The build-up in forecast ending stocks is mainly due to diminished export prospects and an abundance of corn, the major competing feed grain. Corn is generally considered to be of higher energy value in feed rations.
Only a year ago, more than half of U.S. production went to foreign markets. This year, however, about a quarter of production is forecast for export. In fact, the pace of sales and shipments has been slow with the absence of China since the start of the marketing year (Sep 2018-Aug 2019). Soon after cancelling the preliminary anti-dumping and countervailing duties, China imposed a 25 percent tariff on U.S. sorghum in response to U.S. trade actions.
Although U.S. sorghum remains competitive even with the tariff, trade tensions and commercial risk have turned away potential demand. Sales and shipments to other markets, notably Spain, Japan, and Mexico, have been steady, but the magnitude is relatively small. Moreover, large exportable supplies of corn from Argentina, Brazil, and Ukraine continue to dampen the need for U.S. sorghum.
With limited foreign demand, more sorghum is forecast to be used for animal feed and for ethanol production in the United States. However, plentiful corn and slow gasoline demand limit the growth, resulting in greater stocks. The Prospective Plantings report at the end of March will give an indication of how producers intend to respond to these market dynamics.
U.S. Forage Exports Remain Strong Through 2018
The United States is the largest exporter of forage products in the world and retains this position through calendar year 2018. Japan, South Korea, Taiwan, and the United Arab Emirates (UAE) have historically been the most important export destinations for U.S. forage products, but within the last decade, Saudi Arabia and China have also emerged as markets with ravenous appetites for forage.
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Australia and the European Union continue to be the biggest competition for U.S. forage products in foreign markets. As U.S. forage is consistently priced higher than other nations’ forage exports, the EU has been edging out U.S. hay in the UAE, while Australia’s geographic proximity to East Asian nations has allowed it to compete effectively as well.
For alfalfa hay, a specific type of forage product, the United States is also the world’s largest exporter. Driven by an expanding dairy sector, China has displaced Japan as the biggest export destination, and the general upward trend can be attributed to China’s embrace of U.S. alfalfa hay even as other export markets show signs of contraction.
The United States exported about 2,000 tons of alfalfa hay to China in 2006, but the opening of China’s market in 2008 and subsequent strong demand grew U.S. exports to 1.2 million tons in 2017. Even with a slight dip in U.S. exports to China in 2018 due to ongoing trade tensions, it is still the top destination for U.S. alfalfa hay.
Steady Growth for U.S. Malt Exports to Mexico
Malt is a product derived from barley whose starch content has been converted to a form of sugar through a process of sprouting or growing. It is used in the brewing industry as well as in the distilling and food industries. The European Union leads the world in malt exports, with exports of 2.6 million tons from calendar year (CY) 2014 to 2018. For comparison over the same period, the United States averaged malt exports of around 400,000 tons and held the number five rank globally from CY 2013 to 2017.
With few exceptions since 1989, Mexico has remained the top export market for U.S. malt. Mexican brewers of all sizes – both traditional beer companies and burgeoning independent craft brewers – rely heavily on U.S. malt for its quality and proximity, which is readily accessible via rail. In 2003, Mexico fully eliminated tariffs on U.S. malt and barley, in compliance with its obligations under the North American Free Trade Agreement (NAFTA).
As proposed, the United States–Mexico–Canada Agreement maintains zero tariffs on U.S. malt exports to Mexico, helping to maintain market access and stave off U.S. competitors (e.g. Canada, the European Union, and Russia) from wrestling away U.S. market share.