What would be the Corn and Sorghum Price Gap Allowing China to Continue Importing Sorghum?

The large volume of sorghum imports for feed use since 2013 has rapidly made China the largest export destination for sorghum, especially sorghum from the U.S., which has sent about 90% of its sorghum exports to China by MY 2014/2015. The main reason for China’s increasing imports of sorghum may be related to its corn domestic and trade policies, which pushed up domestic corn prices. Because sorghum is a cheap close substitute for corn, the large price gap between these two grains attracted livestock industries to shift part of their feed grain use from corn to sorghum as the price of corn continued to rise. In order to estimate and forecast the prices of sorghum and corn in China, this study developed a price determination model by using a stocks-to-use ratio formulation to capture market supply and demand factors. The government policy effect has also been included in the model. A baseline projection and three simulation scenarios were performed to forecast the Chinese corn and sorghum prices from 2015 to 2019. Results of the study indicated that prices for Chinese corn and sorghum may be declining in the next five years and the price of sorghum would be lower than the price of corn. In addition, the three simulation scenarios suggested that price differences between these two grains would be smaller if the Chinese government would eliminate its temporary corn reserve program.

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JEL Codes:
F17; Q18

 Record created 2017-04-01, last modified 2020-10-28

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