An analysis of U.S. and World Grain Sorghum & World Coarse Grain Market Outlook following the USDA’s May 10th USDA World Agricultural Supply Demand Estimates (WASDE) reports is available on the KSU AgManager website (http://www.agmanager.info/).
Following is a summary of the article on “U.S. Grain Sorghum and World Coarse Grain Market Outlook” with the full article and accompanying analysis on the KSU AgManager website available at the following web address:
U.S. Grain Sorghum & World Coarse Grain Market Outlook
Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension
June 6, 2018
1. The “Boom, Bust & Recovery” of the U.S. Grain Sorghum Market
Since September 2017 Kansas grain sorghum prices have been on a “boom – bust – recovery” process. During this period U.S. grain sorghum markets have responded to changes foreign sorghum export demand, and to increases in domestic use made more affordable by lower grain sorghum prices.
The “BOOM”: From August 30, 2017 through February 1, 2018 there was an export-driven “boom” in U.S. grain sorghum prices – primarily in response to aggressive Chinese purchases. Cash grain sorghum bids at one of the major grain terminal elevators in Salina, Kansas increased from $2.86 to $3.87 per bushel during this period, while corn futures increased $0.32 ¼ per bushel from $3.29 ½ on 8/30/2017 (SEPTEMBER 2017 Corn) to $3.61 ¾ (MARCH 2018 Corn). Strong U.S. exports of grain sorghum caused selected terminal elevator basis bids at Salina, Kansas to strengthen from $0.43 ½ /bu under on 8/30/2017 to $0.25 ¼ /bu over on 2/1/2018.
The “BUST”: Beginning in January 2018, trade tensions rapidly developed between China and the U.S., eventually leading to actions by the Chinese to limit U.S. grain sorghum imports. This caused an immediate “bust” in U.S. sorghum cash prices resulting from a collapse in local sorghum basis levels. Leading terminal elevator cash bids in Salina, Kansas dropped sharply from $3.87 /bu ($0.25 ¼ over) on February 1st down to $3.04 /bu ($0.54 ¾ under) on February 5th. However, following this “bust” in grain sorghum prices, users of feedgrains found profitable opportunities for using grain sorghum in livestock feeding, bioenergy production, and in a few cases sorghum export purchase opportunities by countries other than China. Then in late May 2018 China announced that it was dropping its export actions against U.S. grain sorghum.
The “RECOVERY”: From those early February 2018 market lows, grain sorghum cash bids at key Salina, KS terminal locations began to trend back higher – with both increasing futures AND narrowing basis bids occurring. Specifically, from the low of $3.04 /bu ($0.54 ¾ under) on 2/5/2018, sorghum prices at one key Salina terminal location trended upward to a high of $3.59 /bu ($0.49 ½ under) on 5/23/2018. From there, cash bids have declined moderately – down to a close of $3.39 /bu ($0.45 under) on 6/5/2018.
Note that grain sorghum basis bids at this Salina, KS location have improved moderately since the price collapse on 2/5/2018, narrowing from $0.54 ¾ /bu under to $0.45 /bu under on 6/5/2018. This is a sign of generally improving grain sorghum demand across a variety of uses.
2. Kansas Cash Grain Sorghum Market Prices on June 5, 2018
On June 5th cash grain sorghum price bids at major grain elevators in Western Kansas ranged from $3.24 to $3.44 /bu – with basis levels $0.60 to $0.40 /bu under CME JULY 2018 corn futures. The high bid of $3.44 /bu was in Syracuse in southwest Kansas, where the corn price that same day was $3.69 /bu ($0.15 under JULY). Central Kansas cash grain sorghum price bids on June 5th ranged from $3.24 to $3.39 /bu with basis $0.60 to $0.45 / bu under. The high bid of $3.39 /bu was in Salina, where the highest corn price that day was $3.48 ¾ /bu ($0.35 under JULY).
In East Central Kansas at Topeka, the highest reported grain sorghum cash price /bu bid was $3.29 /bu (basis = $0.55 under JULY 2018 corn) – compared to the highest corn bid of $3.76 ¾ /bu ($0.07 under JULY). Note that in late-January 2018 at the height of Chinese export demand for U.S. grain sorghum, the Topeka, Kansas grain sorghum public bid was the highest in the state, with basis bids of $0.55-$0.60 /bu over MARCH 2018 corn futures. As indicated above, on June 5th Topeka basis bids for grain sorghum were $0.55 /bu under.
Kansas ethanol plant cash bids for grain sorghum on June 5th ranged from $3.55 ¾ to $3.95 ¾ /bu, with local grain basis being $0.25 under to $0.15 over JULY 2018 corn futures. Ethanol plant corn bids in Kansas the same day were $3.75 ¾ to $4.10 ¾, with basis bids of $0.05 /bu under to $0.30 over JULY 2018 corn futures.
3. Market Factors for U.S. Grain Sorghum & Other Feedgrains in 2018
Possible 2018 Feedgrain Crop Problems: From the perspective of Kansas grain sorghum producers, there is the possibility of “hoped-for” strength in U.S. grain sorghum prices through the end of “old crop” MY 2017/18 on August 31st. Whether grain sorghum prices surge higher or not in coming months largely depends on summer 2018 growing conditions for U.S. feedgrains (corn and grain sorghum mainly, along with barley and oats). Any serious weather threats to 2018 U.S. feedgrain supplies would support both “old crop” MY 2017/18 and “new crop” MY 2018/19 feedgrain prices in coming months (Table 1a).
U.S. Grain Sorghum Exports in “Old Crop” MY 2017/18: Export shipments of U.S. grain sorghum have averaged 5.0 mb per week since the beginning of the “old crop” 2017/18 marketing year on September 1, 2017 – totaling 190.1 mb through May 24, 2018 – the 38th week of the marketing year. To reach the USDA’s projection of 245 mb in shipments for “old crop” MY 2017/18 by the end of the marketing year on August 31, 2018, U.S. grain sorghum export shipments have to average at least 3.9 mb per week for the remaining 14 weeks of the period (Table 1a-b, Figures 5, 6 & 7).
- Weekly Pace of Recent U.S. Sorghum Exports: For the last 5 weeks ending April 26 through May 24th, the USDA Foreign Agricultural Service (FAS) reported that export shipments have averaged 3.4 mb/week (Figure 7). In addition, as of May 24th, there were only 10.4 mb of advance sales of U.S. grain sorghum for export through August 31st – which does not bode well for U.S. exports to reach the 245 mb target for “old crop” MY 2017/18. However, recent Chinese actions to remove barriers to purchasing sorghum from the U.S. provides hope that the goal of 245 mb in U.S. grain sorghum exports may be achieved in the current marketing year.
- A hypothetical question: “What IF the trade dispute between China and the U.S. had NOT occurred?” In hindsight, IF the earlier pre-trade conflict pace of U.S. grain sorghum exports were to have continued at the levels of November 2017 – January 2018 through the end of August 2018, then total U.S. grain sorghum exports could have ended up being over 300 million bushels in “old crop” MY 2017/18. This assumes that the U.S. would not have just “run out” of exportable grain sorghum supplies before that occurred.
U.S. Sorghum Ethanol & Livestock Feed Use: At the height of U.S. grain sorghum export demand from September 2017 through January 2018, usage and the securing of exportable supplies of U.S. grain sorghum was “crowding out” other sorghum use in ethanol production and livestock feeding in “old crop” MY 2017/18. Prices being paid for grain sorghum to go into export channels were too high for bioenergy and livestock uses to competitively bid for them. This has been particularly true with abundant supplies of U.S. corn available as a substitute at lower cost (Table 1a-b, Fig. 5 & 6).
- However, when S. grain sorghum export trade was disrupted in early February 2018, the rapid and significant decline in sorghum cash prices made sorghum an attractive competitor with U.S. corn as an input for these other domestic user industries. As a result, the USDA raised its projection of U.S. grain sorghum use in domestic livestock feeding from the February (65 mb) to the March (80 mb) WASDE report – and has maintained that projection through the May WASDE.
- The USDA has projected that 45 mb of U.S. sorghum would be used in Food, Seed & Industrial (FSI) use in “old crop” MY 2017/18, with most of this amount likely going to ethanol production.
2018 Planted Acres of U.S. Grain Sorghum: The sharply wider U.S. grain sorghum basis levels and lower cash prices during the February – April 2018 period may affect U.S. crop producer’s price and profitability expectations for 2018 grain sorghum acres. As a result, it may also ultimately have a negative effect on U.S. farmers decisions regarding 2018 U.S. grain sorghum planted acres. The USDA projected that 5.932 million acres (ma) of grain sorghum would be planted in the U.S. in 2018, up from 5.626 ma in 2017, but down from 6.690 ma in 2016 and the 15-year high of 8.459 ma in 2015 (Table 1a-b, Figure 2).
- However, an offsetting factor may have been the extreme dry conditions that have existed from southwest Kansas south in to Oklahoma and Texas. This may cause more acres to be planted to grain sorghum as a means of managing drought conditions in spring 2018.
4. USDA Forecasts for “New Crop” MY 2018/19 & “Old Crop” MY 2017/18
In the May 10th World Agricultural Supply and Demand Estimates (WASDE) report, the USDA projected 2018 U.S. Grain Sorghum plantings of 5.932 million acres (ma), up 5.4% or 306 ma from 5.626 ma in 2017, but down from 6.690 ma in year 2016. Harvested acres of U.S. grain sorghum in 2018 are projected to be 5.098 ma, up from 5.045 ma in 2017, but still down significantly from 6.163 ma in year 2016. U.S. yields in 2018 are forecast at 67.3 bu/ac, down from 72.1 bu/ac in 2017, and 77.9 bu/ac in 2016 (Tables 1a-b, Figures 2 & 3).
As a result, the USDA forecast that the 2018 U.S. grain sorghum production would be 343 million bushel (mb) – the smallest U.S. crop in 6 years (Table 1a-b, Figure 4). Production of 343 mb in 2018 would be down from 364 mb in 2017, 480 mb in 2016, and the 21-year high of 597 mb in 2015. Total U.S. feedgrain production (corn, grain sorghum, barley and oats) in the “new crop” 2018/19 marketing year (MY) is projected to be 430.8 million metric tons (mmt) – the 3rd highest on record behind 449.2 mmt in “old crop” MY 2017/18 and the record high of 453.6 mmt in MY 2016/17.
U.S. Grain Sorghum exports are projected to be 165 mb in “new crop” 2018/19 – down from 245 mb in “old crop” MY 2017/18, and also less than 241 mb in MY 2016/17. Livestock feed & residual use is projected to be 80 mb in “new crop” 2018/19 – unchanged from 80 mb in “old crop” MY 2017/18, but less than 130 mb in MY 2016/17. Food, Seed & Industrial (FSI) use (including for bioenergy production) is projected to be 100 mb in “new crop” 2018/19 – up sharply from a 4-year low of 45 mb in “old crop” MY 2017/18, but less than 115 mb in MY 2016/17 and the record high of 137 mb in MY 2015/16. Total use of U.S. Grain Sorghum in “new crop” MY 2018/19 of 345 mb is down from 370 mb in “old crop” MY 2017/18, and from 485-583 mb in MY 2016/17 and MY 2015/16 (Tables 1a-b, Figures 5, 6, & 7).
Ending stocks of U.S. Grain Sorghum in “new crop” MY 2018/19 are projected to be 27 mb (7.83% Stocks/Use) – down from 29 mb (7.84% Stocks/Use) in “old crop” MY 2017/18, and from 33 mb (6.80% Stocks/Use) in MY 2016/17. The season average price for U.S. Grain Sorghum in “next crop” MY 2018/19 is projected to range from $3.10-$4.10 (midpoint = $3.60), up from $3.10-$3.30 (midpoint = $3.20) in “old crop” MY 2017/18, and from $2.79 /bu in MY 2016/17 (Tables 1a-b, Figures 5 through 9). This scenario for “new crop” MY 2017/18 is given a 50% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.
5. Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2018/19
Three (e) alternative KSU projection scenarios for “new crop” MY 2018/19 U.S. Grain Sorghum supply-demand and prices include the following forecasts (Table 1b):
1) “Higher 2018 Production & Other Uses” for “New Crop” MY 2018/19 (20% probability):
2018 Planted / harvested acres of 5.932/5.098 ma, 2018 production of 387 mb, total supplies of 416 mb, exports of 180 mb, food- industrial-seed (FSI) use of 115 mb, feed & residual use of 80 mb, total use of 375 mb, ending stocks of 41 mbb, 11.00% ending stocks-to-use, and $3.25 /bu U.S. average price.
2) “Higher Exports” for “new crop” MY 2018/19 (15% probability):
2018 Planted / harvested acres of 5.932/5.098 ma, 2018 production of 343 mb, total supplies of 372 mb, exports of 245 mb, food-seed-industrial (FSI) use of 45 mb, feed & residual use of 67 mb, total use of 357 mb, ending stocks of 15 mb, 4.20% ending stocks-to-use, and $4.00 /bu U.S. average price.
3) “Lower Exports” (15% probability) for “new crop” MY 2018/19:
2018 Planted / harvested acres of 5.932/5.098 ma, 2018 production of 343 mb, total supplies of 372 mb, exports of 140 mb, food-seed-industrial (FSI) use of 115 mb, feed & residual use of 77 mb, total use of 331 mb, ending stocks of 41 mb, 12.39% ending stocks-to-use, and $3.10 /bu U.S. avg. price.
6. World Coarse Grain Supply-Demand
The USDA projected that “new crop” 2018/19 marketing year World Coarse Grain total supplies of 1,563.8 mmt will be down 3.2% from 1,577.8 mmt in “old crop” MY 2017/18, and down 3.3% over 1,616.9 mmt in MY 2016/17. Projected World Coarse Grain total use of 1,378.3 mmt in “new crop” MY 2018/19 is up 1.7% from both 1,355.1 mmt “old crop” MY 2017/18, and 1,355.8 mmt in MY 2016/17. World “Coarse Grains” include World grain sorghum, corn, barley, oats, rye, millet, and mixed grains (Figure 10, Table 7).
World Coarse Grain ending stocks are forecast to decline, with the USDA projecting ending stocks of 185.45 mmt in “new crop” MY 2018/19, down 16.7% from 222.7 mmt in “old crop” MY 2017/18, and down 29.0% from 261.1 mmt in MY 2016/17 (Figure 10, Table 8).
World Coarse Grain percent ending stocks-to-use in “new crop” MY 2018/19 are forecast to actually decline to a record low of 13.5% S/U, from 16.4% in “old crop” MY 2017/18, and from 19.3% in MY 2016/17, being the lowest since 13.9% in MY 2011/12 (Figure 10, 11 & 12, Table 9). This indicates that strong World use of coarse grains are expected to continue, and that more strength in U.S. and World coarse grain prices may occur than the market now anticipates.