Market Matters Blog

USDA made some big revisions to the sorghum supply and demand balance sheet last month, reflecting not only the larger crop, but also shifts in demand.

Last spring, sorghum was priced higher than corn at major export locations as China rapidly ramped up its purchases. Farmers responded, planting 8.7 million acres. Mother Nature helped out too, and the national average yield is projected at 77.7 bushels per acre.

But the question always remained: what would happen if the Chinese market cooled?

To an extent, that's come true. China's trying to get rid of its corn stockpile and put some inspection requirements on sorghum imports that sent a chill over new sales.

I asked Florentino Lopez, executive director of the U.S. Sorghum Checkoff, what he thought about the export market cooling off shortly after the report. He made the argument that, while USDA's adjustments to the export forecast seemed drastic, it's still a sizeable improvement over years past.

USDA trimmed its forecast for 2015-16 marketing year exports from 430 million bushels to 325 mb. The U.S. exported 353 mb in 2014-15, which was up sharply from the year before. So the overall year-to-year reduction was just about 8%, Lopez argued.

Export sales on the books are also higher than they were at the same time last year, he pointed out. China's aggressive purchases the year before drove up prices and crowded out other buyers. Now that Chinese demand has cooled, Mexico has returned as a buyer of sorghum, along with Colombia, Venezuela and a host of other countries.

Even though USDA made a large cut to the export forecast, it actually increased total usage of sorghum by 5 mb from the previous month based on an increased forecast for feed and ethanol production.

Sorghum has gone from being more expensive than corn to being much cheaper, and it's pricing itself into other uses. Just glancing at the DTN Market Tracker, the basis for milo in Kansas is running between 55 and 75 cents below the corn futures price, while basis for corn is a little more variable, from a few cents over futures in cattle country to 45 cents under around Wichita.

USDA boosted its forecast for sorghum use for ethanol by 85 mb in November, and NASS's most recent Current Agricultural Industrial Reports on Grain Crushings and Co-Products production backs that up. In September, USDA didn't release numbers on sorghum use for ethanol because it would disclose data for an individual operation. But in October, ethanol companies used a fair amount.

Lopez thinks this has been a great year for sorghum overall. Production exceeded expectations, and despite smaller demand from a major market, other industries and a broader array of buyers have stepped in. Overall use it set to be more than 100 mb higher than last year, which partially reflects the larger crop.

One point Lopez always comes back to is that it's very important for farmers to be profitable, which requires not only good production techniques but also dependable markets. Sorghum's popularity got a boost this year, and Lopez hopes it made a strong enough impression that more farmers will consider as a part of their crop mixes.

(SK/ES)

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