Sorghum Shines in Dull Ag Economy
Grain Sorghum Demand, Profitability Outlook Promising in 2020
ANKENY, Iowa (DTN) -- U.S. farmers intend to plant more sorghum acres this spring than in the last four years for good reason -- the chance to make a profit.
Sorghum acres are projected to jump 11% this year to 5.82 million, according to USDA's Prospective Plantings Report released March 31. The crop is used for forage, but grain demand drives price and acres.
Industry officials say plantings could surpass projections. Exports and revenue potential are strong for grain sorghum despite the worldwide COVID-19 pandemic that's stifled world economies and many other commodities.
"It's [sorghum] one of the bright spots in agriculture," said J. Mark Welch, Texas A&M University Extension grain economist and market specialist.
Corn, soybean and cotton futures are all trading well below cost of production for most producers due to weak ethanol and export demand. Sorghum is bucking the trend.
Exports soared in February and March, with significant purchase activity by China, according to the Nation Sorghum Producers (NSP). More than 39 million bushels (mb) were sold, including the largest one-time buy in the last four years to an unknown destination. It accounted for half the two-month total and nearly 22% of USDA's 185 mb export projection in April for the 2019-20 marketing year.
NSP Chairman Dan Atkisson, who farms near Stockton, Kansas, announced the monster purchase Feb. 28 on stage during the general session at Commodity Classic in San Antonio. China was most likely the buyer, Atkisson speculated, which is a signal for better times ahead.
"It adds optimism for the industry," Atkisson said.
China, historically the largest U.S. sorghum customer, quit buying during the trade war between the two countries. That changed after the phase-one trade agreement earlier this year. The U.S. is one of the few countries with sorghum to sell and China likes the grain to feed livestock, particularly ducks, and to make alcohol called baijiu.
When U.S. sorghum exports skyrocketed in 2015-17, China bought about 80% or more of production, Atkisson said. China purchased a record 354.3 mb in 2015, according to government data.
Typically, sorghum sells for about 20 cents less per bushel than corn, Welch calculated. Atkisson recalled 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.
"That's huge," Atkisson added. "As we get the export market back and producers get more of the premium, acres will go up."
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POSITIVE PRICES
Sorghum for export traded at near-parity to corn in February, but commanded a 13% premium by the beginning of April, according to NSP. Gains at interior country elevators of 20 to 40 cents per bushel were common, the organization reported.
"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 occurred after USDA acreage surveys were sent to farmers, Lust continued. "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. Corn costs about $40 to $60 more per acre to plant than sorghum, according to university economists.
Sorghum can still produce well -- 70 to 100 bushels per acre (bpa) or better -- in low rainfall and marginal ground 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 said.
ACREAGE AND INCOME POTENTIAL
DTN Lead Analyst Todd Hultman said acreage could exceed government projections due to profit potential and low cotton prices. That could be bearish for sorghum revenue.
Still, Hultman agreed 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.
The latest USDA estimates peg 2019-20 sorghum ending stocks at 35 mb. That is the same number as two years ago when the average farm price was $3.22 per bushel.
USDA forecasts this year's average farm price at $3.25 per bushel. At that price, times the average government yield estimate of 73 bpa, sorghum revenue would average nearly $244 per acre. That's substantially better than the $194 per acre USDA says it costs to produce sorghum.
"The positive margin is no small matter in today's tough grain market environment," Hultman said.
Since there are no futures or options markets for sorghum, Hultman implored farmers to pay close attention to contracts offered at their local elevators. Depending on location and confidence in raising a crop in 2020, he said producers may want to consider forward pricing a part of this year's production.
CHECKING OFF DEMAND
Craig Poore, chairman of the United Sorghum Checkoff Program and Alton, Kansas, farmer, said sorghum growth and use is booming. He's optimistic prices will eventually 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 -- has invested resources to increase demand here and abroad. Aquaculture, food and beverage use and livestock feed projects have and will drive demand in the future, Poore concluded.
"I see sorghum being a product that will take off, in both acres and use," he added. "As trade continues to get going, things should start rolling (pricewise) again."
For more information on sorghum:
Matthew Wilde can be reached at matt.wilde@dtn.com
Follow him on Twitter @progressivwilde
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