Sorghum Soars

Growing Market - Sorghum Soars

Profit potential is promising for grain sorghum in 2020 compared to other crops. (Progressive Farmer image by Jim Patrico)

The chance for profitable return is better for grain sorghum than most crops in 2020, driving a surge in acres seeded.

Sorghum acres are projected to jump 11% this year, to 5.82 million, according to the U.S. Department of Agriculture (USDA) "Prospective Plantings" Report. The crop is grown for livestock, human consumption and industry uses, but grain demand drives prices and acres.

Plantings could surpass projections. Exports and revenue potential are strong for grain sorghum despite the worldwide COVID-19 pandemic that's stifled other commodity prices. Sorghum also is usually cheaper to raise than other crops given the current economic climate.

"It's [sorghum] one of the bright spots in agriculture," says J. Mark Welch, Texas A&M University Extension grain economist and market specialist.

The coronavirus slowed world economies and put downward pressure on most commodity prices. Corn, soybean and cotton futures are all trading well below the cost of production for most producers because of weak ethanol and export demand.

Sorghum is bucking the trend.

The U.S. has export commitments of 122.9 million bushels as of April 20. That's only 62.1 million bushels shy of USDA's projection for the entire 2019-20 marketing year, which ends Aug. 31.

"We are well on our way to meeting this target with China as a key driver once again," says John Duff, National Sorghum Producers (NSP) executive vice president.

As of April 20, China committed to buy 68.2 million bushels during the current marketing year. Duff believes many of the 30.3 million bushels now destined for "unknown destinations" will go to China, as well.

NSP chairman Dan Atkisson, who farms near Stockton, Kansas, believes it's a signal for better times ahead.

"It adds optimism for the industry," he says.

China, historically the largest U.S. sorghum customer, quit buying the grain during the trade war between the two countries. That changed after the Phase 1 trade agreement earlier this year. The U.S. is one of the few countries with sorghum to sell, and China uses it to feed livestock, particularly ducks, and to make alcohol called baijiu.

When U.S. sorghum exports skyrocketed in 2015-17, China bought about 80% of the nation's production, Atkisson explains. China purchased a record 354.3 million bushels in 2015.

Typically, sorghum sells for about 20 cents less per bushel than corn, Welch calculates. Atkisson recalls export premiums over corn of 40 cents per bushel in Kansas and $1.50 per bushel at the Port of Houston when exports were flowing during that same time.

"That's huge," Atkisson adds, noting those premiums could return this year. "As we get the export market back, and producers get more of the premium, acres will go up."

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PRICE POSITIVITY

Sorghum for export traded at near-parity to corn in February but commanded a 13% premium by the beginning of April, according to NSP.

New-crop basis gains in late March at interior country elevators of 20 to 40 cents per bushel were common, the organization reports.

"These sales and basis improvements are encouraging, and if this pace continues, it will lead to potential for significant profitability gains," NSP CEO Tim Lust said in a press release.

The recent market upswing reported occurred after USDA acreage surveys were sent to farmers, Lust continues. "With these factors in mind, both domestic and international demand will continue to drive sorghum acres."

So will risk mitigation. Sorghum typically costs much less to plant than other competing crops with depressed values.

Kansas State University estimates for the 2020 crop season show growers in the state can expect planting corn will cost about $40 to $60 per acre more.

Sorghum can still produce well -- 70 to 100 bushels per acre or better -- in low rainfall and marginal soil areas.

"Grain sorghum handles heat and dry environments better than corn, and if the price prospects look better, things are lining up to support the increase in acres in the 'Prospective Plantings' Report and possibly more," Welch says.

ACREAGE AND INCOME POTENTIAL

DTN lead analyst Todd Hultman agrees acreage could exceed government projections because of profit potential and low cotton prices since the two crops compete for acres. That could eventually turn bearish for sorghum prices.

Still, he agrees sorghum is one of the few bright spots in the commodities market. Exports are up 83% in the current marketing year compared to a year ago, and sales commitments are three times higher than a year ago thanks to China.

USDA forecasts this year's average sorghum farm price at $3.25 per bushel. At that price times the average government yield estimate of 73 bushels per acre, sorghum revenue would average nearly $244 per acre. That's substantially better than the $194 per acre the USDA says it costs per acre to produce, Hultman explains.

"The positive margin is no small matter in today's tough grain market environment," he says.

Since no futures or options markets exist for sorghum, Hultman implores farmers to pay close attention to contracts offered at their local elevators. Depending on location and confidence in raising a crop in 2020, he says producers may want to consider forward-pricing a part of this year's sorghum production.

CHECKING OFF DEMAND

Craig Poore, chairman of the United Sorghum Checkoff Program and Alton, Kansas, farmer, says sorghum growth and use is booming. He's optimistic prices will exceed USDA forecasts.

For years, the checkoff -- an assessment of 0.6% of the net market value of grain sorghum and 0.35% of the net market value of sorghum forage, silage, hay, haylage and billets -- invested resources to increase demand here and abroad. Aquaculture, food and beverage use, and livestock feed projects have or will help drive demand in the future, Poore surmises.

"I see sorghum being a product that will take off in both acres and use," he continues. "As trade continues to get going, things should start rolling [pricewise] again."

Top Sorghum-Producing States:

(Acreage projections per the 2020 USDA "Prospective Plantings" Report)

1. Kansas, 2.8 million

2. Texas, 1.8 million

3. Colorado, 410,000

4. Oklahoma, 340,000

5. South Dakota, 270,000

6. Nebraska, 200,000

> Follow Matthew Wilde on Twitter @progressivwilde.

FOR MORE INFORMATION:

> National Sorghum Producers: www.sorghumgrowers.com

> United Sorghum Checkoff Program: www.sorghumcheckoff.com

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