I never cease to be amazed at how quickly fortunes can change. We began 2020 with such hope. Trade with China seemed to be on the verge of normalizing. Soil moisture was plentiful. Things seemed to be looking up.
I don’t have to tell anyone what happened next. Today, we’re witnessing an equally dizzying move in the other direction. While soil moisture conditions certainly represent a glaring negative amid an otherwise positive backdrop, the market malaise of the past eight years seems to be behind us for the moment.
As I write this, the World Agricultural Supply and Demand Estimates (WASDE) report published monthly by USDA has just been released, and analysts are already tearing through it. While the market reacted negatively to the report itself, the numbers themselves give me even more reason to be excited. WASDE pegged the U.S. sorghum crop for 2021 at 427 million bushels; and while this is still a pretty small crop relative to historic standards (the 1980s saw the U.S. producing upwards of a billion bushels of sorghum on occasion), the value of this crop will be staggering. If the projected price of $6.10 per bushel comes to pass, U.S. farmers will be sitting on $2.6 billion worth of sorghum this fall. This will be the most valuable sorghum crop in history. And there won’t be a close second.
What’s going on? Is it demand? Inflation? Smaller crops in other parts of the world? I think the answer is “all of the above” to an extent, but there are a couple key supply-and-demand issues developing. First, smaller crops elsewhere are driving some tightness in the market. Even in a good year, the global corn balance sheet includes a roughly 80-day supply of corn. As early as December 2020, the globe was down to a 15-day supply of soybeans; and with the recent drought conditions in Brazil and other parts of South America, this situation hasn’t improved. On a roll as a result, soybean prices, as I write this, are reaching levels not seen since U.S. farmers were in the throes of the 2012 drought.
Second and most importantly, demand is strong. I feel like I’ve written about this ad nauseam, but China’s purchases have been nothing short of spectacular. With the double whammy of demand that occurred when China substituted pigs wiped out by African swine fever with chickens, replaced the pigs and kept feeding the chickens, that country’s grain needs have been insatiable. In addition, with millions still emerging from lockdown across the globe, there’s a lot of pent-up demand — the effects of which we’ve only just begun to feel.
Will it last?
Can this continue? Will it continue? While I really can’t answer these questions, I can say that in my little corner of the world — the corner where we grow a lot of sorghum — the future looks bright. Sure, the last time sorghum was fetching this level of premium over corn, acres jumped and demand receded. This drastically reduced prices, and the industry contracted. However, this time, we’re just reaching the level of production the marketplace seems to need. That looks a lot like sustainable growth.
The old caveat always applies that markets are unpredictable, so they could certainly make a liar out of me before this is even printed. However, demand is real, and the growth there isn’t going away. And supplies are tight for the time being. As long as farmers keep the fragility in mind and sell when they can lock in a profit, they’ll find ways to meet the needs of the world regardless of where the market goes. We’ve done it here in the U.S. for hundreds of years, and we’ll be doing it for hundreds more!
Duff is executive vice president for National Sorghum Producers. He can be reached by email at [email protected] or on Twitter @sorghumduff.