GRAIN
MARKETS
China or Mexico?
Only time will tell which country will be top
contender for U.S. grain sorghum
A
By Joe Kelley
fter what most would consider a
very wet winter, spring of 2015 is
shaping up to be equally wet. The
areas from the Lower Rio Grande
Valley, up through Kingsville and
Robstown, Corpus, Victoria and El Campo
have all received beneficial rain, providing
significant sub soil moisture going into the
2015 growing season. The two northeastern
states of Mexico, Tamaulipas and Nuevo
Leon, have been on the receiving end of the
past winter’s weather patterns as well. These
patterns originated off of the Pacific, crossing
Mexico and dropping rain from Brownsville
north and east along the Texas Coast and
eventually merged with weather patterns
originating from the U.S. West Coast.
As of March 16, the Lower Rio Grande
Valley is reporting planting at approximately
60 percent complete. This region is usually
about 45 days ahead of the Victoria/El
Campo region. Reports from the El Campo
area suggest that relatively few farmers are
complete on planting, with weather causing a
lot of uncertainty as to what crops are going
to be planted. Farmers are taking a “wait
and see” approach as to what develops with
planting conditions as a result of the weather.
Some farmers are expected to reduce corn
acres in favor of sorghum, cotton or possibly
beans. The weather is going to dictate what
crops get planted. All of the uncertainty with
the weather will most likely cause long, drawn
out harvests along the southern region of the
state, which should impact the availability of
trucking; especially given that a number of
factors are in place for the likelihood of a big
grain crop.
China continues to remain a strong
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consumer of grain sorghum, and even with
the anticipation of China sourcing 1.5 to 1.7
million metric tons of Argentinian grain sorghum (this is a higher tannin grain sorghum
than Texas Grain Sorghum, so inclusion
rates are much lower), China will still have
to source a tremendous amount of grain
sorghum from the U.S. and Australia to meet
its country’s needs. To illustrate an example
of the Chinese demand for grain sorghum,
United Ag had sold out of its grain sorghum position back in the early fall of 2014.
Nearly every week since that time, we have
continued to receive inquiries from Chinese
customers or intermediaries looking to secure bushels either for immediate shipment
or for buying new crop (2015) bushels. All of
the attention directed to grain sorghum by
the Chinese markets is welcomed; however,
it can be a little overwhelming at the same
time. The temptation is there to place sales
on the books early. However, that temptation has to be balanced with the need of
the cooperative to risk manage its position
in a prudent manner. As an example: What
happens if we were to sell a large number of
bushels of U.S. #2 grain sorghum and days
before harvest we were on the receiving end
of a major weather event that negatively
impacted our grain sorghum harvest with
either sprout damage or excessive mycotoxin
levels? United Ag would be responsible for
buying in replacement bushels to cover
that contract. This would mean United Ag
would have to go out to the market, which
is already tight because of sub standard
grain quality, and buy in bushels to cover a
previous sale. This means we would have to
source grain that we would have to transport
into our facilities at an additional cost and/
or be subject opportunistic sellers in the
marketplace. Obviously, either option would
not bode well for United Ag if that scenario
came to pass.
Mexico is still expected to be a consumer of
grain sorghum, but most likely not until the
later months of 2015 when they traditionally
enter the market, as the wet winter has been
beneficial to the grain producing regions of
their country. The question remains, which
will want the bushels more? Mexico or China?
China has certainly demonstrated its ability to establish a strong basis associated with
what U.S. producers have come to expect over
the course of the past couple of years. Mexico,
arguably the country that is consistently the
largest end-user and has the longest track
record with U.S. grain sorghum, will have to
be in the same market as China, which might
price Mexico end-users out of the market,
creating a situation where they opt for corn
over grain sorghum if the price gets too high.
Additionally, if China relaxes its stance on
GMO corn, we might see the demand for
grain sorghum soften with China. However, it is unlikely the demand will go away
completely as all reports from the various
trade orga