Natural Gas Gets Nod For Cheaper Drying Fuel

This could be the one advantage for commercial elevators.

Published on: Oct 12, 2011

Current prices for natural gas are relatively cheap, especially compared to historical numbers. That's the conclusion of Chris Hurt, a Purdue University ag economist, after studying possible storage scenarios and energy costs for drying this smaller than normal, wetter than normal crop.

Natural gas supplies are plentiful heading into the fall drying season, he notes. Meanwhile, propane prices, currently at about $2 per gallon, could be volatile if drying costs go up, or if cold weather moves in early, as some forecasters predict. That's because supplies of propane are tight, but current supplies of natural gas in the U.S. are not. It's a classic case of supply and demand.

The upshot of this situation is that if your elevator that you deliver grain to is supplied by natural gas, and they have extra storage space because crops are not yielding up to par in the area, it may be possible to negotiate better deals on drying charges this year, Hurt says. After surveying the state, he predicts a large amount of storage space will go empty, even some space on farm.

That coincides with reports that some people in the hardest-hit areas are already buying back forward contracts because they can't fill them. One farmer says he may have to unload year-old soybeans in his bin that he was holding for higher prices to fill his fall contract. He's pretty confident his bins won't yield enough to meet his contract obligations based on forward contracting completed earlier in an attempt to raise his average selling price for soybeans for the marketing year.

Hurt anticipates that some elevators may become competitive in bidding, or in coming up with attractive ways to bring in more corn this fall to make use of their space. Unused space doesn't help elevator companies add to their bottom line. Cheaper costs for drying if they have access to natural gas, which many larger elevators do, may be one of the few, if not only, advantage some large elevators have working in their favor this fall.

Natural gas is not limited to commercial elevators, although it's typically less available in rural areas. Farmers who may be able to benefit from lower natural gas prices are those who live close enough to development that natural gas lines have been installed along their road.