Propane supplies should cover corn drying needs
The soybean harvest continues strong this week and soon farmers will be transitioning to corn.
“We’re right at the brink of corn harvest,” said Darren Medhaug, Energy Manager for Full Circle Coop in Britton. “Next week will be the real drive.”
As farmers finish up their beans, many are hand-shelling ears in their cornfields to check to see if moisture levels are low enough roll the combines into the corn. Dry down of this year’s crop is of great concern as moisture content is expected to be high.
Last season, high demand for propane for drying corn coupled with scarce supplies led to a shortage, and that has many worried about what prices for the fuel will be.
With the market price for corn below $3, farmers would like to minimize the expenses to dry this year’s crop.
Medhaug said the supply of propane is available with a magic number of 28 million barrels in the Midwest. It’s now a waiting game to see what the moisture level will be for corn and what farmers and elevators will need. Some who have tested corn in the Groton and Conde areas are at 16 and 17 percent moisture while those around Britton are from 26 to 32 percent moisture.
Medhaug said a lot of farmers contracted for more gallons of propane than in past years, probably because of the scarcity last year when prices jumped from $1.60 a gallon to $4 a gallon. He said, “A lot of farmers weren’t ready then. We did a lot of summer fill on farms this year to keep them from facing that problem again.” The current price of propane is $1.60 per gallon when ordered at quantities of 200 gallons or more.
Last week’s WASDE report showed this year’s corn crop will be slightly larger than last year. Depending on the moisture content of the ears, the harvest could affect the demand for propane as it fuels many of the grain dryers.
How much does it cost?
With the cost of corn below $3 a bushel, any additional cost to get corn in the bin is of concern to farmers. And last year, propane costs skyrocketed right when farmers needed to dry the crop before putting it into bins.
According to a news release from North Dakota State University Extension Service, “Corn has a moisture content of about 32 percent when it reaches maturity. If it has a moisture content of 32 percent on Oct. 1, it may dry to only about 22 percent moisture by Nov. 1, assuming normal climatic conditions. Field drying normally is more economical until mid-October, and mechanical high-temperature drying normally is more economical after that.”
The news release stated, “To estimate the propane cost per bushel per percentage point of moisture removed, multiply the propane price per gallon by 0.02. For example, the cost to remove 10 points of moisture using $2 propane is 40 cents. Dividing the propane cost by the corn price provides the percentage of corn losses that will equal the drying cost (40 cents divided by $3 equals 13 percent).”
At North Star Energy in Aberdeen, Jerry Brick said their propane facilities are sitting full, and they are waiting for the demand to begin.
“We have more inventory than we’ve ever had before,” Brick said. ”The company added 100,000 gallons of additional storage in the last year.”
Last year was a nightmare they don’t want to repeat, according to Brick. “All the stars aligned wrong and created a huge demand and backlog.”
With low corn prices, Brick said they know farmers would like to not use any propane so they will leave the corn in the field as long as they can.
“We’ve added storage and encouraged customers to upgrade their tanks,” Brick added. “We know demand can change quickly. I’m not a farmer, but the recent hard frost finished off the growing season for most corn.”
In a USDA podcast, Hamilton Mason, petroleum analyst with the U.S. Energy Information Administration, said farmers have painful memories of last year when propane prices quadrupled.
The outlook is that there will be 27 percent less propane needed this year, Mason said. That is due to two reasons:
1. Propane stocks in Gulf and Midwest are about 17 percent above last year.
2. The propane price will be 10 to 15 cents less per gallon this year.
But the real question is what will the real price be.
“It’s all up to the weather,” Mason said. “There is a huge crop expected, but it’s hoped that it won’t need as much drying as last year, which in turn means there is less need for propane.”
In Washington, Congress is considering the Propane Supply and Security Act of 2014, which would eliminate the kind of market uncertainty seen last year by mandating weekly inventory data, reported at the state level and at the collective storage facilities at market hubs.
If a sudden price spike or supply shortage occurs, the Secretary of Energy will lead emergency response efforts to ensure expedited distribution of propane through measures such as: exemptions from hours-of-service restrictions, prioritizing propane shipments by rail and in pipelines, and other actions deemed necessary.