OMAHA (DTN) -- With increasing production and limited crop drying this fall, the propane outlook looks favorable for the agriculture sector.
Large propane stocks compared to a year ago are now being seen, thanks to increased natural gas production. While crop drying will be necessary in certain areas, the dry weather this growing season in many parts of the U.S. Corn Belt will allow for crops to dry down.
One wild card in this outlook is the weather forecast for this fall and winter. Extremely cold temperatures this winter could raise the demand for propane, causing the supply to drop and prices to spike.
Normal Crop Drying
Micheal Newland, director of agriculture business development for the Propane Education and Research Council (PERC), told DTN that fall appears to be a normal drying season. The development of the corn crop is ahead of schedule in many locations, thanks to the dry conditions seen during this growing season.
PERC utilizes a 23-year dataset for looking at how much crop drying will need to be done at corn harvest time. Newland said PERC's data is at 95% to 105% of normal.
"There appears to be nothing to be overly concerned with crop drying this fall," Newland told DTN.
That's not to say there will be no crop drying occurring this fall. Some areas will have to drop corn this fall.
North Dakota, because of its shorter growing season, could have more drying than usual, he said. Some reports of early corn harvest in the Eastern Corn Belt (ECB) have moisture levels into the mid-20s and this corn will have to be dried before being stored.
Newland said while there will be some regions that will have to artificially dry crops, for the most part, the corn crop will come out of the field dry this fall.
"I think the industry learned from tough years like 2019, which saw much crop drying," he said. "There has been considerable commercial and on-farm tank build-out."
INCREASED PROPANE STOCKS
Another reason for the relative claim in the propane outlook is that U.S. propane stocks are significantly higher than year-ago levels.
According to the Energy Information Administration (EIA), total domestic propane/propylene stocks were at 95.977 million barrels (bbl) of oil as of Sept. 1. This is up 512,000 bbl week-on-week and 21.859 million bbl or 22.8% higher than the same week last year.
This, in turn, has pushed propane prices lower.
Weekly Kansas Propane Wholesale/Resale price is under a dollar per gallon in 2023. During most of 2022, the propane price was around $1.50 per gallon, according to EIA data.
Brian Milne, DTN Fuel Editor, said the increased propane production is due to increased natural gas production in the nation. Companies are drilling for oil and harvesting more natural gas levels, which increases propane production.
The increased production is due to long-term steady growth in the industry. Companies have invested in processing natural gas and because of this there is much more propane available to the market, he said.
"We have so much more propane production now compared to past years," Milne said.
MORE PROPANE EXPORTS
Because of the increased propane production, much of this new production is being exported. This pulls some supply out of the Midwest, but increased production levels overall have more than counterbalanced the increasing exports, he said.
US propane exports as of September 1 averaged 1.694 million barrels of oil per day (bpd), up 147,000 bpd week-on-week and 459,000 bpd, or 27.1% higher than in the same week last year, according to EIA data.
Milne said the export market has expanded rapidly in the last few years. The U.S. has the best oil refiners in the world and the market has become more of a global market.
Newland said increased propane usage is pushing U.S. propane on the world market. Much of the exports are going to Europe and Asia for traditional propane, such as home heating.
PERC is exploring some less traditional uses for propane beyond drying crops and heating homes. Newland said some advancements have been in power generation, irrigation engines and propane-powered vehicles.
There is even some work being done in specialty crops in which propane is injected into the soil to control weeds and pests, such as yield-robbing nematodes, he said.
WATCH THE WEATHER
One wild card facing the propane outlook annually is the weather outlook for the fall and the winter. Milne said a price spike could still happen if the weather turns cold for a period.
"This can certainly still occur, but with the increased propane stocks we have now, the price spikes might not be to record high levels," Milne said.
John Baranick, DTN Ag Meteorologist, said the weather outlook for this fall could be fairly variable. September appears to be a hot and dry month, but October and November could be colder and wetter.
DTN's forecast for October and November is for near to below-normal temperatures in the north-central U.S. (Dakotas, Nebraska, Minnesota, Wisconsin, Iowa) while it should be near or above normal in October across the South and the East.
"For precipitation, September will be dry, but the variability in October and November should make for more storm systems, especially across the southern states," Baranick said.
Further north, the variability is likely to result in near to maybe slightly above-normal rainfall this fall. Those harvesting crops could see some delays and there might be more crop drying needed during this time, he said.
Longer term, the winter outlook should see El Nino staying firmly in place and have a strong hold on the weather pattern, Baranick said.
This typically means above-normal temperatures for most of the country and an active stream from California to the Southeast. El Nino usually means near-normal precipitation across the Plains and Upper Midwest but below-normal precipitation in the Ohio and Tennessee Valleys.
"The DTN forecast for propane-weighted heating degree days is about 8% to 9% below normal for December through February and should keep (propane) costs from skyrocketing too much," he said.
Russ Quinn can be reached at Russ.Quinn@dtn.com
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