How propane prices can affect names like Ferrellgas Partners

Ferrellgas Partners: Company Overview and Fiscal 2Q14 Review (Part 4 of 4)

(Continued from Part 3)

Colder than normal temperatures caused strong propane demand over this winter heating season and caused propane prices to spike at points.

The volatility of the wholesale propane prices continued to persist November – January. For example, a wholesale gallon at Conway storage facility in Kansas, which is owned by National Cooperative Refinery Association, averaged $2.13 this January, compared to $0.78 in January of last year. This included a price spike of more than $5 per gallon in just one week time. In January this year, prices were averaging ~$2 and rose to ~$4 in just one week and more than $5 per gallon in some regions. However, since January, prices have started to settle and wholesale propane is currently trading just over $1 per gallon.

Extreme volatility in propane prices could negatively affect the margins of distributors such as Ferrellgas, as the company may not be able to immediately pass on the cost of more expensive propane to its customers. From many reports, this winter season was especially tough to manage given extreme weather resulting in high demand, spikes in price, and logistical problems getting propane to end customers. For more on how propane prices affect distributors such as Ferrellgas Partners (FGP), Suburban Propane (SPH), AmeriGas (APU), and NGL Partners (NGL), see Summary: The 8 trends that could affect propane names this winter. Note that Ferrellgas is part of the Yorkville High Income MLP ETF (YMLP).

Browse this series on Market Realist:

• Part 1 - Ferrellgas Partners (FGP): An investor’s must-know overview

• Part 2 - Ferrellgas Partners FY2Q14 Earnings Overview

• Part 3 - Correlation between weather and propane demand