Big Demand, Small Supply

Even while taking advantage of recent export opportunity to China, the U.S. sorghum industry continues developing long-term markets, like supplying California’s ethanol plants with bigger volumes of feedstock.
By Holly Jessen | February 13, 2015

If it were available and priced competitively, Lyle Schlyer, president of Calgren Renewable Fuels LLC, would run the 58 MMgy California ethanol plant on 100 percent sorghum. This year, however, the plant is grinding very little of the feedstock, which is also known as milo.

The four ethanol producers in California share an interest in sorghum. This summer, Calgren, which is located in Pixley; Pacific Ethanol Inc., which has plants in Stockton and Madera; and Aemetis Advanced Fuels Keyes Inc., which has a plant in Keyes; each received three-year $3 million matching grants from the California Energy Commission’s Alternative and Renewable Fuel and Vehicle Technology Program in late summer. Although each company will use the grant money differently, the overall goal is to develop a sorghum feedstock program and use more sorghum in California ethanol plants, Schlyer says. That includes work to increase the supply of sorghum grown in California, which is currently nearly nonexistent.

But even as the companies started working toward those goals, market dynamics shifted significantly, sucking larger-than-normal amounts of sorghum into exports, particularly to China, which increased the price and tightened supply. Although that means sorghum use at ethanol plants, including Calgren is down, it doesn’t change the fact that Schlyer sees it as an ideal ethanol feedstock, particularly in California, which has been in the midst of a drought. “The fact that sorghum isn’t available at a commercially attractive price this year doesn’t bother us, because we needed to do some front-end agronomic work anyway,” he says. “We’ve always viewed this as a long-term program.” 

The China Factor
Two big catalysts for increased sorghum exports to China were the tariff rate quota on corn and extreme demand for feed grain, says Florentino Lopez, executive director of the United Sorghum Checkoff Program, adding that in a typical year about 30 to 40 percent of U.S. sorghum is exported. “The last 22 months have been somewhat different considering the need from China,” he told Ethanol Producer Magazine in late January, adding that demand from China had pushed that number to 57 percent and it was still growing.

Carrie Williams, merchandising manager for AgMark LLC, a Kansas-based grain company, says in the 2012-’13 marketing year, 76 million bushels of sorghum was exported. Thanks to Chinese demand for nongenetically modified grains, for 2013-’14, the USDA is estimating 212 million bushels of sorghum exports. For 2014-’15 the projection is 230 million bushels.

China’s announcement that it wouldn’t be accepting shipments of corn containing Syngenta’s genetically modified trait MIR 162 corn was another factor in strong demand. In January, following the December announcement that China would again accept GMO corn, things did appear to be slowing down on the sorghum export side. But it wasn’t yet clear if that was because Chinese buyers were purchasing less sorghum or just because the sorghum supply was getting low. “It certainly feels like there is still some depth in the demand for the Chinese market, there’s just not depth in supply,” Williams says. “A lot of sorghum has been fairly aggressively sold into that market. So it’s depleting stocks as you would anticipate that it would, at that sort of premium market.”

The demand pushed prices up, Lopez says. In 2010 to 2013, the average sorghum price was about 95 percent the price of corn. In 2014, with the full year impacted by an increase in sorghum exports, the value of sorghum soared to 102 percent the price of corn. “These are average values based on the USDA prices paid to farmers, so in many areas this would be significantly higher,” he says.

Export-induced supply constraints and price increases did have an impact on other markets, both domestically and internationally. Ethanol producers that use sorghum as a feedstock are one of the end users that have been impacted. Increases in exports had to come from somewhere, Williams says, pointing to the January USDA report, which projected a 40 million bushel increase in exports and a 35 million bushel decrease in the food, seed and industrial category, which includes ethanol production. “We don’t have an endless supply of sorghum,” she says, contrasting the projected 433 million bushel sorghum supply for this year with the 14.3 billion bushel corn supply.

The goal of the sorghum checkoff program is to increase the profitability of U.S. sorghum producers, advance the use of sorghum as an ethanol feedstock and develop foreign markets for the crop.  In December, $3.65 million was invested in research and other projects to increase grower productivity and demand, including research projects for biofuels enhancement. “This strong demand and value seem to be sending a message that a supply increase is needed,” Lopez says. “We feel domestic and international markets can be meeting with proper supply, consistent demand and reliable values.”

From Milo To Ethanol
Since it is typically priced at a discount to corn, sorghum is a cost-effective feedstock for ethanol producers. The grain has a comparable ethanol yield to corn and produces a good distillers grains product, says Tim Lust, CEO of National Sorghum Producers and the Sorghum Checkoff.

Sorghum use for ethanol production has been fairly static over the past few years. In a typical year, about 120 to 130 million bushels of U.S. sorghum, or one- third of the crop, goes into ethanol production, Lust says. There are about 12 ethanol plants that are consistent and regular users of sorghum, with the grain making up 10 to 100 percent of the plant’s feedstock ratio. Another 12 ethanol plants are in good locations to step in or out of the sorghum market, depending on supply and price. Finally, another 12 ethanol plants have previously used sorghum. The checkoff program is working to build sorghum supply in the right place and help ethanol producers build relationships with sorghum producers, he says.

The White Energy plant in Russell, Kansas, is one that uses a lot of sorghum to produce ethanol. The plant, which was built in a sorghum growing area adjacent to a gluten facility, utilizes two-thirds sorghum and one-third wheat starch, a waste stream of the gluten plant, says Michael Ernst, plant manager. The 55 MMgy facility was impacted by the situation in China and he says he’s relieved to see the situation resolving. While contract price varied, he saw some that were $5 or more a bushel, compared to prices ranging from $3.80 to the low $4 range last year. As a result, the company did supplement some with corn, although the last truckload was scheduled to come in in mid-January. “It’s starting to loosen up a little for us,” he says.

In California, Calgren will spend the largest portion of the grant money it was awarded to actually purchase sorghum. While the grant doesn’t specify that the money has to be spent on California-grown sorghum, that’s the company’s goal. The point of the program is to develop reliable supply lines of sorghum to California ethanol producers. “In my humble opinion, that’s done with California growers,” he says, adding that a long-term solution is what is needed. “We believe that there are selected areas in California that can grow sorghum as an alternative to other crops, and have that make sense for the grower. And, if we are right, that helps us secure a California source of feedstock for our ethanol plant. We bring in way too much of our feedstock, in my view, from the Midwest. We’d love to find a way to team with California growers that makes sense to California policy makers.”

In early 2014, a kickoff meeting was held with California agronomists working on the research side of the equation. One is Jeff Dahlberg, director of the University of California division of Agriculture and Natural Resources Kearney Agricultural Research and Extension Center, who says the center is in the midst of a couple programs that examine how forage and grain sorghum grows in various areas of the state. Work is also being done to come up with water-use efficiency numbers on the drought-tolerant crop. “As with most crops in California, it comes down to profitability and markets,” he says. “Can you profitably grow sorghum and are there markets? The answer is yes to both, but your profit margins would not be the same as growing a high-value crop.”

He does believe  there are good opportunities for sorghum as an ethanol feedstock in California and elsewhere. “Sorghum is one of the few agronomic crops that can fit into all the renewable schemes being proposed. It can be used like corn in grain-to-ethanol production, sweet sorghum can be used like sugarcane in production of ethanol, forage and bioenergy sorghums can be used in both lignocellulosic and cellulosic strategies for renewable fuels,” he says. “Unlike many of the other crops being proposed for renewable feedstocks, sorghum has a robust seed industry in place and also a good amount of research on its agronomics, diseases, and insect issues.”

Author: Holly Jessen
Managing Editor, Ethanol Producer Magazine