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Mon February 10, 2014
Propane Price Spike Hitting Hog, Poultry Farms
Residents across the Midwest are struggling with tight propane supplies, especially in this bitterly cold, snowy winter. Homes in rural counties are not the only places lacking adequate heating fuel. Farms that put bacon and eggs on your breakfast plate are also feeling the supply pinch.
Hog farmer Phil Borgic of Nokomis, Ill., burns liquid propane – LP - from September through May to support his piglets. His farrowing barn goes through about two semi truckloads of LP each year.
“We’ll go into the winter then with our tanks full, but because this winter has been so cold, I’m done with my contracted LP,” said Borgic.
Borgic buys in the summer when demand and prices are lowest. He locked in a $1.79 per gallon price last summer, but now he is facing prices closer to $5.00 because of supply hiccups around the nation.
Before May, he will have to dip into reserve funds to keep his little hogs warm. “Because you’ve got to have [LP],” said Borgic. “It’s not something that’s an option.”
It’s not a cost he can pass along to his customers. He sells a set number of pigs each month to Smithfield Foods, Inc., owner of Farmland brand bacon. The forward contract doesn’t allow him to tack on fuel costs.
“The marketplace sets it or we’re under contract to deliver for a certain price,” Borgic said. “So it comes off my bottom line. My gross doesn’t change. Just my expenses are going up,” he said.
The propane price spike will force Borgic to put off repairs or make other adjustments this year.
It’s not just pork producers like Borgic who rely heavily on propane. Poultry farmers are struggling too.
“We haven’t heard of any losses yet, but one thing that does happen is that if the birds get gold, they get stressed,” said Steve Olson of the Chicken and Egg Association of Minnesota. “The stress can lower the immune system and bring on potential for disease,” Olson said.
According to Olson, Minnesota turkey farmers have been forced to slow production because propane has been prioritized for heating homes over barns. He says Thanksgiving is a long way off, but the price of turkeys could be impacted if the supply of birds falls short of expectations.
The “polar vortex” that has swept repeatedly through the nation is partly to blame for the propane shortage. But so is the cold and wet corn harvest last fall.
“The crop just simply did not dry,” said Russel Higgins, University of Illinois Extension Specialist. “Part of that is because it was late planted. We just didn’t have the weather to dry that grain any further.”
When Mother Nature does not dry corn in the field, grain elevator operators use propane-fueled heaters to get it to a moisture level where it can be stored. And wetter-than-normal corn from the 2013 harvest is still coming in to elevators, as many farmers wait to deliver grain until the following calendar year for tax purposes.
The above-average use of propane to dry grain sapped local supplies last fall and continues to put pressure on the industry. Some propane dealers have been forced to ration customers, only filling tanks partially to ensure others don’t run out completely.
With states from Oklahoma to Maine extending emergency declarations for heating fuel, the propane pinch does not appear to be easing any time soon.
Propane Availability Shortage Drives Up Cost