The retailer's squeeze: sold prices, floating supply
A propane retailer's business model creates the risk by design. Summer fill programs, pre-buy contracts, and price-cap plans sell winter gallons to customers at prices fixed months in advance - while the retailer's own supply cost floats until the gallons are bought or pulled from storage. When winter demand, a cold snap, or a logistics crunch sends propane sharply higher, the retailer is caught delivering pre-sold gallons at a loss. The industry remembers the winters when Midwest propane multiplied in price within weeks; retailers who had sold caps without coverage did not all survive them.
Propane trades thin compared to crude or natural gas, with prices keyed to Mont Belvieu and Conway hubs, and it can detach from both crude and gas when regional heating demand bites. It is a market where being unhedged is genuinely dangerous.
Covering the pre-sold book
The discipline is back-to-back: every gallon pre-sold or capped to a customer gets covered with supply or price protection at the time of sale, so the margin is locked when the sale is made - not hoped for when winter arrives. Physical pre-buys, storage fills, and supplier programs cover part of it; financial coverage handles the rest.
The exchange tools - propane swaps and related energy futures - come with margin accounts, daily settlement, and margin calls in a market prone to violent winter spikes. A forward contract through CCS fixes your cost on covered gallons with no margin calls and no daily settlement, sized to your pre-sold book and delivery calendar. The hedging stops being a treasury problem and goes back to being what it should be: the back office of your sales programs.
Staying honest about coverage
Coverage should track committed sales - pre-buys, caps, and contracted accounts - not forecasted total gallons. Covering speculative future sales in a thin market is how retailers turn from hedgers into traders, usually discovering the difference in a warm winter.
When winter is mild and spot propane stays cheap, covered gallons cost more than the market, and customers on market price buy cheaper from the unhedged competitor. That is the price of being able to sell caps at all - and caps and pre-buys are what keep a retailer's customer base. CCS has worked with energy hedgers since 1983, and that long view of winter markets informs how coverage gets structured.