Tariffs and Drought Batter US Sorghum—How Much Will Trump’s Aid Help?

Sorghum specifics

Sorghum bicolor, also known as milo in the US or durra in its native range over northeast Africa, is a plains grass that has been cultivated since 8000 BCE. The grain it produces is used for both human consumption and animal feed. Sorghum has been gaining popularity as a source for fuel ethanol, too, as some of its varieties have high sugar content. It is notably more drought and heat tolerant than corn or sugarcane.

For the time being, however, it is sorghum’s hardiness under a variety of conditions that makes it a relatively common and reliable feed grain for livestock, especially in the often arid areas of the US Great Plains. Being a C4 plant, sorghum’s large root-to-leaf surface area ratio and protective waxy cuticle leaf physiology allow it to withstand drought conditions with ease. During planting, moist soils between 60-70 degrees Fahrenheit are crucial for timely emergence. During the heading stage, low air temperatures may inhibit pollination, which is critical to optimal grain yield.

Sorghum is rich in nutrients. It is characterized by high levels of protein, fiber, unsaturated fats, B vitamins, phosphorus, potassium, calcium, iron, and manganese. It has no gluten, which has made it popular in gluten-free beers. Its high protein content is something of a double-edged sword, however. As a result of its unusual attributes, sorghum requires milling and roasting to maximize its nutritional bioavailability for ruminants like cattle. It has a much greater protein content than corn, which incentivizes its use as a feed ingredient. Sorghum’s characteristic nutrient mix combined with its robustness in arid conditions make it a valuable supplement to the much larger corn, soybean, and wheat crops.

Sorghum’s steady slide and rebound

Despite sorghum’s advantages, relatively low corn prices have generally dampened demand over the past few decades. US sorghum production peaked in 1985 at 28.5 million tonnes and steadily declined to its 2011 nadir at 5.4 million tonnes. Between 1985 and 2017, on the other hand, the harvests of other feed crops such as corn and soybeans increased by 64.5 and 109.2 percent, respectively. During some years, even US rice production has exceeded that of sorghum.

In Kansas, a state that produced 55.2 percent of the US’ sorghum in 2017, farmers have steadily been converting their land into corn and soybean fields. Sorghum acreage in Kansas has decreased by 40.6 percent since 1985 while corn and soybean acreage have risen by 315.4 and 223.3 percent, respectively. And although wheat area has declined too, production has remained steady due to rising yields. US producer prices for sorghum have been lower than those for corn, soybeans, and wheat for nine of ten years within the past decade. As a result, farmers could increase their revenues by abandoning sorghum for the more popular crops.

Recently, China has been the primary source of new demand for US sorghum. The country’s ballooning middle class and its seemingly insatiable demand for meat have led to sharply rising imports of feed grains. Although soybeans correctly receive much more attention, Chinese sorghum imports have boomed, too. The US has benefitted significantly as the largest global sorghum producer and an even more dominant exporter.

Demand from China has helped US production rebound to 9.2 million tonnes in 2017. In just the past five years, Chinese imports of US sorghum rose from zero to 4.6 million tonnes. A much more inelastic source of Chinese demand comes from production of baijiu, the country’s and the world’s most popular spirit. Baijiu demand has risen in tandem with the fortunes of the domestic middle class. Happily for US farmers, sorghum is the primary ingredient in most baijiu varieties.

Climate leaves sorghum farmers with few options

In May, the popular US Drought Monitor at the University of Nebraska-Lincoln upgraded wide swathes of cropland from Texas to Kansas to “exceptional,” the driest category. Although the drought has since been downgraded in many key areas, the US Great Plains are still parched.

By multiple measures of soil status and crop health, sorghum’s primary growing regions in the US are suffering. The Trump Administration’s aid package compensates farmers according to the size of their harvests this year. This means that they will be unprotected from the bottom-line impact of drought-related production shortfalls aside from crop insurance and USDA disaster assistance.

Trade wars leave even fewer options

As Gro reported earlier this season, US livestock producers have recently been ramping up production based on optimistic projections for increased domestic and international demand. Now, as barriers to trade continue to rise, those plans are beginning to look dubious, and reports already indicate that 2.5 billion pounds of meat have piled up in US warehouses. Most of those stocks happen to be from hogs, whose feed uses far less sorghum, but beef is also slowly backing up as trade fears mount.

As US feed demand declines due to the meat glut, trade issues may cause simultaneous foreign demand shortfalls. How much US sorghum will China import despite the new 25 percent duty?

If growth rates and household spending continue to rise in China, a 25 percent tariff will make baijiu producers look toward Australia and Argentina, the world’s only other notable exporters beside the US. However, the USDA predicts Australia and Argentina’s 2018 ending stocks for sorghum to be just 274 thousand and 689 thousand tonnes, respectively, far below the 4.8 million tonnes of sorghum China imported in 2017. With the southern hemisphere’s harvest already complete, China may look to other large producers such as Nigeria, India, Mexico, or Ethiopia—who all have rarely exported sorghum. It’s unlikely that China will find non-US supply large enough to meet 2018’s growing demand.

In the short run, China’s tariff will likely present only a minor hindrance to demand for US sorghum. Tariffs may cause producer prices for US sorghum to drop, but likely not by a significant amount. Of course, when other producers begin planting next season—depending on the intensity of the trade war at that point—the international story may become quite different. Especially if sorghum farmers are able to secure aid from the Trump Administration this season, their revenue streams might remain healthy.

Charting a path forward

It’s hard to put a positive spin on the fundamentals of the US sorghum situation. Less than 50 percent of the US sorghum crop is currently considered to be in good or excellent condition. The figure in Texas, the country’s second largest sorghum producing state, has been holding steady at an abysmal 25 percent. And for those farmers who are able to ship their crops to market, they are likely to find reduced demand.

US beef and feed demand represents the last glimmer of hope for domestic sorghum producers, but even those positive trends seem unreliable. Depending on the size of the US corn crop this year, moreover, sorghum’s domestic life support may quickly be switched off. Gro’s US corn yield model currently predicts 173.46 bushels per acre versus the USDA’s 173.97 bushels per acre, both roughly equal to the second-largest yield on record.

That said, it may also be too early to count out this year’s sorghum crop. Sorghum’s resilience may be its defining feature, and the crop has been known to make large comebacks at this point or later in the season. Especially in more northern climes, sorghum growth periods are still well underway and could quickly rebound.

From a demand perspective, there is always the chance that the current US-China trade war sputters before sorghum harvests begin in earnest. As an accessible luxury with deep connections to Chinese culture, moreover, baijiu is likely to have relatively inelastic demand. Regardless of the tariff situation, Gro users should also continue to pay attention to other US feed grain yields, because just as there’s a possibility that yields will improve for sorghum, there is also the chance they could falter for corn or other feed crops.

Ultimately, the fate of the US sorghum industry is in the hands of the farmers themselves, and there is no better way to assess fundamentals than monitoring next season’s plantings, especially in major competitors like Australia or Argentina. The Trump Administration’s recent pledge to supply $12 billion in aid for farmers affected by tariffs may stop them from making appropriate production decisions. With the aid package, sorghum farmers are likely to do fine from a revenue standpoint during 2018. If demand remains strong despite the new tariff, they might even do very well. But if China and the US fail to reach an agreement by next year, other major sorghum producers will likely step up production. Then the temporary aid package may only briefly delay the US sorghum industry’s decline as Chinese demand switches to other sources.