|
Posted by HeyBub on October 2, 2009, 8:22 am
DA wrote:
show/hide quoted text
> Hi all,
> My gas company just sent me a letter offering to sign up for a fixed
> price (@ $1.949/gallon) of propane until April 30, 2010. I don't
> remember them sending any such letter last year which got me thinking
> maybe they anticipate a price drop? I realize that no one has a
> crystal ball (a working one :-)) but what is the collective wisdom of
> this group saying - is it a good idea to sign up for $1.949/gallon
> fixed propane (in PA) until next spring?
> Thanks!
Maybe, maybe not, if you're looking only at the money.
The general rule is to trade an existing variable expense for a fixed one at
every opportunity. This allows better budgeting, forcasting, and planning.
No surprises is good. Very good.
This notion can be overwhelmed by a significantly lower price, but not
often.
Suppose you sign up for $1.95/gallon deal. That means that the propane is
worth that much to you irrespective of what someone else might pay. You
should be economically indifferent (though perhaps not intellectually) if
there ends up a 50% price swing either way - you've already budgeted the
amount and have moved on.
The alternative to a futures contract, is to adjust your behavior based on
price swings: If the price goes up, you put on a sweater, if the price goes
down you sell some of your propane to the fool who locked in a higher price.
I'd be reluctant to ascribe some malevolent intent to your supplier. The
theory that he has some secret knowledge and it using it to rip-off his
existing customers is not a good business strategy - and he knows it. He's
probably just trying to hedge the uncertainites of the future. That is, he's
probably been offered gas at $1.85 and he's trying to determine how much to
contract for (based on what he knows he can sell at $1.95).
| 
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap
> My gas company just sent me a letter offering to sign up for a fixed
> price (@ $1.949/gallon) of propane until April 30, 2010. I don't
> remember them sending any such letter last year which got me thinking
> maybe they anticipate a price drop? I realize that no one has a
> crystal ball (a working one :-)) but what is the collective wisdom of
> this group saying - is it a good idea to sign up for $1.949/gallon
> fixed propane (in PA) until next spring?
> Thanks!