Sorghum, the Next Big Investment in Advanced Biofuels

Grain sorghum is poised to become the first official advanced biofuel and the next big biofuel investment to watch closely, as the Environmental Protection Agency (EPA) prepares for its final approval of the grain for ethanol production. 

Sorghum has many advantages and investors should take note of the recent leaps made towards advanced biofuel status. Most significantly, sorghum is versatile, providing starch, sugar and lignocellulose, and it has maturation period of only four months and can thrive in poorer soil. Unlike corn, it also does not compete with food crops, while environmentally, its footprint is rather small.

The EPA has all but given sorghum the green light in preliminary report on 25 May, which examines the impact of increased grain sorghum harvesting for ethanol production on US agriculture, the world market and the environment. So far so good. If the EPA gives its final approval, which is expected early this summer, grain sorghum will be officially approved as an advanced biofuel in line with the country's Renewable Fuel Standard (RFS) goals.

The EPA has concluded that increased grain sorghum harvesting and diversion for ethanol production will not have a significant negative impact on agriculture or the world market. It has also studied the completed lifecycle greenhouse gas emissions (GHG) resulting from the process of producing ethanol from grain sorghum, concluding that the GHG emissions would be 32% less than gasoline, and 53% less in a process that uses biogas together with combined heat and power technology.

Already, sorghum has the advantage over corn, which has not yet been qualified as an advanced biofuel, while modifications to the corn ethanol process are still be considered by the EPA.

The EPA Verdict

There are not likely to be any adverse impacts in other sectors as a result of increased use of grain sorghum for the production of ethanol.

The EPA notes that in order to produce 100 million additional gallons of sorghum ethanol by 2022, grain sorghum would be diverted largely from the animal feed market-a gap which would be filled by distillers grains, which are byproducts from the grain sorghum ethanol production process (DG) as well as from additional corn production. 

According to the EPA study, if the US were to begin diverting some of its grain sorghum exports for the purposes of producing ethanol, this would have little to no impact on global supplies, particularly in India and Niger, which are two other large grain sorghum producers though almost exclusively for domestic purposes.

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

As demand increases for grain sorghum for ethanol production and corn for animal feed, harvested crop areas in the US should increase by around 92,000 acres in 2022, keeping in mind that the increase in grain sorghum harvested areas will be only around 4,000 acres as most of the sorghum used for increased ethanol production will be diverted from existing crops that typically go to the animal feed market. However, in order to fill in the animal feed gap, there will be an increase of over 140,000 acres of corn harvested, which in turn will decrease soybean harvesting areas by over 100,000 acres as the two often compete for land. Other crops, such as wheat, hay and rice will likely see an increase of over 50,000 acres of harvested area to meet animal feed needs.  

In terms of exports, the EPA predicts that the increase in grain sorghum for ethanol will lead to a decrease in sorghum exports by around 789 million lbs, but at the same time an increase in corn exports by some 106 million lbs for the worldwide animal feed market. The effect on world trade of corn and grain sorghum would likely see Mexico, a key sorghum importer, reduce sorghum imports by nearly 400 million lbs and increase corn imports by a slightly lesser amount. Brazil would also likely increase its corn exports by close to 200 million lbs.

Sorghum, the 2012 Opportunity

Top feed developers working to advance sorghum for ethanol production include Epec Biofuels Holdings, InterCore Energy, Ceres and Chromatin. All believe sorghum is the number one advanced biofuels grain to watch this year.

Epec Executive Chairman Steve Vanechanos, told media on 31 May: "We believe sweet sorghum has the potential to become the American equivalent of Brazilian sugarcane, supporting a highly successful Advanced Biofuel industry. Yet for a variety of reasons, currently it is vastly under-appreciated and severely under-resourced."

"This situation offers an opportunity for Epec to be a transformational force by providing leadership, management, and capital access across the emerging supply chain, guiding it to commercial fruition."

Of course, American farmers are thrilled. Sorghum ethanol can be a lifeline for small farmers, and the National Farmers Union (NFU) welcomed the EPA report.  From the farmers' perspective, increased usage of renewable in turn increases domestic demand for surplus farm commodities and provides greater opportunities for rural communities.

"This announcement by EPA is a step in the right direction," NFU President Roger Johnson said in a press release. "U.S. farmers can create an opportunity to make a tremendous positive impact on the environment by producing advanced biofuel from grain sorghum."

By. Oilprice.com Analysts