Containers deliver on global specialty grain demand
Demand for containerized and specialty grain is creating opportunities for U.S. crops.
Sorghum is steamed, fermented and distilled to produce baijiu, a popular spirit in China. Image provided by Yuxi Weng.
In 2019, as the U.S.–China trade dispute continued to unfold, grain traders across America were busy looking for new market opportunities to offset export losses to China and find buyers for U.S. crops. Southeast Asia proved to be a viable option, particularly for containerized and specialty grains. Those new relationships, coupled with improved trade with China, have U.S. growers and traders optimistic about the year ahead.
“I know producers who are planning to plant milo for the first time or expand their acres this year,” says Nathan Jacobs, who raises milo (grain sorghum), corn, soybeans and wheat with his father near Smith Center, Kan.
“Milo typically trades at 20 to 30 cents per bushel less than corn, but today it’s trading at a $1.50 to $2 premium.”
Much of the higher demand and related price strength is due to China’s growing alcohol market, says Yuxi Weng, a grain merchandiser for CHS Global Grain & Processing.
“Baijiu is one of the most popular spirits in China. It’s a clear, high-alcohol liquor made from sorghum,” she says. “To keep up with demand, China heavily relies on U.S sorghum.” Nearly 90% of China’s sorghum imports come from the U.S., according to the USDA.
“In the U.S., sorghum usually goes to a handful of ethanol plants that process sorghum in place of corn, but containers have provided additional markets,” says Jacobs, who works with the CHS grain marketing team based in Lincoln, Neb., to truck his sorghum 200 miles to western Iowa, where it’s loaded into containers and transported to Los Angeles by rail for export.
“CHS is a top container exporter and handler of sorghum. We’re part of the entire supply chain from Kansas to China, which is appealing to buyers,” says Weng. “Grain loaded via container better preserves crop identity during transit overseas. And containers can be easily transported inland by smaller vessels, rail or trucks, reaching more customers and markets. Buyers are willing to pay a premium for identity-preserved grain and shipping flexibility.”
With sorghum trading at a premium, Jacobs, who worked as a grain trader before turning his attention to his family farm full-time, expects to see an uptick in sorghum acres this year in the top sorghum-producing states of Kansas and Texas.
“The demand is there, and the weather has been dry,” he says. “Sorghum is drought-tolerant and needs fewer inputs than soybeans or corn. While sorghum yield isn’t always as high as corn, you almost always have a crop at the end of the season.”
Grain to Glass
Demand for malt barley is also brewing in China. In May 2020, China announced a five-year anti-dumping duty of about 80% on Australian barley. At about the same time, China approved imports of U.S. barley.
“With China’s primary supplier of barley basically out of the picture, we could see more options for U.S. producers,” says Matt Kadrlik, barley merchandiser, CHS Global Grain & Processing.
Maintaining specific quality characteristics of malt barley is key to producing consistent, high-quality beer. To preserve those characteristics, containers will likely be a popular option among Chinese buyers, says Weng. China imports 5 million to 10 million tons of barley each year, with 1 million to 2 million tons destined for the beer and malting industry and the rest for livestock feed, according to U.S. Grains Council data.
Export quality measures
The USDA sets commodity standards and grades to measure levels of quality and value for agricultural commodities. Maintaining markets — and happy customers — requires meeting quality expectations. The most common quality measures are:
No foreign material: Levels should be less than 1%.
- Vomitoxin, common in wheat and barley, less than 1 part per million
- Aflatoxin, common in corn, less than 100 parts per billion
- Ergot, common in wheat and barley, no trace
Limited moisture: Optimum moisture content for most grain is between 10% and 12%.
Nutrition: Since this indicates the nutritional value of grain, the higher the percentage of protein and fat, the better.
“In the U.S., nearly all malt barley produced is contracted by malting companies,” says Kadrlik. “Any overrun is usually sold to domestic feed companies at a lower price, but with China as an export option, producers have an avenue to sell excess barley for a similar or better price than they would receive from domestic malting and brewing companies.”
Not only are grain exports to China trending upward, but more containerized grain and specialty crops are making their way to Southeast Asia. Taiwan, Indonesia and Vietnam were the top three destinations for U.S. containerized grain exports in 2020, accounting for nearly half of all grain shipped by container, according to the USDA.
Further alignment between CHS grain marketers and processing experts has helped expand the CHS container program.
“Our specialty grain trading group is working hand-in-hand with our container group to export food and animal feed ingredients produced at CHS processing facilities using our farmer-owners’ crops,” says Dave Mack, director of risk management, CHS Global Grain & Processing. Some of those ingredients include flax, sunflower seed, soy flour and specialty oils.
“Containers have become a popular option among customers looking for specialty grains, a specific grade of grain or food ingredients,” says Weng. “In the past year, we’ve worked with producers and cooperatives to ship club wheat to Taiwan, millet to Indonesia and yellow peas to China, to name a few examples.”
U.S. cottonseed is feeding South Korean dairy cattle. “We import a lot of containers filled with consumer goods in the Charleston, S.C., area. When we can fill them with cottonseed or other grains and oilseeds, rather than shipping them back empty, it helps farmers get higher prices for their crops,” says Hunter Carson, who raises cotton, peanuts, corn and cattle near Lone Star, S.C., with his father, brother, great uncle and cousin.
Weng and Carson have worked together to partner with cotton gins in South Carolina and Georgia to load cottonseed-filled containers and transport them to ports in Charleston and Savannah, Ga.
“The export market creates competition for the domestic market,” says Carson, “which results in better prices for farmers and provides gins another option.”
While containerized grain exports continue to grow, the COVID-19 pandemic has triggered a major shortage of containers.
“The U.S. saw a record year in imports for consumer goods, most of which are shipped via container,” says Weng. “Ocean shipping lines canceled many U.S. export bookings to return empty containers to China so they could be refilled faster.” Freight rates from China to the U.S. were much higher than the reverse trip due to the surge in demand, incentivizing carriers to return containers to China quicker for a greater financial return.
“The shortage affected grain exporters and elevators that rely on containers for export,” says Weng. “Many trading houses use forwarders and shipping agencies to manage ocean freight, but CHS contracts directly with major shipping lines, so we’ve had access to allocated containers and vessel space during the shortage.”
As a major exporter, CHS leverages size, scale and expertise to connect growers with grain customers, says Weng. “We can negotiate better freight rates because we ship large volumes of DDGS [distillers dried grains with solubles] and soybeans.”
CHS also has the ability to speed up the export documentation process, she says. “Exports require specific documentation from the USDA and ocean carrier, but CHS can submit them electronically, making for a quicker and easier process.
“Over the last couple of years, we’ve made a concentrated effort to ramp up the CHS container program,” says Weng. “It has provided access to a larger mix of buyers and is creating more opportunities for our farmer-owners.”