Farmers Lock in Propane Needs Low Propane Prices Push Farmers to Buy

Propane prices have plunged to low levels thanks to ample supplies. As a result, farmers are locking in more propane earlier this summer as they prepare for the fall crop drying season. (DTN/The Progressive Farmer photo by Dan Miller)

OMAHA (DTN) -- Brad Thykeson is pleased to see propane prices the lowest they have been in the past 20 years after record-high prices in early 2014. The Portland, North Dakota, farmer said prices, around 50 cents per gallon or lower in some areas, are good news for Northern Plains corn growers in a season where other input costs have remained high relative to lower commodity prices.

"It is good news to know that some input prices can actually go down," Thykeson told DTN. "We are getting considerably less for the raw product, and input prices never moved."

Just as several factors came together to push prices higher in the winter of 2013 and 2014, propane industry experts say there are several issues that have been pushing prices lower recently. They report farmers have locked in prices earlier and some have locked in more gallons than normal by midsummer.

SO MUCH PROPANE

Brian Milne, DTN Refined Fuels editor, said there is a huge supply of propane, and this supply keeps building. This is especially bad news for sellers during the summer "off-season" for propane use.

"We have so much propane supply we can't use it fast enough," Milne said.

According to data from the U.S. Energy Information Administration (EIA), the U.S. ending stocks of propane and propylene were at 85.724 million barrels for the week ended July 4. That's up from 60.073 million barrels at the same time a year ago and is the highest level since the EIA began tracking propane ending stocks in 1993. 

Chris Hund, branch lead for Premier Coop located in Dodge, Wisconsin, said farmers are currently busy locking in some of their propane needs for fall crop drying. Most of his farmer customers order at least some of their fall needs by the end of July, but so far, he's seen more gallons locked in early in the month than any time in his 6 1/2 years in the propane business.

"I think this has to do with two factors," Hund told DTN. "One would be the high prices we saw in recent years and where prices are now, and the other factor would be us starting to write early pricing contracts for propane in recent years."

In addition to earlier pre-orders, Hund believes more gallons will be locked in. The prospect of low prices moving higher is pushing farmers to pull the trigger on more gallons, he said.

The trend should make for a less stressful fall delivery season for propane retailers, Hund said. Deliveries should be spread out more, allowing retailers more time to get the propane to farmers' tanks.

LOCKING IN

One of Hund's customers is Kyle Bushman, a grain farmer from Cochrane, Wisconsin. Bushman recently filled up his on-farm propane storage on his western Wisconsin farm ahead of the fall crop-drying season.

"We do this, of course, to help us manage the volatility in the gas market," Bushman said. "The last couple of years proves how crazy it can get at times."

Bushman locked in a portion of his needs. He's also toying with buying a bulk 30,000-gallon tank to house a year's worth of his propane needs. In addition to allowing him to stock up with cheaper fuel, being able to accept bulk loads can save a buyer another 15%-20%, he said.