Sorghum Squares Off with Corn

October 28, 2015 02:19 AM
 
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Blockbuster crop likely will place a lid on feed grain prices

The prospect of a mega-sized grain sorghum crop on the Plains this fall creates a more bearish outlook on corn as the two grains wrestle for limited demand.

“It’s a direct substitute with corn,” says Bret Oelke, marketing management coach at Innovus Agra, LLC, in St. Cloud, Minn. “So it’s going to be in direct competition with corn as a feed grain. Quite frankly, the big yield helps the folks who get it, but it hurts the overall price situation in the feed-grain complex.”

As of early October, USDA projected the average U.S. grain sorghum yield at 74.9 bu. per acre, a steep increase from the 67.6 bu. per acre grown this past year. Total production, meanwhile, is estimated to expand to 574 million bushels versus the 433 million bushels harvested in 2014.

Incredible Yields. Sorghum grower David Fremark expects record yields in his region of central South Dakota, where he nearly tripled his sorghum acreage over this past year and locked in sorghum prices nearly $1 per bushel over corn. 

“I’ve got 6,500 acres of sorghum put out this year, and it looks phenomenal,” Fremark says. 

Fremark, who serves on the United Sorghum Checkoff Program board, is bracing for a bin-busting yield on his farm of about 140 bu. per acre, which would beat his previous top sorghum yield by 40 bu. per acre. He attributes this year’s phenomenal crop to ample rainfall throughout the growing season and cooler-than-normal summer temperatures. 

Sorghum is also cheaper to grow than corn, he adds, with sorghum seed priced about $15 per acre versus corn seed’s price tag of $80 per acre. 

With production this fall expected to leap by roughly a third over year-ago levels, Oelke says end users of cheap feed grains stand to benefit.

“It’s going to add to the overall carryover and supply, which in turn will put some downward pressure, or at least keep a lid, on any price movement that goes up,” he explains.  

The China Factor. In 2014, cash sorghum traded at a premium to corn with a surge in purchases from China. Sorghum is again trading at a discount, but that could change if the Chinese return as major buyers, says Dan O’Brien, an agricultural economist at Kansas State University.

“Much of the issue has to do with what China decides to do with its domestic policy with corn inventories,” O’Brien says, “and if they will still allow for, or retain the incentive of, having their commercial grain industry finding it more profitable to import crops from outside the U.S., particularly grain sorghum.”  

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