaceous perennial species trial garden $10,000 – Iowa […]

Read More
Feature image The 2015 Perennial Plant Of The Year, Geranium x cantabrigiense ‘Biokovo.’

August 27, 2015

The Perennial Plant Association’s Regional Symposium Will Be This October In Dallas

The Perennial Plant Association plans to hold its Regional Symposium October 5 in Dallas, Texas, in conjunction with the All-America Selections/Home Garden Seed Association's Summer/Fall Summit held October 5 to 8.

Read More
Latest Stories
AmericanHort logo

August 20, 2015

David Savoia To Serve As AmericanHort’s Interim P…

Following Michael Geary’s announcement that he has resigned as president and CEO of AmericanHort, the association has announced that CFO and Senior Vice President for Operations David Savoia will serve as interim president and CEO while the board conducts a search for a new staff executive. Craig Regelbrugge, the senior vice president for advocacy and research, will support Savoia with the association’s external affairs. Geary announced August 12  that he will be leaving his position after September 30 to serve as CEO of the Society for Marketing Professional Services, an organization dedicated to creating business opportunities in the architecture, engineering and construction industries. “As some of you know, I grew up connected to the horticulture industry so this was not an easy decision for me,” Geary said in an eMail. “I have loved working with our organizations and our talented members, staff and partners. However, my choice to return full time to Washington, D.C. will allow me […]

Read More
Geary-Michael

August 18, 2015

Michael Geary Is Leaving AmericanHort

AmericanHort president and CEO Michael Geary announced last Wednesday that he will be leaving his position at the end of September to serve as CEO of the Society for Marketing Professional Services. “I am writing to share with you that on October 8 I will begin a new professional chapter as CEO of the Society for Marketing Professional Services, an organization dedicated to creating business opportunities in the architecture, engineering and construction industries,” Geary said in an email. His last day with AmericanHort will be Sept. 30, 2015. “As some of you know, I grew up connected to the horticulture industry so this was not an easy decision for me,” he said. “I have loved working with our organizations and our talented members, staff and partners. However, my choice to return full time to Washington, D.C. will allow me to be closer to my family and aging parents and to re-engage with another industry […]

Read More

August 15, 2015

Ball Horticultural Co. Buys Conard-Pyle/Star Roses And …

Ball Horticultural Co. plans to add Conard-Pyle/Star Roses and Plants to its family of breeding and distribution companies, according to a press release dated August 14, which announced the company’s recent acquisition of the famous introducer of Knock Out Roses and other perennials and woody plants to the market. Ball plans to capitalize on the expertise of its Ball Ornamentals woody ornamentals division, as well as Conard-Pyle’s market-leading position as a top rose breeder to strengthen its product line. The sale is scheduled to close by the end of September 2015. Conard-Pyle’s in-house breeding division NovaFlora, along with its intellectual properties and the distribution, production and administration facilities of its wholesale division are also part of the acquisition. NovaFlora is the driving force behind the Star Roses and Plants brand. “Conard-Pyle has been the leader in roses in its market and has been actively diversifying its offering with other woody […]

Read More
cannabis, marijuana plant

August 7, 2015

Big Banks A Step Closer To Financing Cannabis — Or Not

A key Senate Appropriations Committee passed a bill on July 23 that allows the nation's capital to establish regulated medical marijuana stores and lets banks provide financial services to state legalized marijuana dispensaries.

Read More

July 30, 2015

Spread Your Risk Beyond Spring Sales [Opinion]

Growers who participated in Greenhouse Grower’s 2015 Spring Crops Recap Survey said they have had enough of the uncertainty that the weather brings. They said it’s time to build up sales in other seasons like fall so we’re not so dependent on spring. As a couple of wholesale growers, both from the Southeast, very eloquently stated, our industry has mastered squeezing everything we can out of the spring season. And while this year happened to be a very successful one, thanks to the improving economy and elevated consumer confidence, they said, “now is no time to celebrate.” “Spring is still Christmas in the horticulture industry, but we have done such a good job focusing on spring that we have neglected other seasons,” one grower said. “Having so many eggs in the spring basket is dangerous. Fall will never be what spring is, but having a solid second season is in […]

Read More
Berns_Roberto Lopez_Purdue6

July 22, 2015

Cultivate’15 Greenhouse Learning Tour Showcases G…

Growers took advantage of the Greenhouse Learning tour held Saturday, July 11 at Cultivate'15 to see the strategies and technology two successful growing operations are using to tackle production challenges and come out ahead of the game.

Read More
thermoflor

June 16, 2015

Philip Schaafsma To Represent Thermoflor In The U.S.

Philip Schaafsma is a new sales representative for Thermoflor, a company with a lot of experience building garden centers worldwide. The history of the Dutch construction company Thermoflor goes all the way back to 1877. Since then, the company has been through a lot of changes, from simple conservatories to complex glass and steel turnkey projects. With a new sales representative, Thermoflor is well equipped to service the American market. Previously, Petitti Garden Center (Avon, Ohio), Chuck Hafner (Syracuse, N.Y.), Jacob’s Garden (Ottowa Lake, Mich.), Hicks Nurseries (Westbury, N.Y.) and Holes (Alberta, Ca.) were all built by Thermoflor. After a period of absence, the company is now  represented in the U.S. and Canada by Schaafsma, who has more than 40 years of experience in retail lawn and garden, greenhouse growing and the floral industry, and is a former board member of the Garden Centers of America. Schaafsma is the former owner […]

Read More

June 15, 2015

Hortica Insurance To Become Member Of Sentry Insurance …

Upon completion and approval of an affiliation agreement, Hortica Insurance (Florists' Mutual Insurance Company) will become a member of the Sentry Insurance Group, based in Stevens Point, Wis. As a member of the Sentry Insurance Group, Hortica keeps its name and brand and will continue doing business from its current headquarters in Edwardsville, Ill.

Read More
Cal-Poly fields

June 2, 2015

Cal-Poly Students Seek Continued Industry Support To Sa…

Agriculture students and faculty at California Polytechnic State University, San Luis Obispo, want industry members to continue to stand with them in their effort to preserve Class 1 agricultural land from being repurposed. The university recently released an update to its Master Plan that indicates that almost all of its orchards, horticulture facilities and field sites could be repurposed for buildings, including residential and/or recreational space. According to Joel Leonard of Students For Agriculture, an organization of Cal-Poly students in favor of saving the land, the Master Planning Committee will be meeting over the summer to form a final version of its plan and present it once more to the public in the fall, before it is submitted for final approval to the California Board of Trustees. Students For Agriculture’s goal in the meantime is to increase awareness and rally industry supporters to continue to send their input to the planning committee. Visit studentsforag.com to see more […]

Read More
Cal-Poly fields

May 27, 2015

Cal-Poly Students And Faculty Ask Industry To Help Save…

California Polytechnic State University, San Luis Obispo, has released an update to its Master Plan that indicates that almost all of its orchards, horticulture facilities and field sites could be repurposed for buildings, including residential, and/or recreational space. According to a letter from Scott Steinmaus, the horticulture and crop science department head, the proposed changes directly affect the current orchard plantings and other long term plans for the department. The department is committed to making sure that its facilities remain invaluable teaching environments that enable its students to learn about crop, fruit and horticulture production, food safety and pest protection, in addition to providing sites for externally funded research projects that benefit the industry. Industry members are invited to submit comments to the university. According to Steinmaus, a recent eMail to the Cal-Poly community from the university president indicates that all of the input gathered through the end of May will be studied by the planning […]

Read More
people-of-Battlefield

May 13, 2015

Battlefield Farms Receives MPS-A Qualification

Battlefield Farms, Inc., in Rapidan, Va., has been awarded the MPS-A qualification after becoming a participant for MPS-ABC in 2010. After four years of showing effort and improvement, the company has been awarded the qualification.

Read More
Barry_Sturdivant_columnpic

May 8, 2015

How To Survive Succession Planning And Resolve Conflic…

If you work in agriculture, you most likely work with family-owned businesses. This is especially true within the greenhouse industry. I’m fortunate to work for a company that specializes in financing and supporting such businesses. Family-owned businesses often have a level of commitment and support that helps during lean times. This is important for a company exposed to seasonality and events that are sometimes beyond management’s control. Business owners and management are constantly looking for solutions to the unique issues faced by these small but complex businesses. Specifically, how these issues affect the transition from one generation to the next. There are many family enterprise success stories, cases of harmony, health and longevity. Yet it’s no secret that family businesses can struggle with governance, leadership transitions and even survival. According to the Family Business Institute, only 30 percent of family businesses last into the second generation, 12 percent remain viable […]

Read More

April 30, 2015

North Creek Nurseries Welcomes Nikki Drake As New Finan…

Nikki Drake will fill the role of new financial administrator at North Creek Nurseries, with responsibility for the accounting department. She will also serve on the strategic planning committee.

Read More
Andy Huntington Pleasant View

April 29, 2015

Pleasant View Gardens Promotes Andy Huntington to Natio…

Pleasant View Gardens recently announced that Andy Huntington will be the company’s National Sales Manager. Huntington, who has years of horticulture industry experience, will oversee national territory and inside sales departments, while fostering strong partnerships with customers. “Our relationships with customers are central to all that we do at Pleasant View,” Huntington says. “In my new role, I am excited to work with a broader base of broker, grower and retail partners to understand their business needs. Pleasant View’s goal is to be so in tune with our customers that we are able to anticipate their problems before they arise.” Huntington has a history of growing sales and forming long-lasting relationships with a diverse customer base. For the past two years, he has been working as a territory account manager for Pleasant View Gardens, responsible for young plant liner sales in New England and New York. Prior to that, Huntington was […]

Read More
PittMoss on Shark Tank

April 22, 2015

PittMoss Wins On Shark Tank

Mont Handley, president and CEO of PittMoss, appeared on ABC’s Shark Tank on April 17 to try to get the “sharks” to invest in his peat moss alternative. Three investors from the TV show contributed $600,000 to PittMoss for a 35 percent stake in the company. Check out this clip from ABC’s website in which Mark Cuban, Kevin O’Leary and Robert Herjavec discuss getting on board with the product. PittMoss is an alternative to sphagnum peat moss, made up of a mix of proprietary additives and recycled paper rescued from landfill space. Handley founded the Pittsburgh-based company in 1994. What started as a small experiment grew into a full-fledged business with the help of funding provided by an EPA SBIR grant and Pittsburgh’s Idea Foundry. Today, PittMoss is available to commercial greenhouses and nurseries from Michigan to Maine to North Carolina, with plans to grow. To learn more, visit PittMoss’ website, or check it […]

Read More
Syngenta logo

April 15, 2015

Syngenta Names Chris Freeman Senior Key Account Manager…

Chris Freeman is the new senior key account manager for Syngenta Flowers, Home & Garden's Commercial Sales business in the Americas, effective March 2015. Freeman, who joined Syngenta in 2006, carries more than 25 years of experience in the agriculture and floriculture business.

Read More
Lake Buchanan_LCRA

April 10, 2015

USDA Designates Areas Of West And Southwest As Drought …

The ongoing drought has resulted in disaster area designations in counties across nine Western and Southwestern states, including Texas, where some reservoirs are at or near historically low levels.

Read More

April 9, 2015

Altman Plants’ Online Cactus Shop Shows Strong Sa…

Altman Plants recently opened its new Cactus Shop, an online retail store that sells a variety of cactus and succulents. The store is a take-off of Altman’s original wholesale business, as the company started as a mail order catalog.

Read More