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Baijiu (pronounced bye jee-oh) is the world’s most-consumed alcoholic drink. Selling for $1 or $1,000 or $150,687 at auction, baijiu can be cheap or expensive, made by mom and pop as moonshine or by a big distiller. At 60 percent and beyond, the one common denominator is its high alcohol content.
Legend has baijiu dating back millennia when sorghum seeds were forgotten inside a hollow tree stump in China. Discovered the next spring, the seeds had fermented and I guess someone had quite an “aha” moment.
Our story, though, is about supply and demand and sorghum.
Planting Sorghum
Because of baijiu and hog feed, China’s demand for sorghum is up. That has meant a rising price that attracted U.S. farmers. With corn prices plunging and soybean selling for less also, it became increasingly attractive to grow sorghum.
You can see how corn prices have halved since 2012:
From: IndexMundi
And yes, soybean prices have also dropped but not as much:
From: IndexMundi
Meanwhile, sorghum prices have begun to rise.
From: IndexMundi
Our Bottom Line: Supply and Demand
For sorghum, corn and soybeans we have a classic market story. As crops that can be interchanged, price movements in one affect the supply of the other. Or, as one farmer said, “Economics rule. With beans, we’ll break even or make a small profit, whereas corn will likely give is some red ink.” And, as a result, he is planting more soybeans.
Similarly, with baijiu and Chinese hogs fueling demand for sorghum, we have a price increase that creates the incentive for farmers to exchange corn for sorghum in their fields.
