Australian sorghum prices helped to 4-year high by China-US trade tensions

16.04.2018

Australian sorghum prices, at four-year highs, are to retain support from the worsened relations between rival exporter the US and leading buyer China, where needs are being supported by soaring baiju purchases.

Sorghum values in Australia - the second-ranked exporter of the grain after the US - have “taken a substantial climb this week, with prices rallying up about Aus$10 per tonne”, said AgVantage, the New South Wales-based grain merchant.

The latest increase took prices as high as Aus$350 per tonne for grain delivered to the port of Brisbane.

Rabobank said that the Australian sorghum crop “currently being harvested is arriving with prices at four-year highs.

“Export and domestic demand, coupled with lower-than-average yields, has pushed prices up another 4% during March, 25% since the start of 2018, and 33% year on year.”

‘Market shorts’

And many dynamics remain upbeat for sorghum values, with AgVantage noting short-term support from “market shorts around the area for domestic and export use”.

In Australia itself, demand for sorghum for feed use has been whetted by the disappointing 2017-18 wheat harvest, undermined by dry weather and late frost, requiring transport of grains to livestock production centres in the east.

Meanwhile, export orders have been boosted by concerns among Chinese importers of hurdles to obtaining sorghum from the US, historically their biggest origin.

Beijing in February announced an anti-dumping investigation into imports of US sorghum, in reponse to a US tax on imports of some Chinese solar panels and washing machines. One merchant dubbed Donald Trump, the US president, "the chairman of the Australian Sorghum Lobby".

Earlier this month, Beijing added sorghum to the list of US exports threatened with tariffs amid growing China-US trade tensions.

“Chinese investigation of US sorghum dumping, and tariff proposals will maintain support for this pricing level,” Rabobank said.

Shipments vs orders

In fact, US sorghum exports to China – by far America’s biggest customer - have remained solid since the anti-dumping probe was announced, potentially as importers stock up before firmer hurdles are announced.

Indeed, the US Department of Agriculture on Thursday revealed that 186,000 tonnes of US sorghum was shipped for China last week, following on from 173,000 tonnes the week before, and 201,000 tonnes the week before (to March 22).

But new orders have stalled, with the US seeing net cancellations of 159,800 tonnes of sorghum in the eight weeks since the anti-dumping investigation was announced - compared with net orders of 1.36m tonnes in the previous eight weeks.

“Export sales of grain sorghum have been flat since the trade dispute with China escalated,” said Dr Mark Welch at Texas A&M University.

‘Highest growth since 2011’

Chinese demand for sorghum is being whetted in particular by strong sales of baiju, the alcoholic drink typically produced from the grain, although lower-grade offerings are based on ethanol.

With alternatives to sorghum available for livestock rations, the USDA’s Beijing bureau has forecast Chinese feed use of the grain holding at 6.3m tonnes in 2018-19.

However, food and industrial use was forecast at a 22-year high of 2.80m tonnes, “up 200,000 tonnes from 2017-18, as sorghum use for baiju is expected to rise to meet strong demand”.

Last year, demand for baijiu – responsible for 68% of all retail alcohol sales in China – “soared by an estimated 77%, year-on-year… the highest rate of growth since 2011”, the bureau said.

‘Rapid sales of baijiu’

Earlier in 2018, “rapid sales of baijiu during the Spring Festival season led to steady increases in baijiu retail prices and netted strong margins for many producers”.

Chinese drinks giant Kweichow Moutai has forecast 10% growth in baijiu demand this year.

The demand boom has been attributed in part to growing wealth among Chinese consumers.

However, it also reflects a recovery from levels depressed by an anti-corruption campaign announced by President Xi Jinping six years ago.

China’s food and industrial use of sorghum in 2011-12 fell to 1.80m tonnes, matching its lowest on data going back to 1960-61, according to the USDA.


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