Sorghum As an Advanced Biofuel: Price Effect on Wheat, Corn and Soybean Markets

BACKGROUND: The 2007 US Biofuel mandate requires total biofuel production to increase to 36 billion gallons by 2022. The Energy Independence and Security Act further specify that more than 55% of total biofuel production in 2022 must come from sources – grain, sorghum, wheat, etc – other than cornstarch. In 2012, the EPA announced that grain sorghum-based ethanol qualifies as a renewable fuel with more carbon credits than the corn-based ethanol. This may result in land use changing from the planting of wheat and other grains to planting grain sorghum. However, the problem of increasing sorghum production could cause a decrease in food supply leading to an upward pressure on grain prices. This study examines impact of the biofuel mandate on wheat, corn, soybean and sorghum prices considering the new situation where sorghum is considered an advanced biofuel feedstock.

METHOD: A stochastic partial equilibrium model is used to evaluate the short-run implications from demand and supply shocks from having grain sorghum approved as a advanced biofuel feedstock on corn, wheat, sorghum, and soybean prices in the USA. Different scenarios are simulated and compared to a counterfactual and the simulated results are compared with results obtained from the observed data.

EXPECTED OUTCOME: The use of sorghum as an input for biofuel production could alter grain prices in USA.  With higher competitive prices from sorghum, the possibility of decrease production in wheat and other grains is inevitable.  Since the USA is a leading wheat producer, any decline in its production will have effect on the global wheat market.

ACKNOWLEGDEMENT: This material is based upon work supported by National Science Foundation Grant: From Crops to Commuting: Integrating the Social, Technological, and Agricultural Aspects of Renewable and Sustainable Biorefining (I-STAR); NSF Award No.: DGE-0903701.