By Chris Cogburn
Much has been made about Chinese demand for sorghum. First imported by the Asian powerhouse in summer 2013, U.S. sorghum has become a staple in everything from duck rations to baijiu — a cornerstone of Chinese liquor consumption produced primarily from sorghum. Contrary to what many believe, China is still in the market for U.S. sorghum, and this should continue. (I say “should” instead of “will” because we are talking about China, after all.)
Let’s take a look at the numbers. Since 2013, China has imported just over 900 million bushels of U.S. sorghum. Over the same time period, the U.S. produced approximately 1.9 billion bushels of sorghum. This means China has accounted for 47% of the demand for U.S. sorghum over the last four years. Individual years are even more impressive. U.S. sorghum production totaled 433 million bushels in 2014, and China imported 328 million bushels, or 76% of these bushels. Think about it this way: Three out of every four rows of sorghum harvested in the U.S. that year found their way to China.
But the domestic corn price in China has fallen precipitously due to overproduction driven by a high price floor. Hasn’t this put a stop to U.S. sorghum exports to China? Absolutely not. While trade economics —particularly with China — isn’t a simple subject, the fact is China needs protein. Remember, the last couple of years have seen sorghum prices historically strong compared to corn prices. At the height of this strength, in February 2015, the price of sorghum in New Orleans was on average 136% of the price of corn. Despite this, China went on to purchase 76% of the 2014 crop.
The average price differential in New Orleans at the beginning of harvest in 2016 was much different as sorghum was trading at 95% of the price of corn. Why would China purchase 76% of the 2014 sorghum crop at a significant premium to corn and not purchase any of the 2016 or 2017 crops at a discount? They wouldn’t. In fact, export commitments so far this marketing year are exceeding expectations. The USDA export target for this crop is 225 million bushels. With almost half the marketing year left, commitments total 150 million bushels or 67% of the target. China has contributed 129 million bushels to this total.
Also keep in mind China isn’t the only player in this game. Joining China in its commitment to purchase U.S. sorghum this year are Canada, Indonesia, Japan, South Korea, Mexico, Nigeria, South Africa and Taiwan. That is nine countries in the U.S. sorghum market — 11 if you count food aid recipients Chad and Sudan. When all these players must compete against domestic end users like cattle feeders, U.S. producers win.
Are sorghum prices reacting positively to this demand? While not as much as producers would like, sorghum prices have begun responding in certain markets. Gulf prices have strengthened relative to corn, and some areas of the Mississippi Delta are now seeing premiums for sorghum. Central Plains sorghum bids have strengthened as well, and some Northern Plains producers have reported parity between sorghum and corn prices. As always, these situations could change drastically in a short time, so producers should take opportunities when they come.
Cogburn writes from Abernathy, Texas. His Twitter handle is @nspchris.