September 30, 2013
 
First feed wheat, now sorghum: China's latest answer to avoiding corn import dependence
 
An eFeedLink Exclusive Commentary
 
Caught between artificially high corn prices and a strict import quotas, China’s feed mills are sourcing sorghum to meet their growing feed grain needs.   
         
 
by YANG Yang
 
A US delegation went on a United Sorghum Checkoff Programme trade mission to China in early September, and returned with exciting news. Adam Baldwin, a farmer in McPherson County who went along with the mission, said that Chinese buyers told them that they could take 15% to 40% of US sorghum, with one grain trader from Guangzhou mentioning his intention of ordering seven more shipments.
 
Huge upturn in sorghum imports
Until recently, there was little in the way of American sorghum exports to China. But the tide has turned. This year, for the first time ever, China purchased sorghum for feed use from the United States. During late August, China booked its largest weekly purchase of US sorghum on record of 120,500 tonnes. To date, purchases of about 800,000 tonnes of US sorghum are already made for shipment in the 2013/14 year starting September, greatly exceeding a USDA forecast, which saw China importing only 200,000 tonnes of sorghum from all countries combined.             
This year, China purchased sorghum for feed use from the United States for the first time in history. During late August, China booked its largest weekly purchase of US sorghum on record of 120,500 tonnes. To date, purchases of about 800,000 tonnes of US sorghum are already made for shipment in the 2013/14 year starting September.
 
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). On top of this, USDA also reported outstanding sales of 498,000 tonnes (19.6 million bushels) for unknown destinations, which is widely speculated to be destined to China.
 
According to Reuters, China’s total US sorghum imports are likely to top 1 million tonnes, if prices remain attractive. With China’s traders making clear that they will also source sorghum from Australia, 2013-14 sorghum imports could amount to over 1.5 million tonnes, compared to just 84,000 tonnes as recently as 2011-12.
According to Bryan Lohmar, US Grains Council (USGC) 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.
 
In reality, China is in no shortage of corn. As a matter of fact, the country is 98.9% self-sufficient. However, China's corn prices have been kept artificially high, thanks to the government's corn stockpiling policy that is meant to support prices.
 
According to a paper published by the Institute for Agriculture and Trade Policy in 2009, China's state grain storage is "perhaps the oldest model that has operated more or less continually since 498 A.D.". Today, the major state-owned grain reserve corporation in China, Sinograin, prides itself on achieving "the implementation of a minimum procurement price in more than a dozen major production provinces", and creating "important channels for hundreds of millions of farmers to sell their grain and ultimately increase their profits".
 
To the Chinese government, which puts so much emphasis on political and social stability, food security is almost tantamount to national security. In fact, food security is the very reason for the establishment of Sinograin in 2000.
 
In addition to maintaining the high prices for corn, China fixed its low-tariff rate corn import quota at 7.2 million tonnes per year, under the commitments made to the World Trade Organisation. Of these 7.2 million tonnes of corn imports, 60% is allocated to state-owned firms, which squeezes out private feed mills' access to affordable corn. As a result, after using up their annual import quota of 2.88 million tonnes, 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.
 
While ensuring that farmers make enough profits to continue planting corn in the coming year for the nation to be self-sufficient in the crop, Chinese government has created another set of problems in its programme of food security. With the country becoming more and more affluent, the battle in securing food supplies require the livestock sector to keep in pace with the Chinese population's growing appetite for meat. The rapidly-growing Chinese economy has fuelled income growth among the population, which has in turn driven up the demand for meat, especially pork. In 2012, China stayed on top as the biggest hog-producing country with 696.28 million head, an increase of 5.2% on-year.
 
Demand for hog feed comes in top in China's feed business, accounting for about 40% of total feed consumption in China in 2012, according to a report by Beijing Orient Agribusiness Consultant Co., Ltd., the leading agribusiness consulting firm in China.
 
The gigantic hog population, in addition to over 1.2 billion birds of broiler and layers and other livestock species, grows the massive appetite for animal feed. In 2012, China produced a total of 190 million tonnes of feed, rising steadily by 5.5% on-year.
 
In the first half of 2013, feed production was impacted by the outbreak of H7N9 bird flu, a series of food-safety scandals that devastated its livestock sector, including the AGP-fed "fast-growing chicken" and dead pigs in the Huangpu River, as well as a slowing Chinese economy. The country's feed industry, however, seemed undeterred, with major feed producers seeking to expand their production capacity.
 
Da Ben Nong Group (DBN) announced in July this year that it will increase its feed production capacity by 840,000 tonnes, with plans to build a 120,000-tonne plant in Heilongjiang, a 120,000-tonne plant in Sichuan, and a 600,000-tonne plant in Hubei. In addition, Twins Group has also planned to increase its capacity by 940,000 tonnes; CP Group by 580,000 tonnes, and Tangrensheng Group by 720,000 tonnes.  
 
Sorghum as a political/economic relief valve
With these expansions, the demand for feed raw material, such as corn continues to soar. According to recent estimates by JP Morgan, China is on track to import up to 190 million tonnes of corn by 2050, based on the growth of its pork production.
 
Of course, with present world corn exports only amounting to around 100 million tonnes, it is probably impossible for China to import anywhere near so much corn without destabilizing the world food market, not to mention its own livestock sector. The fact America traditionally supplies 50% to 60% of world corn exports is also troubling to China from a geopolitical perspective. Hence, the search for substitutes, such as feed wheat when its price was low in 2010-12 and more recently, sorghum.
 
But before the government gives the green light for such a high amount of corn import, the feed industry has to source for cheaper ingredients. In upholding corn prices above global levels and restricting the import volume of corn every year, China's corn self-sufficiency programme is squeezing the profits of feed millers, particularly the private enterprises who do not have access to imported corn.
 
The straw that broke the back of the feed millers came in July, when the Chinese government announced it would raise the state purchase price of corn by nearly 6% to RMB2,260/tonne (US$9.22/bushel) from farmers in the major producing areas in the northeast.
 
In the same period, prices for feed mills in Guangdong in the southeast rose to more than RMB2,450/tonne (US$10.01/bushel). With CBOT corn selling below US$4.50/bushel, even with import duties and shipping costs, political and economic pressure to import much cheaper corn was becoming irresistible, which is one reason sorghum entered the picture.
Feed millers have two choices: import corn above their quota allocations and pay a prohibitive 65% import tax, or import sorghum, which is not subject to quota restrictions, and pay a 2% import tax and 13% value-added tax.
 
The choice is clear. Orders for US sorghum gained pace even as the Chinese government announced that it would release corn during early August to tame inflation and reduce imports - the first release since September 2012, when China sold 3.7 million tonnes of state-reserved corn, in an effort to counter soaring inflation in that period. The decision to import sorghum was enforced by concerns over rising costs of import corn, after the worst drought in 50 years in the US pushed corn prices to record highs.
 
Of course, another choice is for Chinese feed mills to buy local sorghum. However, the higher tannin content in locally-grown sorghum, which reduces digestibility and feed efficiency, makes it unsuitable for animal feed. Instead, Chinese sorghum is commonly used to make the hugely popular traditional Chinese spirit - Baijiu. In fact, China has been importing sorghum from US for liquor-making.
 
Meanwhile, US sorghum contains lower tannin, and its prices are about RMB1,000/tonne (US$163.38/tonne) lower than Chinese sorghum. Compared with local corn, US sorghum is about 20%, or RMB400/tonne (US$65.35/tonne) cheaper. Another possible seller of sorghum to China is Australia; but it is dearer than US sorghum by US$40/tonne.
 
"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."
 
USGC data show that 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, 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.
 
While China is maintaining the grain reserve policy in the interests of farmers, it will not likely interfere with the private firms' decisions to secure sorghum supplies from overseas. With this in mind, Chinese private feed millers will continue to seek sorghum supplies from the US, the world's largest producer, and both countries are set to benefit from this trend.  
           
Sorghum as feed ingredients - restrictions and implications
Though corn is the preferred feed grain for mills, sorghum is similar in feed value to corn, with research showing that sorghum contains 96% of the energy content of corn. It has been used extensively in Australia, being its major summer crop, and is the fifth most important feed ingredient in the world.
 
According to the study "Sorghum in Swine Production Feeding Guide" produced by the Kansas State University, sorghum can totally replace corn, wheat or barley in swine diets. Though sorghum has a slightly lower fat and energy value compared to corn, pigs fed with sorghum deposit a firmer carcass fat in terms of carcass fat quality.
 
In their studies, the results indicated that including up to 30% of sorghum DDGS in the diets of both nursery and growing-finishing pigs has no negative effects on growth performance or carcass characteristics; while in finishing pigs, carcass fat quality showed positive effects, especially when finishing pigs were fed with higher concentrations of sorghum DDGS. However, more research is needed on the feeding value of sorghum DDGS in sows.
 
The authors, Dr Mike Tokach, Dr Bob Goodband and Dr Joel DeRouchey conclude that "sorghum DDGS can be used at the same inclusion rates as corn DDGS in swine diets," and for "its nutrient profile, including greater amounts of digestible tryptophan and available phosphorus, it affords nutritionists different opportunities for diet formulation."
 
For poultry, researchers found that sorghum-based diets have been associated with sub-optimal broiler performance especially below-expectation feed conversion rates and variable breast-meat yields in comparison to wheat-based diets, particularly among young broilers.
 
Sorghum contains anti-nutrition factors, particularly phytate, tannin and kafirin. These three factors impair protein utilisation and may impede protein digestion. As a result, starch, the main energy source of sorghum, may be underutilised.
 
With the increase in the usages of sorghum, surges in the demands for enzymes such as phytase, tannase and protease, amino acid tryptophan and phosphorus-type trace minerals are expected to follow.
 


All rights reserved. No part of the report may be reproduced without permission from eFeedLink.