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Published January 27, 2014, 10:22 AM

Propane shortage still affecting farms

A recent spike in propane fuel costs has put the hurt on the region’s farmers who are heating their homes and looking ahead to some residual grain drying costs in the spring. Drew Combs is vice president for the propane business unit at CHS Inc. of Inver Grove Heights, Minn. CHS works with an organization that supplies a large amount of propane to the North Dakota market with supplies historically coming from Cochin Pipeline at Carrington and other North Dakota sources.

By: Mikkel Pates, Agweek

FARGO, N.D. — A recent spike in propane fuel costs has put the hurt on the region’s farmers who are heating their homes and looking ahead to some residual grain drying costs in the spring.

Drew Combs is vice president for the propane business unit at CHS Inc. of Inver Grove Heights, Minn. CHS works with an organization that supplies a large amount of propane to the North Dakota market with supplies historically coming from Cochin Pipeline at Carrington and other North Dakota sources.

Combs says the propane inventory levels today are 40 percent lower than this time last year because of two major factors: A late corn harvest and drying season that came simultaneously in several states; and the Polar Vortex pushing cold temperatures deeper south and east.

The price of wholesale propane has gone up dramatically in the past several days, including a 70 cent per gallon jump on Jan. 21.

The extra demand is “putting a large pressure on the physical delivery of propane,” Combs says. “We have propane in the hubs but it’s delivered through pipelines, rail cars and trucks to the marketplace for our end-user. We’re having more demand on that logistics system than we can actually resolve.”

Quite a difference

Steven Blume of Herman, Minn., uses propane in his home and shop. He says he has to refill every month during the winter. He says prices are running at about $2.50 per gallon compared with $1.25 when his farm contracted for propane last fall for grain drying. “That’s quite a difference in six months,” Blume says.

Mike Rud, executive director of the North Dakota Propane Gas Association in Bismarck, N.D., estimates 80 to 90 percent of farmers heat with propane, although some have dual heat capabilities using off-peak electric heat. He didn’t know how many are operating under contracts.

Ken Hellevang, a North Dakota State University Extension Service specialist, says some farmers heat with dual systems. At 5 cents per kilowatt hour for off-peak electricity, that’s typically equivalent to propane. “Once you get above $1.50 on propane, the off-peak electric looks good,” he says.

The big impact for farmers, of course, is the propane for grain drying.

Extra demand

Some farmers in the Agweek region suffered in November from spot shortages of propane, especially if they hadn’t done much contracting. A sudden surge of wetter-than-normal corn harvesting in the region in late October caused a lack of supply. Some farmers had gotten by with relatively little drying in the previous two years and hadn’t contracted for as much as they needed. Some farmers in Richland County had gone to suppliers as far away as Nebraska to fill their tanks. Propane that had initially been about $1.50 per gallon shot up to more than $2 per gallon.

Combs says a new rail loading facility is under construction on a CHS “loop track” west of Hannaford, N.D., north of Valley City. The new CHS propane terminal will be operated by Central Plains Ag Services LLC, an entity owned jointly by CHS and West Central Ag Services of Ulen, Minn.

It will be up and running by April, he says, and certainly in time for the fall harvest and heating season in 2014. But he says railroad shipping of propane isn’t quite as responsive as pipelines so CHS is advising co-op retail clients to build more of their own storage, and advise farmers to do the same.

“The rule of thumb is 14 days of inventory to handle peak demand,” Combs says. “What we’re seeing is woefully low.” He says farmers have properly invested significantly in grain dryers in many areas but haven’t kept up with their propane storage.

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