Market Matters Blog
Todd Neeley DTN Staff Reporter

Tuesday 12/11/12

Will RFS Give Sorghum an Acre Boost in 2013?

While U.S. sorghum producers have been pushing EPA for years to classify the grain as an advanced biofuel feedstock, exactly what that will mean for the ethanol industry and sorghum farmers remains to be seen.

Grain sorghum ethanol produced at dry-mill plants that use natural gas meets the 20% greenhouse gas emission reduction threshold to qualify as an advanced biofuel, according to the final rule issued Nov. 30.

Grain sorghum ethanol produced at dry-mill facilities that use forms of biogas to process energy and most electricity production meet the 50% greenhouse gas reduction threshold to qualify as an advanced biofuel.

"I don't think it will have a wide ranging impact," DTN Analyst Rick Kment said.

"But I do think it will allow for a growth of niche market areas and for sorghum growers to have a better demand for their market. I don't think this is going to be a big mover in changing direction of planting intentions."

In areas where irrigation water is an issue, he said, it could mean a few more producers will plant more sorghum and a little less corn or soybeans.

Donna Funk, ethanol accountant for Kennedy and Coe, LLC in Kansas, said she believes the EPA decision will benefit sorghum long-term.

"Farmers will grow what they are encouraged and paid well to grow," she said.

"In many areas sorghum is actually a better crop to grow as it takes less water and can with stand drought for longer periods of time. It still requires moisture, but not as much and doesn't have a critical a time period in which that moisture is needed."

Several Kansas ethanol plants are standing in line for EPA approval as certified advanced biofuel producers, she said, which could be the impetus for ethanol price premiums for plants and price premiums for sorghum producers who sell to ethanol plants.

"I do think more plants will look at sorghum as a positive step in the direction of getting advance biofuel producer status in conjunction with other adjustments such as not using a dryer, capturing CO2, digester, etc.," Funk said.

"I don't think an ethanol market expansion will happen based solely on this announcement but could if coupled with other things."

A 2009 U.S. Sorghum Checkoff report said ethanol plants shy away from sorghum for several reasons: supposed higher enzyme costs to produce ethanol, inconsistent sorghum supplies, too much export competition for sorghum and farmers can get more value selling elsewhere.

The sorghum industry's report argues that sorghum can be used in corn-based plants at no additional cost.

Kansas ethanol producers are moving toward advanced biofuel status, according to a news release from the Kansas Department of Agriculture.

Western Plains Energy in Oakley produces ethanol from sorghum and plans to use feedlot and landfill waste to generate methane gas to power its ethanol plant.

Conestoga Energy in Garden City is sequestering carbon dioxide in oil wells and uses sorghum to produce ethanol.

EPA MODEL ESTIMATES

Data made available by EPA and posted in the federal register, offers the results of two economic models used to predict what the EPA sorghum approval will mean for markets.

With grain sorghum, the Forestry and Agricultural Sector Optimization Model, or FASOM, estimates that the majority of sorghum necessary to produce 100 million additional gallons of ethanol by 2022 comes from a decrease in grain sorghum used in the animal feed market.

The gap in the feed market would be filled mostly by distillers grains, a byproduct from the grain sorghum ethanol production process also known as DG, as well as additional corn production.

"This is reasonable given the close substitutability of corn and grain sorghum in the U.S. animal feed markets," EPA said.

EPA said that as demand for both grain sorghum for ethanol and corn for animal feed increases, "harvested crop area in the U.S. are predicted to increase by 92,000 acres in 2022.

"The increase in grain sorghum area harvested is relatively modest, at an additional 4,000 acres, due to the fact that demand for grain sorghum for use in ethanol production is being met by a shift of grain sorghum from one existing use (in the animal feed market) to another (ethanol production). Meeting the subsequent gap in supply of animal feed, however, leads to an increase of 141,000 corn acres in 2022."

The EPA data indicate that as a result of an increased demand for corn and harvested area, soybean harvested area would decrease by about 105,000 acres.

A Food and Agricultural Policy Research Institute model estimates the U.S. will decrease grain sorghum exports by about 789 million pounds. The U.S. would increase corn exports by about 106 million pounds to "partially satisfy the gap of having less grain sorghum in the worldwide feed market."

"This combination of impacts on the world trade of grain sorghum and corn has effects both on major importers, as well as on other major exporters," EPA said.

So what do you make of it?

Will the EPA sorghum approval lead to more acres planted in 2013?

Do ongoing drought conditions open the door for the sorghum market to grow?

Follow me @epareporter

Posted at 1:34PM CST 12/11/12 by Todd Neeley
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