Corn and sorghum are in a rat race driven by input costs and prices, according to Bob Vanderloo, sorghum product line manager at Cargill.
Sorghum prices are driven by corn. “Corn is king. I hate to say that because my colleagues are all about corn,” Vanderloo said. “Sorghum is the stepchild commodity.”
There is simply too much corn in the world, he said. United States farmers grow 15 billion bushels of corn per year, but traders still import 50 million bushels a year, most of which is destined for North Carolina and South Carolina from Argentina and Brazil.
“It doesn’t make sense, does it?” Vanderloo said. “I struggle with that.”
It’s cheaper to bring corn from South America then it is ship it across the U.S. Transportation costs drive much of the corn market, he added. It is more expensive to bring grain from areas in central Kansas to the Gulf of Mexico than it is to take it from the Gulf to China and back.
“This is a problem in transportation costs, not just margins—it’s the overall transportation costs that are affecting the world today,” he said.
USDA production reports are telling, he added. Investors notice how cheap corn is. Meanwhile, soybeans are competing for acres and therefore, will influence futures prices for corn—and sorghum by default. Corn is cheap right now.
“The price is below production costs in a lot of places. Nobody’s making a lot of money,” he said.
Vanderloo’s Cargill colleagues say there is support for corn, their bullish and bearish signals could include a number of things. First, the macros provide a support for the commodity asset class. Second, funds remain short.
He anticipates farmers will plant more soybeans, at the expense of corn and grain sorghum.
There are 2.4 billion bushels of corn stockpiled, which is bearish. Vanderloo said these supplies must be reduced.
“The U.S. farmer remains under marketed,” he said. “If you’re under marketed, guess what? You need to sell grain in the next month or two. Everybody’s the same way. If everybody’s on the same play, what’s going to happen?”
South America’s corn crop looks good, which again is a factor in sorghum price. Vanderloo said. A strong U.S. dollar also impairs exports.
Yet, despite all this bearish news, growers the world over continue growing corn. The higher numbers the past three years is a response to “something,” he said.
China imports 10 times more sorghum than the next largest export destination. What would happen if that biggest customer went away? “When China wasn’t around, you had Mexico, and Japan,” he said. And while the assumption is that Mexico and Japan would resume buying U.S. grain sorghum, there is risk. While China was busy buying up U.S. sorghum, Japan turned to South American corn to fill the void. They’ve gotten used to that product, so getting them back to U.S. sorghum is a hard sell. Those countries are now accustomed to South American coarse grains, and like the quality and consistency, he said.
“Now we have to now buy that market share back,” Vanderloo explained.
Mexico is now taking almost all foreign grain, even though sorghum is at or above corn prices to a certain extent.
“They’re taking corn now because China took all the sorghum away from them,” he said.
Kylene Scott can be reached at email@example.com or 620-227-1804.