Propane prices projected to rise as much as 50 percent : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

4:12 PM - Aug 23, 2000 (Updated 4:15 PM - Aug 23, 2000) EDT Propane prices projected to rise as much as 50 percent this winter by Darcy Maulsby Propane prices are rising right along with higher gasoline prices this year, and farmers may feel the pinch even more if the grain they harvest this fall requires extensive drying.

Midwestern grain and livestock producers may be hit particularly hard by the high prices of propane and heating oil, according to David Downing, a fuel price expert with the Iowa Department of Natural Resources. Downing said propane prices are expected to increase at least 50 percent this winter.

Everybody was waiting for the price to go down, but it never did, added Deb Grooms, executive director of the Iowa Propane Gas Association.

Propane typically costs the most during the winter months and is cheapest in July and August. This didnt happen this year, however, Downing said.

According to our latest data from Aug. 7, propane in Iowa cost 84 cents a gallon. Last year it cost 58 cents. Heating oil cost $1.06 this year, while it was 77 cents last year. Im sure prices have gone up, maybe as high as 12 cents, from the Aug. 7 numbers.

In Iowa alone, customers use 400-440 million gallons of propane per year, Downing said. Farmers use 60-90 million of these gallons to dry their grain.

Grooms said its still too early to tell how much propane will be needed this fall and winter. We really dont know what this years crop-drying season will be like. Some farmers have indicated their crops may not need to be dried much. If farmers need to do lots of grain drying and we have a cold winter, though, well go through a lot of propane.

What has sent the price of propane and heating oil soaring? Downing said the high cost of natural gas and crude oil, from which the fuel sources are derived, is one reason. Crude oil used to cost $18 a barrel, but its $31 a barrel now. Both crude oil and natural gas are extremely high.

Low propane supplies in the Midwest arent making the situation any better. Grooms said propane imports have declined, and other parts of the world have been buying more of the fuel. Propane is a commodity, and other countries are paying big bucks for it, so thats where the propane is going. Right now, demand for propane is strong in Asia, Mexico and the Middle East.

Downing agreed, saying that the mild winters of the past few years contributed to lower propane supplies in the Midwest. With the mild temperatures, there wasnt a lot of corn drying. Because we werent using as much propane, this meant the propane inventory was diverted from where it is normally used and headed to other parts of the U.S. and Japan, Korea and Mexico.

Once propane is diverted to other regions, replenishing supplies takes time, Downing said. Its not like natural gas where pipes can quickly bring the gas to where it is needed. Propane has to be trucked in, brought by rail or by barge. Because of the infrastructure, it takes a lot of time and effort to move propane where it is needed.

In Iowa, 14 percent of the states 1.1 million households use propane, while five percent use heating oil. The average household uses 1,250 gallons of propane to heat the home during the winter months. At last Januarys price of 70 cents per gallon for propane, this costs an average household $875. A 50 percent price increase would increase the bill nearly $440 to $1,312.50.

Weather forecasters expect Midwestern weather conditions to be normal this winter, Downing said. This means it will be colder in Iowa than it has been the past three years, and colder weather equates to higher demand for propane and heating oil.

The best move farmers can make when it comes to propane is contracting ahead, Downing added. Farmers are good about contracting. When you do this, you have a fixed cost. Be a smart consumer, plan ahead and work with your retailer.

-- Martin Thompson (, September 01, 2000

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