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Fixing the LP Industry

After running out of liquid propane and being unable to dry down his corn last year, North Dakota farmer Kevin Skunes didn’t take any chances this season.

“I sourced from two companies this year,” says Skunes, 58, who farms about 5,300 acres northwest of Fargo. “The company I traditionally do business with lost some business from me because it didn’t have propane last year.”

Growers in 2013 collected 13.925 billion bushels of corn after a combination of increased planting and favorable weather that improved yields and boosted the harvest to what, at the time, was a record. The crop was wet after as much as six times the normal amounts of rain fell in the final three months of the year in the U.S. Midwest and northern Plains, according to the National Weather Service. This increased the need for propane to run grain driers.

The heavier demand for propane combined with shipping problems caused by a lack of available railcars and tanker trucks led many farmers to run out of the gas. Farmers, in turn, were forced to sell wetter-than-normal corn at a discount to elevators and ethanol plants or to hold onto supplies until spring, taking away an important source of winter revenue. 

It also boosted expenditures. Propane prices jumped to a record $4.01 per gallon last January.

The shortage was so bad last year that Governors Terry Branstad of Iowa and Jack Dalrymple of North Dakota both signed declarations of emergency that removed restrictions on drivers who hauled the gas, allowing them to work longer hours.

Wisconsin Governor Scott Walker made nearly $8.5 million available last year to help needy families cover their heating bills, due to rising propane prices.

Added Storage 

This winter, nobody was taking any chances.

Some growers have added tanks on their farms to ensure they have enough propane on hand to run driers. Others ordered early and often. 

Suppliers also stepped up to the plate, ensuring their customers would have enough after running out of the energy stock last year.

“Everybody remembered running out and did not want that to happen again,” Skunes says.

It wasn’t just farmers. In September, the propane industry launched a $5.5 million campaign, using television and online advertising to educate farmers and to urge other agribusiness owners to talk to their propane providers early. The campaign – funded by the Propane Education & Research Council, a checkoff established by the propane industry – encouraged growers to fill tanks early.

All of the precautions paid off. Few growers ran out of propane this year, says Tom Lilja, executive director of the North Dakota Corn Growers Association.

A dry harvest wasn’t always a foregone conclusion. Delayed planting after spring rainfall kept farmers believing they’d be harvesting in cold, wet weather, he says. That would, of course, mean a second year of high demand for propane.

“With the late-planting scenario, most of our producers had in mind that they should stock up,” Lilja says. “Odds were we were going to have a very wet corn harvest.”

Some areas did get caught harvesting wet corn, but a later major frost of the season also delayed LP usage. Yields in North Dakota and much of the U.S. were above average.

The Department of Agriculture says farmers this year collected 14.4 billion bushels of corn on yields of 173.4 bushels an acre, both records. Even with the biggest-ever production nationwide, a drier, warmer first half of harvest helped propane prices fall 26% in the past year. Not incurring the added expense of having to dry down grain this year has left growers in a good mood, and it probably kept some from shifting acres to alternate crops, Lilja says.

Indeed, propane supplies have jumped after falling to well below average levels last year, according to Energy Information Administration data. Production in mid-November rose to 1.672 million barrels a day, boosting inventories by 22.8 million barrels from the prior year. That’s an increase of almost 40%, according to the government. 

At the same time, U.S. demand for propane had dropped year-over-year by about 324 million barrels to 1.34 million barrels a day, according to the agency. The amount of propane on hand in August (more than 82 days’ worth) was the highest since 2009.

“With the lower prices, if producers would have had to pay the added expense, I think we’d have seen a mass exodus away from corn,” says Lilja. “They’re still having to pay some drying costs, but it’s not as severe as we thought.”

A Prepared Industry

Skunes says, while a scenario similar to last year’s could happen again, suppliers and corn producers are better prepared than they used to be. In his area near Fargo, trains aren’t running as much propane as they used to, and a tank farm about 100 miles to the west shut down last year. Farmers will likely buy more and buy earlier in the future. 

“Suppliers got caught in a perfect storm a year ago,” Skunes says. “It snowballed, and everybody was caught off guard. They didn’t think they’d need as much as they did, but they were better prepared. It is definitely better this year than last year.”

George Jaques, Iowa Propane Gas Association board member, says propane dealers in Iowa are making headway with increasing storage capacity for local dealers.

“We’re working with county and rural municipal governments to demonstrate that increased storage can help ensure supply during heavy grain drying and the heating season,” Jaques says.  

In areas of the Midwest, some small towns depend solely on LP gas for heating. Pipelines, rail, and transports cannot move the product from primary storage in Kansas to Iowa fast enough to keep up with usage.

“In addition to the increase in larger plant storage tanks, many farmers and homeowners have started upgrading their on-site (tertiary) tank sizes from 500 to 1,000 gallons or placing multiple 1,000-gallon tanks to increase storage .

“All of these new changes will help the industry keep up with customers’ needs during heavy drawdown times,” Jaques says.”

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