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Propane problems reach crisis level for producers
Pipeline problems, high amounts of crop storage, and what seems to be never-ending cold weather are taking a toll on propane supply availability, and livestock producers are taking a hit.
With the weather forecasted to dip below freezing temperatures to round out January, producers are changing routines typical for this time of year.
“The LP was being delivered in small amounts, and then a few days ago, the contracts were canceled. The price is now almost five times the contracted price and rising,” shares Women in Ag forum senior contributor, turkey feather. “We do not know what is ahead. Disaster is a real possibility.”
The pork industry is at a standstill in some parts of the country. A lot of pork producers with nurseries are shutting down due to the LP shortage and not willing to pay the high prices, says Ron Birkenholz, communications director for the Iowa Pork Producers Association. Many nurseries are empty and awaiting new pigs. That’s been pushed back until the propane situation alleviates.
Worst-case scenario? We'll lose birds.
“Prices are a concern, but availability is the biggest concern,” explains Executive Director of the Minnesota Turkey Growers Association, Steve Olson. The important solution is dealing with the pipeline from Texas. If Minnesota can't get the supplies they need, the prices don’t matter.
One producer decreased his number of poults coming in from 150,000 poults to 75,000 because he’s using facilities that heat on natural gas and leaving the propane-heated buildings empty, says Olson. If a producer is significantly affected, this will have a ripple effect.
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Turkey producers with brooding barns know a year in advance when they will receive day-old birds from hatcheries. Brooding barns are kept at temperatures of 95 degrees, maintaining a comfortable environment for poults. Colder temperatures in brooding barns cause stress, which, in turn, increases susceptibility to disease. At five weeks of age, the poults are transferred to a growout barn.
“The price on Friday rose to $6.00 from the contract price of 1.59. That is $45,000 for one fill-up, and that will not get a flock to market,” Women in Ag forum senior contributor, turkey feather, posts. “The profit margin is slim, and there is no way to pay for fuel at those prices.”
This ripple extends far beyond those who personally care for turkeys and hogs throughout their life. Feed companies, grain producers, processors, bankers and lenders, and rural businesses who serve livestock producers could feel the sting if barns aren’t raising animals until the LP supply improves.
Light at the end of the tunnel?
Phil Flynn, PRICE Futures Group senior market analyst, says the dramatic run-up in liquid propane (LP) prices may be getting closer to its peak.
But not every user will come out of the woods at the same time.
In comparison to a year ago, with an average LP price across the U.S. at $1.55 per gallon, this year's price has doubled. In fact, there are reports of some customers paying as much as $10.00 per gallon, Flynn says.
"We're getting close to the peak because winter is coming closer to an end," Flynn says. "But there are going to be certain areas throughout the country that won't get to the relief point as soon."
Though the two pipeline issues hampering price recovery are nearly solved, Midwest users could be the last to see prices return to normal, Flynn says. Users of heating oil in the U.S. Northeast get priority, when it comes to companies deciding where to direct-supply through the pipelines.
"Because propane is such a small percentage of the country's demand for heating fuel, it takes a backseat in the shipping process. It's part of the problem of why propane hasn't been talked about in the energy industry. I haven't talked much about it for the last 10 years. There hasn't been much to talk about."
The issues that have created this sharp spike in prices can be attributed to the oil industry being asleep at the wheel regarding the LP demand potential, Flynn says.
For many years, the LP supplies and demand levels have been at comfortable levels. However, not enough folks in the industry were preparing for a black swan event, such as a long-lasting cold winter combined with record-large crops that are being stored at near-record levels, Flynn says.
"We can ramp up production of propane to record levels, as we did last year. It's being able to get the supply to the people who need it in a timely fashion that is the problem. And that is where we have failed miserably."
Flynn adds, "But now, this year's event may show the industry that the infrastructure to ship propane supplies needs to be kept up."
Editor's note: Mike McGinnis contributed to this article.