Farmer's Blues - Late Crops and Delivery Snags Send PADD 2 Propane Prices Soaring

Cold weather and spiking demand from Midwest and Great Plains farmers trying to dry their late-maturing, soggy crops have sent the PADD 2 propane market into a tizzy. Supply is not a major issue — propane inventory levels in the region are only a little below average, and stocks are plentiful along the Gulf Coast in PADD 3 — but distributing propane by rail and truck for crop-drying use has been a bigger-than-normal problem. As a result, farmers are scrambling to get more of the fuel, and propane prices in the U.S. heartland have been skyrocketing. Worse yet, Canada may not be able to come to the rescue as it has in the past, because its propane exports to Asia are up and its inventories are down. Today, we review recent developments on the fuel front in the nation’s breadbasket.

As anyone who traveled across the Midwest or Great Plains this past holiday weekend knows all too well, winter has arrived, spurring demand for propane from the many residential and commercial customers in PADD 2 — the big triangle of states between Ohio, Oklahoma and North Dakota — who depend on the fuel for space heating, not to mention for cooking Thanksgiving dinners and heating up leftovers. As we said in our Can’t Get Next to You blog, the other big demand center for propane in the Midwest and Great Plains is drying harvested corn and other crops before they are stored or shipped. Propane demand for crop drying varies from year to year, depending on, among other things, the size of the crop, the crop-maturation rate (is it an early, late or normal harvest), and the weather during the harvest. 2019 has been a pretty good year from a crop production standpoint, but a wet spring delayed planting, crop maturation was slower than normal, and farmers are still in the midst of an unusually late harvest (see navy blue lines for 2019 in Figure 1). That complicates things because it means crop-drying demand for propane has been spiking just as heating demand is ramping up.

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