Prospects for Sorghum Premiums in the Upcoming Season: A Forecast Analysis

Sorghum prices generally follow corn prices.  Since 2006/07, the biofuel era, the largest discount of sorghum to corn was -$0.74 per bushel; the largest sorghum premium to corn was +$0.79; and the average price relationship was -$0.11.   (Figure 1).

Figure 1. Monthly Average Sorghum and Corn Prices Paid to Farmers by Marketing Year

The level of sorghum premium or discount is largely contingent upon demand, predominantly influenced by exports. Figure 2 shows the relationship between the sorghum exports-to-domestic-use ratio and the premium or discount received by U.S. farmers.

During the 2020/21 season, we witnessed a significant increase in sorghum premiums due to increased export demand. These premiums occurred because of the US-China Phase One Trade Agreement (U.S. sorghum exports are not subject to tariff-rate quotas like corn), the recovery of the Chinese swine sector, and high corn prices that supported high exports of U.S. sorghum to China. The export ratio over domestic consumption during 2020/21 increased to 2.68 (Figure 2). Exports during this season totaled 279 million bushels, while domestic consumption totaled 104 million bushels. After 2020/21, the ratio of exports over domestic consumption decreased due to lower yields, drought, and fewer exports, reaching a low level of 1.08 in the 2022/23 season and a discount in the price of sorghum to corn of -$0.16 per bushel.

Figure 2: Sorghum to Corn (Premium or Discount) and the Ratio of Sorghum Exports to Domestic Use

Source (Dr. M. Welch, USDA February WASDE, USDA, NASS Agricultural Prices)

During the 2023/24 season, the level of exports increased along with higher production and lower domestic consumption. Production in 2023/24 increased to 318 million bushels from the previous year of 188 million bushels, a result of significantly larger harvested acreage and better yields. The exports-over-domestic-consumption ratio also increased to 3.00 alongside better premiums over corn.

Looking forward to next season, production for 2024/25 is expected to increase again, given USDA’s February WASDE projections and projections from the Ag Outlook Conference on February 15, 2024. Planted acres are expected to decrease by 2.8% from the previous season, but the area harvested projection is unchanged with a return to more normal growing conditions. The projected yield in 2024 of 69.2 bushels per acre is much better than the drought impacted yields of the last two years, up 33% compared to 2023. 

Domestic use and exports are expected to increase next season. Domestic use is projected to be 115 million bushels (+35 million bushels), while exports are expected to be around 295 million bushels (+55 million bushels). This level of exports and domestic consumption results in a ratio of sorghum exports to domestic use of 2.57. The sorghum premium over corn price at this ratio would be around $0.26/bu using Dr. Welch’s model to calculate sorghum-to-corn premium or discount as a function of the ratio of sorghum exports to domestic use (Figure 3).  While this price relationship is not exact, the ratio of sorghum exports to domestic use in the 2024/25 marketing year is projected to be the 4th highest of the biofuel era, suggesting a better-than-average sorghum price relationship to corn. 

Figure 3: Sorghum-to-Corn Premium/Discount as Function of the Ratio of Sorghum Exports to Domestic Use

Source: Dr. Mark Welch, USDA February 2024 WASDE and 2024 Ag Outlook Conference.

Abello, Francisco Pancho. “Prospects for Sorghum Premiums in the Upcoming Season: A Forecast Analysis.Southern Ag Today 4(12.1). March 18, 2024. Permalink