Prebuy Contract Inputs
Why rural propane prebuys matter for conservative cooperatives
When winter storms sweep across the plains or the Ozark foothills, propane prices can spike faster than a family budget can adjust. Rural churches, Christian schools, and farm co-ops often organize propane buying groups to guard against those price swings. They prepay for a portion of their winter consumption when the summer wholesale market is calmer. Done right, prebuy contracts shield congregational budgets, keep homeschool co-ops warm, and protect dairy barns from frozen lines. Done poorly, they tie up cash, incur interest on deposits, and leave members frustrated when prices fall. This calculator provides a nuanced look at the moving parts: how many gallons to commit, what delivery fees do to the equation, and how financing costs nibble away at the promised savings.
Every input reflects a decision the cooperative board or deacon-led energy committee must make. Annual propane consumption combines household heating, church sanctuary usage, kitchen stoves, and shop heaters. The percent of gallons to prebuy is rarely one hundred percent because storage tanks and cash reserves impose limits. Many co-ops hedge between 50 and 80 percent of expected demand, leaving a buffer for unexpected warm spells or ministry events that increase usage. Tank capacity is another constraint because a typical 1,000-gallon tank cannot accept the entire prebuy allotment in a single drop. Instead, deliveries occur in waves, and each drop incurs a truck fee. The form captures that by calculating the number of drops required for both contract and spot gallons.
Prebuy price and program fee form the core of the contract cost. Propane retailers often add a few cents per gallon to cover their risk of sourcing fuel months in advance. Delivery fees can be lower for scheduled contract drops compared with emergency fills during a cold snap. On the other side, the calculator tallies what it would cost to simply ride the spot market, using the expected average price and a potentially higher per-drop fee because the cooperative cannot dictate delivery timing.
Financing deserves special attention in conservative communities where cash is precious. A prebuy contract usually requires 30 to 50 percent down at signing, with the balance due as fuel is delivered. If the cooperative dips into a line of credit, the interest cost can erode savings quickly. The calculator multiplies the deposit by the annual percentage rate, prorated over the months the deposit remains outstanding. Storage carrying cost per gallon accounts for insurance, tank maintenance, and the opportunity cost of tying up storage space with contracted fuel. Finally, a contingency percentage funds leak checks, regulator replacements, or extra deliveries if an unexpected revival meeting keeps the furnace running late into the night.
How the calculator weighs scenarios
The math behind the scenes adds each component to build a total prebuy cost. It compares that total to a scenario where the cooperative buys all gallons at the expected average spot price. The difference is the net savings. Because energy markets can swing dramatically, the tool also models a spike scenario. You provide a potential winter price—perhaps the $3.50 per gallon the region endured during the 2021 polar vortex. The calculator multiplies that spike price by the prebuy gallons while leaving any non-contracted gallons at the average spot assumption. This shows the value of the hedge when the worst happens.
A MathML expression clarifies how the prebuy total is assembled:
In this expression, G is gallons contracted, p is the prebuy price, f is the program fee, D is the number of contract deliveries, c is the per-drop cost, s is storage carrying cost per gallon, d is the deposit amount, i is the interest factor, and c (the last term) represents the contingency percentage multiplied by gallons. Summing these pieces produces the contract total. The break-even price in the output strips out delivery, interest, storage, and contingency components to show the pure per-gallon threshold where a spot purchase equals the contract cost.
Worked example for a church-and-farm cooperative
Imagine an 18-family propane cooperative anchored by a country church, two small dairies, and several homeschooling households. Collectively they burn 12,000 gallons each year. They decide to prebuy 70 percent of that usage—8,400 gallons—to protect budgets for the church building fund and the FFA show cattle. Their supplier offers a $2.25 per gallon price plus a $0.05 program fee, with $45 per delivery on the contract schedule. Riding the spot market would likely cost $2.65 per gallon with a $55 drop fee. The cooperative uses 1,000-gallon tanks, so they schedule nine contract deliveries and three spot deliveries. They place 30 percent down at signing, financing the deposit for six months at 5.5 percent APR. Storage carrying costs average eight cents per gallon due to insurance, and they set aside a five percent contingency reserve.
Plugging those numbers into the calculator shows a prebuy total of roughly $20,964 once delivery fees, storage, interest, and contingency are included. Riding the spot market would cost about $23,115. Net savings are $2,151, or nearly $120 per household. If a cold winter forces spot prices to $3.50 per gallon, the savings jump to over $6,000. The break-even price per gallon comes out near $2.17. That means if the market collapses below $2.17, the cooperative would have been better off staying on the spot market, but such low prices are rare in the peak heating season for their region.
These numbers equip the cooperative treasurer to explain the plan during a congregational meeting. They can show that even after paying interest on the deposit and funding a contingency bucket, the hedge protects the church heating fund and keeps the dairies profitable. It also demonstrates the value of recruiting one or two more households, because each additional participant lowers per-household savings volatility.
Comparison table for decision makers
The table below compares three contract strategies using the same cooperative profile. It highlights how adjusting the prebuy share and contingency percentage changes savings and cash demands.
| Prebuy share | Contingency % | Contract total | Spot total | Net savings |
|---|---|---|---|---|
| 50% | 3% | $15,780 | $16,600 | $820 |
| 70% | 5% | $20,964 | $23,115 | $2,151 |
| 85% | 7% | $25,890 | $27,000 | $1,110 |
The sweet spot often sits between 60 and 75 percent, where savings are meaningful but the cooperative does not over-commit to fuel it cannot store. Higher contingency percentages protect against surprises but increase the apparent contract cost; the board can adjust those percentages to match risk tolerance and insurance advice.
Limitations and stewardship notes
Every propane program has nuances this calculator cannot capture. Some retailers cap prebuy gallons regardless of demand, while others rebate unused fuel at a discount. Certain cooperatives share a community tank that changes the delivery math entirely. The model assumes interest accrues linearly over the financing months and that storage carrying cost is proportional to contracted gallons. It does not account for tax implications, state heating assistance credits, or the value of keeping local suppliers in business. Leaders should use the results as a discussion starter, then consult their propane vendor, insurance agent, and church finance committee. In all things, steward the cooperative’s resources carefully, communicate transparently with members, and pray for a mild winter even as you plan for the worst.