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Midwest diesel demand sluggish on farmers' planting delays

Stephanie Kelly

NEW YORK, May 7 (Reuters) - Diesel demand in the U.S. Midwest has shown signs of weakness, dropping prices to seasonal lows not seen since 2016, due to wet conditions in the region forcing farmers to delay planting.

Farmers typically use more diesel during the spring to power tractors and other equipment to plant crops. However, planting is behind schedule this year, with corn only 10 percent planted in Illinois so far, versus 66 percent on average, according to the U.S. Department of Agriculture.

The delays have boosted stockpiles of the fuel, traders said. Distillate inventories in the Midwest have risen to the highest seasonally since 2017, according to U.S. Energy Information Administration figures.

Prices have followed suit, with spot prices for ultra-low sulfur diesel in Group Three - a market based in Tulsa, Oklahoma - falling to the lowest for early May since 2016, traders said. Prices on Tuesday fell to 2.25 cents per gallon below the heating oil futures contract on the New York Mercantile Exchange .

"We're not using much diesel right now. We're not doing anything," said Dan Henebry, a corn and soybean farmer near Springfield, Illinois. "It's just too wet to go to the field, and we're just getting more and more delayed."

For a graphic on distillate stocks and diesel prices, see: https://tmsnrt.rs/2VQUcxM.

Farmers were already expected to plant fewer crops of corn, soybeans and wheat this year compared to 2018, said Rich Nelson, chief strategist at Allendale in McHenry, Illinois.

"If we have a lower planting schedule and also we throw some hiccups in this, then we do have some concerns on total diesel usage," Nelson said.

One Midwest broker does not expect diesel prices to recover in the next month even with dry planting conditions because of the higher stockpiles, the broker said.

Distillate stockpiles in the region totaled 33.4 million barrels in the week to April 26, EIA data showed.

(Reporting by Stephanie Kelly Editing by Tom Brown)