China will be the key to sorghum export  potential for 2015 crop

China will be the key to sorghum export potential for 2015 crop.

China could be key to U.S. grain sorghum crop in 2015

What will China  do this year in terms of importing more or less U.S. corn versus grain sorghum.?

With all the indecision about what crop to plant this year, farmers from the South to the upper Midwest are watching and listening to all the advice filtering down from government offices, crop consultants, university scholars  and extension agents.

Is this the year for more corn and less soybeans in the Midwest? Should Texas and farmers from the Southland opt for cotton or grain sorghum this year? Are energy crops still a viable choice for 2015, and is corn still the best choice for export?

Dr. John Newton, a clinical assistant professor in agricultural commodity markets for the Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, may have a unique set of qualifications to offer an opinion.

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For the past ten years Newton worked for the USDA Agricultural Marketing Service as an agricultural economist addressing issues relating to risk management and federal farm income support programs. While serving in this role he worked as a 2013 fellow on the United States Senate Committee on Agriculture, Nutrition, and Forestry. Following that he served the USDA Office of the Chief Economist providing policy insight for the Agricultural Act of 2014.

Newton says by examining agriculture trade markets, producers may be in a better position when trying to make a late crop decision about whether to plant corn or grain sorghum this year. Of most concern, according to Newton, is what China will do this year in terms of importing more or less U.S. corn versus grain sorghum.

China market for U.S. Sorghum

China's grand entrance into the U.S. sorghum market began in September of 2013, and roughly coincided with the import ban of a type of genetically modified corn, MR162. Since then, U.S. sorghum exports to China have been on a long and impressive 79-week run and have totaled more than 340 million bushels, averaging 4.4 million bushels per week. Current expectations are for this trend to continue despite China's recent end to the yearlong ban of MR162.

USDA's February 2015 Agricultural Projections to 2024 reported that "since sorghum is a low cost feed substitute for corn, China is projected to remain a large sorghum importer in the next decade." According to USDA, current projections are for sorghum exports to total about 230 million bushels per year through the 2024/25 marketing year. Owing to these expectations and the robust pace of sorghum exports this marketing year, USDA projects sorghum plantings to increase by nearly 400,000 acres in 2015 to 7.5 million acres.

Newton says the market is also sending price signals to plant sorghum with both old- and new-crop sorghum prices carrying a premium above corn prices in principal sorghum production regions such as Kansas and Texas. Relative price strength in sorghum, combined with potential dryland yields under adverse weather conditions, make sorghum an attractive alternative to corn in some areas for 2015.

Newton says regardless which crop farmers grow this year, corn or grain sorghum, much will depend on China. If China's sorghum imports continue, the decision to plant additional sorghum acres may yield higher per acre returns than corn. However, given the sizable share of sorghum exports to China, expected returns from additional sorghum may not prove to be a good crop decision if in the end the Chinese move back into the corn market, which could be influenced by their recent acceptance of MR162 and lower expected corn prices during the current year.

Exports up

According to USDA, prior to the 2013-14 marketing year, sorghum exports averaged

approximately 38 percent of total sorghum consumption. Now, on the back of Chinese demand, exports are expected to represent 68 percent of total sorghum consumption for the 2014/15 marketing year.

Since entering the U.S. sorghum market China has become a major player. Based on Foreign Agricultural Service's Global Agricultural Trade System census data, during the 2013/14 marketing year, sorghum exports to China totaled 168 million bushels and accounted for nearly 80 percent of all U.S. sorghum exports. Through January of the 2014/15 marketing year, sorghum exports to China totaled 131 million bushels and represented 90 percent of total sorghum exports.

Recently, USDA's March 9 Federal Grain Inspection Service (FGIS) report indicated that as of the week ending March 5, 175 million bushels of sorghum have been exported to China. This total represents 92 percent of total U.S. sorghum exports during the current marketing year.

Combining the accumulated exports to date with the USDA March 5 Export Sales report showing outstanding (unshipped) sales of 135 million bushels, and sorghum exports plus commitments, totals 310 million bushels for the 2014/15 marketing year. With close to half of the marketing year remaining, some of these export sales could be canceled or carried into the 2015/16 marketing year; however, this total already exceeds the USDA projection for all of 2014/15 by 10 million bushels.

Newton warns farmers to proceed with caution. Excluding China's recent foray in the sorghum market, from the 1999 to the 2013 marketing years, China imported approximately 1.2 million bushels of sorghum and had been inconsistent buyers at best, dipping into the market in only November 2000 and October 2008.

Market slowdown?

Newton says one sign that sorghum exports could be slowing came in the most recent FGIS report where sorghum inspected for export the week ending March 5 totaled only 2.1 million bushels, down 74 percent from last week and the lowest total in 36 weeks. He said time will tell if this export volume is an outlier or a sign of things to come.

In what Newton called "a perfect storm" scenario, if U.S. farmers plant additional sorghum acres in 2015 to fulfill anticipated export demand and Chinese export opportunities diminish after planting, disappointments will run high. Under such a scenario, the sorghum will get used, but at lower prices than currently anticipated.

Alternative uses of sorghum include livestock feed and as a substitute to corn in ethanol production. However, Newton says sorghum used to produce ethanol maintains a relatively small profile compared to corn.

The flip-side is that for farmers holding firm in corn production, the potential for China to re-emerge as a corn export partner with the U.S. could provide opportunities for higher corn prices during the 2015/16 marketing year.

In short, Newton says the important question U.S. farmers would like to know is "Will China remain a consistent buyer of U.S. sorghum in 2015?"

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