LP Prices Drop to Multiyear Lows
Heating the farmhouse, machine shed, hog buildings, and grain bins may be the furthest thing from people’s minds in July. However, as liquid propane (LP) prices hit 11-year lows, it could prove beneficial to lock in supplies for this fall and winter now, industry experts say.
It was just two winters ago that LP supplies were so tight that prices spiked to record highs. This summer, spot prices at the major supplier locations have fallen sharply, due to oversupply.
LP PRICES PLUMMET
As of Monday, Mont Belvieu, Texas, spot LP prices traded at $0.45 per gallon, compared with prices reaching over $1.00 per gallon a year ago. The Conway, Kansas, spot market has reached $0.40 per gallon. And in Alberta, Canada, spot prices have hit near zero, according to industry experts.
At the local level, several Midwest farmers in the Agriculture.com Marketing Talk discussion group are reporting that their LP suppliers have been quoting delivered prices between $0.65 and $1.20.
Though LP costs amount to only 5% to 8% of a farmers’ total operating expenses, cost cutting and cost saving are becoming keys to success in a falling commodities market.
Wind, an Agriculture.com Marketing Talk member and Iowa farmer, is leaning toward using more LP this year.
“A few weeks ago, the local co-op was at $.99 a gallon. If corn goes to $5 and LP drops to $.90, I just might not crank up the corn stove this fall and burn LP instead,” Wind says.
JCCWIS, another Marketing Talk member, based in Wisconsin, says the LP market has fallen even further in his area. “Those that own their own tank have filled up here for $0.65 a gallon, with a 500-gallon minimum order.”
Tractor12, on the other hand, will stick with burning corn, despite the multiyear-low LP prices. “I burn corn in my shop. But even at $1.00 LP and $5.00 corn, economically it still comes out about equal. Corn has five times the Btus (heat capacity) as LP. Most people don’t believe that and think that I am stupid. But corn is very efficient heat, and I pay no sales tax, either.”
Terry Davis, Country Propane owner, a south-central Iowa-based retailer and member of the National Propane Gas Association, says that he is able to offer forward pricing for two years out for the first time.
“The suppliers are offering us a program that allows our customers to lock in prices until 2017,” Davis says. “That is the first time in 25-plus years that I’ve seen that.”
Davis adds, “Barring any transportation problems in the country, the industry should have plenty of propane. Filling up before September 1 would be smart.”
U.S. propane stocks increased by 1.7 million barrels last week to 87.4 million barrels as of July 10, 2015, 24.1 million barrels (38.1%) higher than a year ago, according to the Energy Information Administration’s weekly report on July 15. Gulf Coast inventories increased by 2.1 million barrels, and Midwest inventories increased by 0.5 million barrels. East Coast inventories decreased by 0.9 million barrels while Rocky Mountain/West Coast inventories remained unchanged. Propylene nonfuel-use inventories represented 5.9% of total propane inventories.
Michael Sloan, principal of ICF International, tracks the propane market. Though it’s hard to pick a market-bottom, farmers are encouraged to consider the multiyear lows occurring in the LP market.
“Right now is a great time to be buying propane,” Sloan says. “There is a great deal of propane availability. You can negotiate and pay a very fair price right now,” Sloan says.
No. 1 PROPANE EXPORTER
Industry experts see LP fundamentals causing price hikes as fall approaches. The expansion of export facilities in the Gulf, scheduled to come online this fall, is expected to push LP prices up. This will increase the demand for U.S. LP.
The U.S. is currently the world’s largest propane exporter. Most of the U.S. product goes to Asia. Central and South America countries are also big buyers of U.S. propane. China and India are the largest growth markets for the U.S. propane industry, Sloan says.
Also, current crude oil prices at $50 per barrel are believed to rise as the year progresses, causing LP prices to move higher.
“I certainly don’t expect to see the type of price increases and supply shortages that we saw a few years ago,” Sloan says. Although you never know for sure until you see what the grain drying season is going to be like.”
GRAIN DRYING SEASON
With crop conditions being reported all over the map, it’s expected that this year’s U.S. corn crop could very well come out of the field with high moisture, according to Chad Hart, Iowa State University ag economist. "In 2015, some farmers will have an abundance of crops from this year, combined with last year’s stored crop. As a result, grain drying sources such as liquid propane could be in high demand," Hart says.