Ag Weather Forum

Propane Demand Outstripping Pipeline Capacity in Parts of Midwest

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Farmers across the Corn Belt are finding it challenging to find enough propane to complete harvest. (DTN/Progressive Farmer file photo)

OMAHA (DTN) -- As of Wednesday morning, Harmony, Minnesota, farmers Jeff and Roxi Thompson were having no problem finding enough propane to dry their corn crop.

That all changed by Wednesday evening.

"We are down to 800 gallons and our supplier called tonight and said he's out of gas and can't tell us when he'll have more," Roxi said. "This means harvest is over until gas is delivered."

The Thompsons are not alone as farmers across the Corn Belt are running into supply bottlenecks at a time when they can ill afford to wait. The Federal Motor Carrier Safety Administration declared a regional emergency in Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin.

At the end of last week, governors in Iowa, Minnesota, Missouri and Wisconsin issued emergency declarations to lift restrictions on carriers for the transportation of heating fuel, including propane. This is expected to help alleviate supply issues in the region.

As of Thursday morning, most reports of supply problems were focused on Iowa and Minnesota.

Seth Meyer, University of Missouri at Columbia research professor and agriculture policy researcher, said for many farmers, the added drying costs from propane supply issues couldn't have come at a worse time.

But unlike the propane shortage of 2013, he said, there is plenty of supply available across the country now.

"In 2013, there was a general shortage of propane across the country," Meyer said. "This year, there is propane -- it is just sitting down in the Gulf (of Mexico). So Kansas is a central distribution point, it flows to storage elsewhere. This year, there are large supplies in the Gulf; in 2013, there were limited supplies U.S.-wide. We also had a bit of a delay in corn harvest. But, again, (grain) drying isn't the big use, it is home and ag (building) heating. So you are likely to have a short-run crunch as supplies adjust this year, whereas in 2013, we simply didn't have it."

Even if some farmers are willing to pay a little extra for propane, Meyer said, current commodity prices make any added expense a burden.

"I suspect for some folks the timing will simply be very poor," he said. "They want to harvest in a window and dry down but cannot get the LP. And remember: In 2013, commodity prices were very good, so it 'paid' to get it out of the field and dry it. ... This year, with current corn prices, making a decision to pay and dry down, or having the decision made for you for lack of supply, is a hit."

Data from the U.S. Energy Information Administration released on Wednesday shows United States propane supplies are still near a five-year high. However, Midwest supplies are down from last week and down 6% from one year ago.

SUPPLY LOGISTICS CHALLENGED

Brian Milne, editor and product manager for DTN specializing in energy, said the demand pull for crop drying along with some heating needs due to some early season cold weather are challenging logistics.

"It's getting the supply to where it's needed that's been the challenge," Milne said.

"The problem is pipeline constraints that limit the amount of supply that can be distributed to certain localities. Demand is outstripping pipeline capacity in certain parts of the Midwest. If you are a pipeline or terminal customer that regularly pulls supply, you will be in line to secure that supply ahead of someone who rarely lifts supply. Plus, many of these regular customers have contracts guaranteeing this supply."

In addition, if suppliers have agreements with customers, they need to satisfy those customers first, he said.

"With the multiple trucks waiting to pull supply, strong demand is evident," Milne said, "and also slowing the distribution of supply from distribution terminals. You can only load a truck so fast."

IOWA SUPPLY ISSUES

North-central Iowa farmer Sean Harmon said supply issues in his region have forced him to drive five hours for propane.

"We aren't having any issues at all," he said. "Our trucks just got to go farther out, like Nebraska or Kansas, to find it. There's a lot of availability; people just don't want to travel to get it."

Harmon travels as far as Kansas and finds the higher cost to do that not prohibitive. It costs him about an additional 20 cents per gallon.

"But that's pennies to keep two combines and a grain dryer running," he said. "We're going through a semi load every five days."

Iowa has seen a real supply pinch in recent weeks, as harvest demand has led to propane rationing in parts of the state.

A wet spring that made planting difficult is resulting in a late harvest because corn stayed in the field longer to mature. It has led to farmers in multiple states harvesting at the same time, increasing demand for propane.

Deb Grooms, CEO of the Iowa Propane Gas Association, said she's unsure when the state's supply issues will resolve.

"I wish I could tell you that," she said. "There is a lot of corn that still needs to be harvested in the Midwest and homes and ag buildings that need to be heated."

A market source in the Midwest told DTN earlier this week that 25 supply trucks were lined up at the MAPL pipeline in Greenwood, Nebraska, to load propane, with wait times of one hour per load.

The cold weather is expected to complicate matters of supplies reaching destinations in the short term, as even when firms can sell propane to non-core customers, it can be difficult to transport in bad weather.

SOME IN GOOD SHAPE SO FAR

Not all states in the Midwest are seeing propane shortages affecting harvest.

Kurtis Harms, communications director for the Nebraska Corn Board, told DTN the state's farmers seem to be faring well.

"To be perfectly honest, we haven't been hearing much talk about propane shortages significantly impacting our corn farmers in Nebraska," he said.

"I've been seeing the headlines and have been receiving quite a few media requests today regarding the issue, but none of the farmers I've reached out to have been affected yet. One said he hasn't had to run any heaters on bins yet, so perhaps this will be a bigger issue for us in a few days or weeks."

On Wednesday morning, Thompson said her farm in south-central Minnesota seemingly had enough propane.

The family contracted propane in July at $1.06. The Thompsons' supplier, AgVantage FS, told them the price was going to keep rising as a result of the current supply bottleneck.

"This week, our driver delivered and asked if we wanted to save our contract gallons and pay the spot price for that day, $1.25, since we expect to run out of contract gallons, and he said the price for the next day was going up to $1.40 a gallon," Roxi said.

"Our corn is coming in at 24% (moisture) on our earlier-planted acres. Drying corn efficiently takes a lot of attention to detail. We are washing the fines and bees wings off our dryer every few days to keep efficiency up. This cold weather forecast with lows in the single digits means we will use more propane per bushel."

The Thompsons test dry samples straight from the dryer every two or three hours to keep the dry corn close to 15% moisture for market and on-farm storage.

"I kind of wonder how these shortages happen," Roxi said. "Any farmer in the U.S. could have told the propane suppliers we would be needing significantly more propane this fall."

The Thompsons have two homes heated with geothermal and another home heated with propane.

"We always fill the tanks at the homes during summer-fill promotion, so we should be OK for heating. Our farm shop can tend to use a lot of propane if we have equipment going in and out in colder weather," she said.

"Our dryer is our pinch point, but with grain prices lately, we've not added dryer capacity as our acres have increased. If we add more acres for 2020, we may need to look into purchasing a second used dryer to set in place next to our existing dryer."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him in Twitter @toddneeleyDTN

(CZ/AG)

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