The Corn Belt’s Propane Situation Is Heating Up

Propane supplies are expected to take a hit, in this week’s report.

DES MOINES, Iowa -- That big humming sound you hear across the countryside morning, noon, and night may not be going away for a while.

Liquid propane (LP), the fuel behind that noise coming from grain bin dryers, has been hard to find at times this fall, and industry experts say that problem could continue.

On Wednesday, the Energy Information Administration will release its latest update on LP wholesale supplies.

Warren Wilczewski, Energy Information Administration (EIA) industry economist, says that this week’s propane inventory report may indicate a further rise in demand for propane for grain drying.

“The short-lived warming in the Midwest, which accounts for most of the agricultural and space heating demand for propane, allowed for some end-use inventory restocking and reduced price premiums. As weather cools again, propane demand will return to above-average levels for this time of year across much of the West, with the East Coast still due for above-average temperatures, and therefore below-average consumption,” Wilczweski wrote in a winter propane update report.

U.S. Harvest Won’t End

Following the squeeze on supply late last month and in early November, the government allowed a pipeline company to move product up from the coast of the Gulf of Mexico.

Although that is expected to help get more propane to where it is needed, harvest season is far from over.

In fact, this year’s harvest season is one that just won’t end.

On Monday, the USDA Crop Progress Report indicated that while Illinois and Iowa, the two-largest corn-producing states, have 12% and 14%, respectively, of their corn picking left, North Dakota is only finished harvesting 30% of its crop.

South Dakota has 68% of its corn out of the field, compared with a 96% five-year average.

Michigan and Wisconsin farmers are only halfway done with corn picking.

And most of this crop is coming out of the field wet to very wet.

The point is that there is a lot of grain drying left to go.

Propane Supplies

The report stated that propane inventories at many Midwest states are sitting at below-average levels.

At the wholesale level (refineries, terminals), supplies in Iowa, Minnesota, and Wisconsin were at approximately 550,000 gallons on November 15, below the five-year range of about 600,000 gallons.

Wholesale propane inventories in Illinois, Indiana, and Ohio were recorded at roughly 1.4 million gallons, as of last Wednesday, below the bottom of the region’s five-year range of just under 1.8 million.

In Kansas, wholesale propane inventories were tracking the five-year range at just over 12.0 million gallons.

Propane supplies in Petroleum Administration for Defense District Two, the Midwestern district known as (PADD2), equals 23.4 million barrels, as of November 15, below a five-year average of 26.0 million.

However, in 2013-14, the last time the propane industry faced shortages in PADD2, supplies dipped to between 7 and 9 million barrels, according to Oil Price Information Service (OPIS) & IHS Markit.

In that year, a late harvest was followed by a polar vortex weather phenomenon that caused a large drawdown of LP supplies.

So far, the weather experts do not see January-March temperatures running as cold as 2013-14.

Propane Production Comparison

In addition, U.S. propane production in 2013 totaled 200,000 barrels per day vs. 500,000 barrels per day in 2019.

Infrastructure Adjustments

The other half of this year’s grain drying story has to do with propane inventories that are not in the right parts of the country, according to Rajesh Joshi, OPIS & IHS Markit editor.

"While there is no shortage of LP, there is an immediate need for farmers that can't get it," Joshi told Monday.

For instance, the bulk of the U.S. propane supplies sit at facilities along the coast of the Gulf of Mexico. However, the natural gas liquid (NGL) hub named for Conway, Kansas, is the main supplier to the Midwestern states.

So, there is enough propane, but farmers may have to pay more to get it to where it’s needed.

The Federal Energy Regulatory Commission (FERC), last week, announced it will initiate an alternative dispute resolution (ADR) process with pipeline companies, shippers, and their representatives to explore actions FERC and industry can take to alleviate propane pipeline constraints in the Midwest.

To relieve pressure from the Conway, Kansas, facility, FERC recently issued an order accepting a proposal by Enterprise TE Products Pipeline Company LLC to provide emergency transportation service of propane to the Midwest region for a 30-day period.

Industry experts agree that this measure is well received, but there will be increased costs to farmers.

“Getting the product piped from the Gulf to Chicago will be costly. Plus, there is a question of whether pipeline companies have the capacity to get the propane to Iowa, Minnesota, and other states once it reaches the Chicago market area,” the EIA economist stated.

LP Price Trends

In the propane business, product coming out of the production, storage and trading hub in Mt. Belvieu, Texas is always at a premium price level to the prices at the hub in Conway, Kansas. However, prices now are on par as strong winter heating and grain drying elevate demand above-average levels for this time of year.

In fact, earlier this month, Conway propane prices traded above the Mont Belvieu grade for the first time since October 1, 2014,  through December 8 that year.

This abnormal price trend may not bode well for farmers needing more propane to dry down this year’s late crops.

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