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Propane Pains for Farmers Ease as Price, Demand Decline

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,” said Skunes, 58, who farms about 5,300 acres northwest of Fargo. “The company I traditionally do business with lost some business from me because they 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 boosted the harvest to what, at the time, was a record. But the crop was wet after as much as six times normal amounts of rain fell in the last three months of the year in the U.S. Midwest and northern Plains, according to the National Weather Service, boosting the need for propane used to run grain driers.

The increased demand for propane combined with shipping problems caused by a lack of available rail cars 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 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 a gallon last January.

The shortage was so bad last year that Governors Terry Branstad of Iowa, the biggest corn-grower in the U.S., 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 Gov. Scott Walker made nearly $8.5 million available last year to help needy families cover their heating bills thanks to rising propane prices.

This year, nobody was taking any chances.

Some growers added tanks on their farms to ensure they had enough propane on hand to run dryers, while others ordered early and often. Suppliers also “stepped up to the plate,” ensuring their customers would have enough after running out last year.

“Everybody remembered running out” and didn’t want that to happen again, Skunes said.

It wasn’t just farmers -- the propane industry in September launched a $5.5 million campaign, using television and online advertising to educate farmers and 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.

The Energy Information Administration, a division of the Energy Department, began publishing propane prices for 14 new states from Florida to Utah at the request of customers.

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

But a dry harvest wasn’t always a foregone conclusion -- delayed planting thanks to rainfall in the spring kept farmers believing they’d be harvesting in cold, wet weather, he said. That would, of course, mean a second year of high demand for propane.

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

Near-perfect weather kept that from happening. While planting was two weeks late, so was the first major frost of the season, he said. Yields in North Dakota, as with much of the U.S., were above average.

The Department of Agriculture said 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 harvest season has helped propane prices fall 26% in the past year. Not having the added expense of having to dry down grain this year has left growers in a good mood, and probably kept some from shifting acres to alternate crops, Lilja said.

“With the lower prices, if they would’ve had to pay the added expense, I think we would've seen a mass exodus away from corn,” he said. “They're still having to pay some drying costs but it’s not as severe as we thought it'd be."

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 -- an increase of almost 40%, according to the government.

At the same time, demand for propane in the U.S. had dropped year-over-year, falling 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 of supply -- was the highest since 2009.

Skunes, the North Dakota farmer, said 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, always a resourceful group, will likely buy more and buy earlier in the future.

“Suppliers got caught (in) a perfect storm a year ago,” Skunes said. “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 was definitely better this year than last year.”

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