Mr. Trump may have been trying to teach the Chinese a lesson, but it was the U.S. sorghum growers who learned it.
Earlier this week the grain sorghum market was doing just fine. The market kept on going up. And because of strong imports from China, the local grain sorghum price had trotted right on past our local corn price—and was sitting out there 15 to 20 cents a bushel over corn.
Normally corn trades at a premium to milo because of a number of factors including a slightly better feed value as well as a minimal need for processing.
But all good stories come to an end. Mr. Trump decided to kick a skunk by slapping tariffs on imported Chinese solar panels and washing machines to protect our “Made in America” industries. Scoular Grain Co. trader Molly Suing said it was easy to predict what was to follow. “Our tariffs really made them mad….so they decided to get even by halting all milo imports from the U.S,” she said.
Instantly, grain companies wanting to export got a NO BID at the Gulf.
“I had been working with one farmer who had 40,000 bushels in storage,” Suing said. “Because of the resulting collapse in the sorghum market, he lost $35,000.”.
Karen Braun with Reuters News Service in Chicago put things in perspective. She said the Chinese are a huge skunk when it comes to the U.S. sorghum market.
“Over the past 5 years, about 63 percent of the sorghum grown here in the U.S. is exported.” Braun said. “And of that, China has been taking 80 to 90 percent. Yes, they are a really big deal.”
But why do the Chinese like our sorghum so much? Price. Price. Price.
“For example, in November 2017, China paid an average of $350/tonne for imported corn and $220 for sorghum. Breaking it down further, US corn import price for China was $492/tonne while US sorghum was $219,” Braun said.
Kansas State University Grain Marketing Specialist Dan O’Brian said this is a prime example of rough and tumble international trade.
“One or the other moves to hit them where it hurts,” he said. “We don’t know how this issue with our sorghum exports will work but, but one thing for sure is both China and the U.S. have taken shots to hurt each other. And they have been right on target.
“This is in itself probably an expected step in the process of forcing each other to the table to figure out a fair and reasonable solution.”
And without a doubt, both sides are getting a lot of internal heat. U.S. sorghum growers are clearly not happy and are calling their U.S. legislators.
“Further, by taking this protectionist move, China has raised the cost of feed input purchases for its livestock industry by quite a bit,” O’Brian said. “So how long and to what degree does the Chinese government want to cause financial problems for their livestock feeding industry?”
He also said things happened very fast with this issue. Grain traders has absolutely no idea what was coming. But when it hit, Kansas grain elevators in Salina and Topeka instantly widened their basis bids. Looking forward, O’Brian said with a removal of the tariff, it seems that most, if not all, of the basis loss will be recovered.
Let’s hope that is sooner rather than later.