Washington, DC
April 30, 2009

by Julio Hernandez, U.S. Grains Council Director in Mexico and Central America

U.S. sorghum has certainly had an interesting relationship with its top market, Mexico, the last several years. Thanks to unexpected changes in the global marketplace, the last two years have particularly painted an interesting portrait of this trade relationship that is anything but symmetrical. Grain sorghum has been on a road trip without a perfectly clear destination.

To understand how sorghum exports to Mexico can sometimes be absolutely unpredictable, we have to talk history for a moment. From 1994-2008, corn exports to Mexico were subject to an import license called a cupo. Only Mexican importers who had the cupo were allowed to import corn, leaving other grain users and importers to turn to alternative feed ingredients such as sorghum.

This situation pushed U.S. grain sorghum prices to a much higher level than corn due to increased demand. To avoid paying such high prices for sorghum, importers and end-users without a cupo started eyeing other feed options, which eventually caused sorghum imports to substantially decrease.

The full implementation of the North American Free Trade Agreement in 2008 eliminated the need for the cupo to import corn.

It was assumed among many Mexican importers and U.S. exporters that sorghum would no longer suffer the distortion, prices would go back to a more competitive level and imports would resume. This did not happen, however. In 2007 and 2008 Europe suffered a drought conditions causing a shortage of feed grains.

Due to the European Union’s (EU) resistance to biotechnology, end-users imported record amounts of U.S. sorghum. Prior to 2007, the EU imported an average of approximately 330,000 metric tons (13 million bushels) of U.S. sorghum annually. In 2007, the EU imported 2.6 million tons (102.4 million bushels) of U.S. sorghum and 2.2 million tons (86.6 million bushels) in 2008.

Now, don’t get me wrong, this was great news for U.S. sorghum growers. It was also beneficial for U.S. corn farmers as corn became a viable alternative to the sorghum that would have otherwise ended up in Mexico’s marketplace. And here in Mexico, we had the feed ingredients we needed to supply demand. It was really a win-win. But this unexpected turn of events distorted the market price of sorghum.

Mexico’s livestock sector again had to reduce sorghum purchases. The 2009 market conditions look more normal and U.S. sorghum exports to Mexico are expected to resume. In the 2007/2008 marketing year, Mexico imported 1.07 million metric tons (42 million bushels) of U.S. sorghum compared to almost 2 million tons (79 million bushels) the previous year and more than 3 million tons (118 million bushels) the year before that.

So far this marketing year, Mexico imported approximately 1.17 million tons (46 million bushels) up 784,000 tons (31 million bushels) from the same time period the previous year. It has been an interesting ride for this feed grain, but the Council is working hard to give sorghum a more definitive direction to Mexico.

Website: http://htto://www.grains.org

Published: April 30, 2009