Riding Out the ‘Perfect Storm’ of 2007

So with this statistical backdrop, you would think the countryside would be littered with storage bins chock-full of grain sorghum. Not even close.

Although 55% of the U.S. crop is earmarked for domestic use for feed, food and fuel production, a figure which stays relatively stable, it is the scramble over the remaining 45% dedicated to the export market which is making for an interesting marketplace. “About half of our exports go to Mexico for feed use and they’ve consistently been our No. 1 customer,” Skarke notes. “But for production and trade-related reasons, our exports to the EU just skyrocketed this year and we’re projecting an even heavier market presence in 2008.”

If you think Skarke may be guilty of a being too cocky in his confidence in the EU marketplace, keep these important marketing factors in mind: With the EU’s ban on accepting GMO corn products combined with the fact they already feed out half the wheat/barley they produce, grain sorghum becomes an even more attractive feedstock choice to producers there. With poor harvests further reducing an already depleted carryover supply, and the aforementioned price volatility of wheat, the EU came to the marketplace in a big way and brought their checkbooks with them.

To illustrate the EU’s desire for U.S. grain sorghum (see chart on pg. 54), according to Foreign Agricultural Service (FAS) statistics the EU has imported more than 1.4 million metric tonnes of sorghum in the first three months of the marketing year — which began September 1.

That number is 171 times the amount imported by the EU just six years ago! Spain accounts for more than 860,000 tonnes alone and is joined by the Netherlands, France, Ireland and Denmark as heavy purchasers.

Other factors driving the EU’s buying frenzy include the Euro’s purchasing power vs. the U.S. dollar — which makes buying U.S. sorghum more logical than paying a premium for hard-to-source EU-produced stocks — and another poor growing season for the U.S.’s chief competitor, Australia.

While sorghum and wheat industries are certainly sipping the long-awaited heady nectar of success right now, some serious concerns these boom markets have brought threaten to leave a sour aftertaste for some.

The pig in the python

For both Peterson and Skarke the trick to maintaining the enviable market position of U.S. wheat and grain sorghum growers could lie with the ability to continue serving existing export customers while reaching out to prospects.

“It would have been very difficult for wheat buyers to foresee how the dynamics of the corn market would add so much volatility to world wheat prices,” Peterson notes. “On top of that, global demand for ocean-going vessels and freight rates have also increased dramatically. Even rates for shorter hops to South American and Mexican ports have nearly doubled since last year from $39 to $63/metric tonne. So there is no doubt that these higher prices cause concern for buyers, especially in developing countries.

“For example, millers have to either absorb the higher prices or pass them on to their customers. That is why U.S. Wheat Associates representatives spend a lot of time helping buyers manage this situation,” Peterson says. “The need for that kind of service will continue as wheat prices should remain fairly high into next year, as global wheat stocks end the marketing year at near record-low levels.”

Skarke concurs on the point of customers needing to sharpen pencils and girding themselves for the new realities of grain pricing.

“Some of our long-standing customers are certainly concerned about our ability to supply their needs,” he points out. “However, we owe it to our producers and industry to develop new relationships and build value for our product.”

While the EU’s newfound interest is a sterling example of that theory put to practice, Skarke maintains the U.S. sorghum industry would be foolish to not do everything possible to meet the needs of its traditional customers like Mexico and Japan.