U.S. ethanol makers have joined global livestock producers to snap up discounted American sorghum supplies after buyers in China backed out of deals due to stiff anti-dumping tariffs on the grain imposed by Beijing in a mounting trade dispute.
Sorghum is used to feed animals and represents a fraction of the billions of dollars of goods that move between the world's two largest economies. The trade conflict between the United States and China has already hit shipments of agricultural produce and threatens to disrupt the flow of everything from steel to electronics
China is the biggest buyer of U.S. sorghum, and the exit of Chinese buyers from the market caused sorghum prices to fall. In the United States, ethanol companies in Kansas and Texas have moved quickly to take advantage of the cheaper sorghum prices, using it instead of corn.
They have already bought enough sorghum to operate biofuel plants through July, ethanol makers and grain traders said.
Conestoga Energy Partners LLC bought trains full of sorghum that were initially destined for export terminals on the Texas coast, with sorghum priced at roughly 90 percent the value of corn, said Jason Dale, a grain buyer for the company.
The company switched an ethanol plant in Texas that was running on corn to sorghum.
"We instantly purchased about 9 to 10 million bushels of sorghum that was previously unavailable, that was canceled (to China)," Dale said.
China triggered the flurry of deals by imposing deposit fees of 178.6 percent of the value of U.S. sorghum imports earlier this month, after announcing an anti-dumping investigation on the grain in February.
That sent traders scrambling to find new buyers for supplies in the U.S. market. It also led to some of the 20 bulk cargoes of sorghum that were steaming toward China to change their destination after the tariff was announced.
Archer Daniels Midland Co, which has threatened legal action against China after several of its sorghum shipments were caught up in the dispute, said it was selling sorghum to ethanol producers.
"With regard to its own ethanol plants, ADM is reviewing the feedstock economics at some of our dry mills which might be able to use sorghum. That review is still ongoing," company spokeswoman Jackie Anderson said in an email.
Sorghum used in ethanol pales in comparison to the amount of corn used to make biofuel. In 2017, about 100 million sorghum bushels were used to make ethanol, compared to 5.5 billion bushels of corn, according to U.S. Department of Agriculture data.
Still, ethanol producers using sorghum for biofuel are reducing corn demand.
"It will displace corn, one way or another," an employee at a large grain processor said.
In Garden City, Kansas, where sorghum and corn compete for demand, sorghum was fetching $3.37 per bushel and corn about $3.67 per bushel last week. Prior to China launching the investigation, the two commodities were trading nearly at parity.
USDA had estimated total U.S. sorghum exports at about 245 million bushels in the current shipping season, accounting for about 67 percent of the crop. A whopping 80 percent of those exports were committed to China.
But while bargain hunters were snatching up sorghum, some of the grain intended for China might not find a new home.
SHIPS CHANGE COURSE
Saudi Arabia and Spain since have purchased some of the cargoes that were previously en route for China in what would amount to record-large imports of U.S. sorghum that will be fed to poultry and livestock, grain traders told Reuters.
Traders were selling the sorghum at prices well below the initial sale prices, potentially resulting in losses for some global trade houses, grain traders said.
Two cargoes of sorghum loaded in Texas initially destined for China have been diverted to Spain, according to Texas Agriculture Commissioner Sid Miller.
The lack of genetically modified material in sorghum makes it a good choice for livestock and poultry farmers seeking to label their products GMO free, he said.
"Sorghum is kind of an easy sale because it doesn't have a GMO presence and it can go just about everywhere," Miller said.
Kansas-based hog producer Seaboard Corp is also boosting its sorghum use for its animals in Oklahoma, where the crop is grown, traders said. The company did not respond to requests for comment.
Grant Morgan, a hog producer in southwest Kansas, is waiting for sorghum prices to fall further. He last fed the crop, also known as milo, to his sow herd about two years ago before China's demand drove up prices.
"If milo was just a touch cheaper, I'd be feeding it to the sows," Morgan said.
Seaboard feeds sorghum to hogs in part because it makes their belly fat firmer and whiter, which is preferred by customers in Japan, said Earl Roemer, who chaired the research committee for the United Sorghum Checkoff Program, an industry group
"That's an integral part of their ration," said Roemer, who is now president of Nu Life Market, a Kansas-based company that sells sorghum for use in food and drinks.
Nu Life shipped its first sorghum cargo to China last year - a 21-tonne shipment that was a test for customers who use sorghum to produce the fiery Chinese liquor bijou, Roemer said. The company has orders for more shipments – including one for more than 100,000 metric tons – but they are on hold.
"The sorghum worked fantastic for the company and they want more, but not with the trading situation right now," Roemer said. "We have to refocus more of our efforts on the domestic side now."
By Michael Hirtzer and Tom Polansek