Corn finished last week about 2 cents higher than the previous Friday. While the market was up week over week, Friday’s close was the lowest of all trading days last week.
Beans challenged the lower end of their recent trading range last week, but still managed to bounce off the lows by the close on Friday. The carryout is large, and the export demand is questionable, yet beans continue to bounce off the lows. The question now is whether that can continue.
China announced they would allow Brazilian sorghum into their country. This could become a problem for the U.S. farmer because China usually consumes nearly 90% of the world’s exportable sorghum, and the U.S. supplies over 50% of that. Currently, Brazil hardly exports any of its sorghum, despite producing 40% of what the U.S. produces.
Last year, the U.S. managed to export 75% of its sorghum, with about 90% of it going to China. Sorghum producers in the U.S. have been seeing prices similar or better to the corn prices in their areas where it is grown for several years because of the strong demand from China.
This could become an issue because the animal feed value of sorghum in the U.S. and around the world is only about 90% of corn’s value. That means that sorghum is artificially overvalued in the U.S.
China is willing to pay a premium for sorghum because they use it as the primary ingredient in a liquor that is consumed mostly in China. Also, sorghum has less genetically modified seed issues than corn to deal with. And China has a quota system that restricts the importation of corn for some feed buyers in China.
If China stops buying U.S. sorghum, there isn’t another world market for our sorghum to be exported to. That means, more sorghum would have to be used in animal feed in this country, which would displace corn in feed rations. This is concerning because exports on sorghum dropped substantially in 2018 during the last trade war. Sorghum suddenly had to compete with corn in feed rations, which significantly impacted prices for sorghum and to an extent corn.
The U.S. produced about 280 million bushels of sorghum this year, and its export pace has been slower than normal, as this chart shows.
If 75% of the 280 million bushels produced in the U.S. doesn’t find a home in China, it will likely have to move into U.S. feed rations. While some sorghum already has been shipped out, or is on its way to China, it could mean 150 million bushels will be at risk if a trade war starts in early 2025.
If sorghum displaces some corn this year, it isn’t necessarily bearish. Some market participants think the corn crop could shrink in the January report. Plus, some in the trade think the export pace is strong enough that the USDA will increase their estimates in future reports. Therefore, a drop in corn yield and an increase in corn exports could offset these 150 million sorghum bushels if sorghum gets caught up in a trade war.
While it’s still unclear if a trade war will happen between the U.S. and China, when China opened the door for importing Brazilian corn, the U.S. corn export pace to China dropped significantly.
Bottomline
China may be preparing for a trade war. In the short term, the corn market may be able to withstand the pressure, but only if yields are lower and export demand remains strong. Long term the demand for the 2025 corn crop may be less certain if sorghum isn’t getting exported out of this country. Still, there is a lot that can happen in a year’s time and things could look much different next fall.
If you would like to know more about how different marketing strategies can add to your bottom-line, reach out to me at jon@superiorfeed.com.
Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
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