By Colin Packham and Michael Hirtzer
SYDNEY/CHICAGO (Reuters) - Slowing Chinese demand for sorghum is set to exacerbate tough market conditions for grain farmers in the United States and Australia, as one of the few bright spots in global markets over the past two years starts to fade.
Imports by top buyer China more than tripled in 2015 to above 10 million tonnes, U.S. Department of Agriculture (USDA) data shows, as Chinese regulatory changes affecting corn boosted demand for sorghum for use in animal feed.
Surging Chinese imports - up from just 631,000 tonnes in 2013 - have provided a lucrative trade for farmers in major producers Australia and the United States.
U.S. exporters alone saw sorghum sales to China jump from $95 million in 2013 to close to $2 billion in the 2014/15 season as China gobbled up more than 80 percent of all sorghum imports last year, according to the USDA. Australian farmers sold a record A$410 million ($289 million) of sorghum in 2014/15, data from the country's commodity forecaster shows.
But that demand is set to fall, with the USDA forecasting China's imports slipping to 7 million tonnes in 2015/16, while traders expect sales to be well down on even this figure as the country has built up large stocks of other feed grains.
"Because of the huge stockpiles of corn and feed wheat, the Chinese government is trying to minimize the amount of imports of feed grain such as barley and sorghum, and so domestic users will tap the corn stockpiles," said Thomas Kim, sorghum trader at Nidera Australia.
The depressed market for sorghum will add further pressure to prices of staple feed grains such as corn (Cv1), which have come under sustained pressure amid global oversupply.
SOURING GRAIN MARKET
For Australia, the slowing demand closes the door on a market that has relieved pressure on growers battling drought and depressed global grain prices.
Australia's grain market relies on wheat and sorghum for the vast majority of sales, and buoyant exports of the feed grain have helped offset lower wheat production as El Nino-related weather patterns stunted growth.
Wheat production across Australia's east coast fell 15 percent below the five-year average in 2015, while global wheat prices were down 20 percent.
The USDA last month forecast Australian exports of sorghum during the 2015/16 season at 1 million tonnes, well below the 1.7 million tonnes China purchased a year earlier.
"I think the USDA number is high. The Chinese government released its No. 1 Central Document in the last week and they reiterated the need to use those domestic corn stocks," said Graydon Chong, senior analyst, Grains & Oilseeds, at Rabobank.
Lower exports would also cut into a lucrative market for Australian east coast grain traders, including the country's largest listed bulk grain handler GrainCorp Ltd (AX:GNC).
In the United States, growers who targeted sorghum to capitalize on Chinese demand face lower returns.
Kirk Liefer, who operates a farm in southern Illinois near St. Louis, upped his sorghum acreage last year to take advantage of a premium to corn.
Prices are now about the same after benchmark corn prices (Cv1) fell to a six-month low in January.
Liefer still plans to double his sorghum acreage this year as the crop is cheaper to plant and needs less fertilizer, offering savings over corn.
U.S. production of sorghum rose nearly 40 percent in the 2015/16 season to 15.15 million tonnes, but with Chinese demand slowing, the USDA forecasts a 17 percent fall in exports.
"The big gorilla in the room is China," said Wayne Cleveland, executive director of the Texas Sorghum Producers.
"They still want to buy, they still like grain sorghum. It's just screwy government policies they have that tend to skew the market."
($1 = 1.4170 Australian dollars)