Sorghum wars update — massive food price inflation coming?

Business & Technology

Yesterday, we noted that China will require a 178.6 percent deposit on American sorghum imports in anticipation of anti-dumping tariffs, starting today. “Most U.S. sorghum is grown for the Chinese market,” according to the Washington Post, and I said that sorghum is used for animal feed and to brew baijiu 白酒 — strong Chinese liquor. A reader who is a commodities insider (and whom I’ll credit by name if I get permission!) wrote with some interesting details (emphasis added):

There were virtually no sorghum exports to China until 2016, after China put in place further restrictions on DDG [dried distillers’ grains] imports, a byproduct of the ethanol production process. U.S. sorghum has never been grown for export to China. It became a major export market after China banned another U.S. product, the classic substitution effect.

Very little U.S. sorghum is sold to make baijiu, as we do not grow variety-specific sorghum in the United States. Most baijiu is produced with sorghum grown in Australia. The U.S. grows feed sorghum, which is a near 100 percent replacement for corn in animal feed. China had already disrupted U.S. sorghum imports last year by erecting a number of fictitious phytosanitary barriers, as they are wont to do, to help incentivize local feed producers to switch to more expensive locally grown Chinese corn.

The tariffs on U.S. sorghum exports are really meaningless, as that trade has already been long disrupted.

Soybeans were one of the few agricultural products the U.S. had left to export to China, as they have systematically shut off every other commodity from cotton to corn. U.S. soybeans are now not trading to China, and after the tariff announcement, Brazil became China’s only origin. This has caused Brazilian soybean prices to surge, locking out all other nations from purchasing soy from South America (given no one nation in the world can meet global demand). Soybean prices have now settled up a dollar per bushel higher than they were trading prior to China’s actions — this equates to a roughly $0.05 per gallon increase in the price of soy oil in China.

All that China has done is cause massive inflation in its food sector. U.S. farmers are worried about the long-term impact, so no one wants to be honest in admitting that this has actually helped, not hurt, the price farmers receive for their soybeans.

Things are never quite as they seem.