After sorghum leaves the farm, it moves through the supply chain before reaching its final domestic or international destination. The storage, handling and transportation landscape continues to evolve along with the overall agriculture economy.
Across agriculture sectors, the trend continues toward bigger entities, greater integration and more consolidation. Macroeconomic forces are driving impacts farther down the supply chain. How does this reality impact competition and choices for farmers about where they can market their grain?
Follow the steps to market to understand the current issues shaping the modern sorghum supply chain.
Grain storage is the first step after harvest. Overall, storage capacity at elevators and cooperatives has gone up in recent years in response to large harvests. October 2023 analysis by USDA found ample grain storage is available across the U.S., including key sorghum states. At the same time, regional challenges have emerged, such as aging infrastructure at country elevators, fewer overall locations and the soaring cost of storing grain.
Drying sorghum and storing it on the farm has grown in popularity in some parts of the country. Improved quality control technology has removed some of the guesswork associated with the temperature and timing of preparing sorghum for storage.
On-farm storage can add flexibility and help growers diversify risk by providing another storage option that allows farmers to use marketing tools following harvest. It can also decrease the time spent on transportation and unloading grain during the busy harvest season.
However, the success of on-farm storage is also highly location dependent, working the best for farms located closest to markets and ports. While increasing, a relatively small number of sorghum farmers utilize it. The expense can also be a high barrier to entry, especially considering today’s high interest rates for financing.
Many growers rely on cooperatives to store, handle and market their grain. Cooperatives have been in a steady state of consolidation for decades. While the number of individual cooperatives and grain elevator locations continue to decline as companies grow in size and complexity, the availability of grain storage has increased.
According to Kansas State University analysis, the number of grain marketing and farm supply cooperatives in Kansas fell from 350 in 1950 to 81 in 2016. From 2016 to 2020, the number of grain storage locations slightly decreased. However, the total amount of upright grain storage by cooperatives in Kansas increased from 513 million bushels in 2016 to 574 million bushels in 2020.
“Mergers and consolidations tend to ebb and flow,” said Ron Seeber, President and CEO of the Kansas Grain and Feed Association. “Bigger is the trend, but there are multiple ways to get there, including through hybrid, non-traditional partnerships with other coops and independent companies to diversify geographically and gain efficiencies of scale.”
Ultimately, the decision to merge is made by the farmer-owners of the cooperatives involved to provide more financial security.
While bigger isn’t always better, that decision can be driven by a compelling reason, such as taking advantage of the new entity’s size to get the best technology or provide improved customer service. Meanwhile, some smaller cooperatives have made the decision not to merge and continue to successfully serve their customers.
The management and culture of a cooperative, regardless of its size, makes all the difference. As both cooperatives and private grain companies get bigger, the stakes also get higher—putting a greater emphasis on the importance of putting the right leadership in place.
While the current marketplace remains competitive, it features fewer individual players. Farmers are adept at navigating this reality.
Transportation costs continue to be a burden for farmers and cooperatives alike. In addition to the high cost of diesel fuel, sorghum growers face extreme competition from other sectors for truck drivers, which are a crucial link in the sorghum supply chain. About 4% of sorghum for export is transported throughout the U.S. by truck—that number much higher for domestic use.
“A huge issue for the grain industry is a shortage of truck drivers,” Seeber said, referencing the tough competition that all of agriculture faces from other industries for drivers.
The nationwide shortage of truck drivers continues to grow, with no quick fix in sight given the expense and time it takes to earn a Commercial Driver License that can cross state lines. Proposed policy solutions at the federal level have also been slow moving, even as the stakes get higher every year.
Other transportation methods are a mixed bag. Rail transportation service from Kansas has largely improved from the height of pandemic-era disruptions due to employee shortages and the low availability of railcar space. However, low water levels on the Mississippi River are once again slowing grain shipments on barges bound for the Port of Catoosa. A small percentage of the sorghum crop is shipped using barges.
The ethanol industry drives domestic demand for sorghum in Kansas, where sorghum has become an important part of some ethanol producers’ diversification strategies. About one-third of the annual sorghum crop is sold to ethanol producers.
Recently, gasoline prices at the pump have pushed upward, which usually also pulls ethanol values higher. However, the ethanol industry has been dealing with a challenge of oversupply that is leveling out heading into fall 2023.
“Our region is coming off of a drought that pushed our basis values extremely high. As we are getting into sorghum harvest, basis values are getting closer to normal,” said Derek Peine, CEO of Western Plains Energy, LLC. “Last year we didn’t take as much grain as usual, but this year we should be back to our normal rate.”
Peine expects that less than half of the total grain used at their plants will be sorghum, with a higher concentration of sorghum later in the year. Growing conditions and competition from China for sorghum exports impact the competitiveness of sorghum in the ethanol market.
“When China enters the market, they come in very strong. It cuts us out of the market but I think it is a good thing for U.S. producers to capture that value,” Peine said. “I always think of the U.S. ethanol industry as a backstop. We will always purchase sorghum as long as it is available.”
As the world’s top exporter of sorghum, much of the U.S. crop is destined for ports. About 94% of sorghum destined for international destinations is transported by ocean vessel. China is by far the largest buyer of U.S. sorghum, followed by Mexico and Sudan.
While exports for 2022/2023 were down due to the small size of the sorghum crop following the drought, international demand for U.S. sorghum continues to be strong. The U.S. seeks to maintain a competitive pricing advantage over other sorghum exporters including Brazil, Argentina and Australia.
The 16 ports located in Texas play a crucial role in connecting U.S. sorghum with the world. Every port—from Galveston to Brownsville—is critical in ensuring sorghum keeps flowing to the world.
The ports continue to operate smoothly and without the slowdowns experienced by agricultural shippers elsewhere. The limiting factor today is the availability of grain—and farmers are taking notice of the opportunity to grow more sorghum to meet market demand.
Now, perhaps more than ever, it is important for sorghum growers to be adaptable to the many outside forces impacting the supply chain.
“I think about the Benjamin Franklin quote: ‘when you think you’re finished, you’re finished.’ You will always need to be evolving to be agile and roll with the punches to succeed,” Seeber said.
The marketplace looks different today than even 10 years ago as cooperatives and private companies continue to grow and merge. Ongoing uncertainty due to transportation and workforce challenges underscores the importance of having a risk management strategy in place. While the future holds many unknowns, farmers can rest assured that change is the only constant.
This story originally appeared in the Fall 2023 Issue of Sorghum Grower magazine.