DECATUR, Ill. — When farm market analyst Bryce Knorr told visitors to the 64th Farm Progress Show to watch for supply chain disruptions in the fuel delivery system resulting from Hurricane Harvey, which could result in swift increases in consumer prices for motor vehicle fuel and propane (LP), his remarks proved prescient.

 

Two days later, the primary fuel supply line from Houston to the eastern United States was shut down due to safety concerns, prompting a spike in gasoline prices and long lines at fuel stations in Dallas and elsewhere in the southern U.S., CNN reported.

Meanwhile, U.S. propane prices remained mild, with LP selling for $1.42 per gallon on August 31 in central Illinois, according to Ag-Land FS in Pekin. The average U.S. price for propane at the close of the 2016-17 heating season (March 27) was $2.39 per gallon, according to the U.S. Energy Information Administration (EIA). On the NYMEX Exchange at the Chicago Board of Trade, September 2017 futures trading for natural gas stood at $2.73 per gallon.

But don’t expect low prices for propane, a byproduct of natural gas production, to remain low for long, Knorr warned – especially if supply chain disruptions in the aftermath of the historic hurricane continue.

“The main impact is causing gasoline prices to spike,” said Knorr, who presented his seminar on maximizing farm profits on August 29 in the show’s Hospitality Tent. “They are at their highest level in a couple of years due to refineries being shut down. Diesel, also, has been trading higher.”

 

Knorr said that Harvey, which has displaced tens of thousands of people and caused untold amounts of devastation to homes, businesses, farms, pastureland and infrastructure, came at “a really bad time for farmers” considering below-profit level commodity prices and the approach of harvest, when farmers use a lot of LP gas for drying grain.

He advised producers to try to “lock in” their winter 2017 and 2018 propane purchase price with retailers soon, if they hadn’t done so earlier this year.

“You should lock in your fall drying fuel. Prices are moving higher already this time of year with the approach of the heating season,” he said. “Some of you are wondering why (your) propane bill could go up as a consequence of this hurricane. Propane is a byproduct of natural gas processing and petroleum refining.”

A key Midwest propane supply hub for Illinois and Midwest wholesalers and retailers is located at Conway, Kan. Another is located in Texas, where they “are getting 20 inches of rain (last week). Nobody knows what is going to happen with that situation. Propane prices could be significantly higher if you wait for that situation to clear.”

Floyd Heller, general manager of Ag-Land FS serving Peoria, Tazewell and Logan counties, also attended the show with a team of Ag-Land employees. “Gasoline has gone up, it seems, 20 cents every day for the past few days, but propane, nothing,” said Heller, who did not hear Knorr’s presentation. 

 

The hurricane is actually shutting in the export terminals, creating a temporary glut in the market. This may mean soft prices for propane in the short-term.”

Heller would offer no projections on what price fluctuations could occur in the event of further pipeline shutdowns affecting the LP supply chain, but he suspected that propane prices on the East Coast would approach $3 per gallon during the week.

He was confident the propane hub in Kansas holds enough LP gas in reserve to stave off any sudden spike in prices in Illinois and the Midwest, where prices are currently among the lowest in the nation.

Comparing prices from February, central Illinois farmers who locked in their propane prices in February are saving around 40 cents per gallon compared with those who would purchase it today, Heller noted.

Knorr advised those attending his seminar to not wait much longer to secure their LP prices before a larger, less predictable spike in prices occurs as a direct result of Harvey’s wrath.