China purchases sorghum from US for feed use for first time

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Publish time: 20th September, 2013      Source: www.cnchemicals.com
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September 20, 2013
   

China purchases sorghum from US for feed use for first time
   
   

Feed mills in China are increasingly turning to US sorghum to meet its corn shortfall, with purchases of about 800,000 tonnes of US sorghum already made for shipment in the 2013/14 year starting September.

   

   

Total orders are likely to top 1 million tonnes, if prices remain attractive, according to Reuters. China has outstanding sales of 197,000 tonnes (7.8 million bushels) of US sorghum, with 58,000 tonnes (2.3 million bushels) shipped, according to the US Department of Agriculture, USDA reports outstanding sales of 498,000 tonnes (19.6 million bushels) for unknown destinations, which is widely speculated to be destined to China.

   

   

In August this year, China purchased sorghum for feed use from the United States for the first time in history. In fact, China booked its largest weekly purchase of US sorghum on record in late August, buying 120,500 tonnes.

   

   

According to Bryan Lohmar, US Grains Council Director in China, this was caused by a tight corn market in China, tariff-rate quota (TRQ) on corn imports and a very good US corn and sorghum crop, which made sorghum prices attractive to China''s feed millers and livestock producers.

   

   

Historically, China''s corn prices have been kept artificially high due to the government''s corn stockpiling policy meant to support prices. The Chinese government said in July that it would raise the state purchase price of corn by nearly 6% to RMB2,260/tonne (US$369.38/tonne) from farmers in the major producing areas in the northeast, with prices rising to more than RMB2,450/tonne (US$400/tonne)for feed mills in Guangdong in the southeast.

   

   

This makes corn imports a key alternative. However, China''s fixed 7.2 million-tonne low-tariff rate corn import quotas per year, under commitments made to the World Trade Organization, further limits the supply of affordable corn.

   

   

Moreover, of the 7.2 million tonnes of low-tariff-rate corn imports, 60% is allocated to state-owned firms, which squeezes out private feed mills'' access to affordable corn. Mills that import corn above their quota allocations will be subject to a prohibitive 65% import tax.

   

   

As a result, after using up their annual import allocations of 2.88 million-tonne quota, China''s big private feed mills are not expected to ship in more corn before the end of the year when Beijing issues quotas for 2014. Instead, they are increasingly turning to sorghum from the United States. Imports of sorghum are not subject to quota restrictions, and buyers need only pay a 2% import tax and 13% value-added tax on sorghum imports.

   

   

While corn is the preferred feed grain for mills, sorghum is similar in feed value to corn. However, like wheat, sorghum contains anti-nutritional factors such as arabinoxylan and b-glucose and methionine is a required feed additive.

   

   

Cost-wise, US sorghum is about 20%, or RMB400/tonne (US$65.35/tonne) cheaper than domestic corn. Compared to the artificially high local corn prices, US sorghum presents a more cost-effective alternative.

   

   

"With the TRQ enforced, Chinese corn prices will likely remain well above world corn prices, and sorghum prices typically track corn prices," Lohmar said. "Therefore, we expect there will be continued opportunities for US sorghum exports to China."

   


According to USGC manager of global trade Alvaro Cordero, who participated in the United Sorghum Checkoff Programme trade mission to China in early September, "There is plenty of opportunity to expand sorghum production in the United States if a significant export market develops in China."

   

   

According to USGC data, for the period of September 2012 to April 2013, the current top importers of US sorghum are: Mexico (818,329 tonnes), Japan (114,460 tonnes), Italy (42,801 tonnes), Spain (35,500 tonnes), Kenya (28,828 tonnes) and South Africa (25,000 tonnes)

   

   

Rising Chinese imports are expected to boost sorghum prices over the next few months in the United States, the world''s largest producer, which is forecast to reap a bumper crop this year. US sorghum prices are now about US$20/tonne higher than US corn prices, partly due to China''s buying, traders said.