U.S. ethanol makers snap up cheap sorghum after China tariffs

Seaboard

30/04/2018 12:00

By Michael Hirtzer and Tom Polansek
    CHICAGO, April 30 (Reuters) - 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  ADM.N , 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  SEB.A  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."

 (Additional reporting by Karl Plume and P.J. Huffstutter in
Chicago
Editing by Simon Webb and Cynthia Osterman)
 ((michael.hirtzer@thomsonreuters.com; +1 312 408 8566; Reuters
Messaging: michael.hirtzer.thomsonreuters.com@reuters.net,
Twitter: @mhirtz))