Connection Spring 2015 - Page 18

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 18 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