May 20, 2013

Grain sorghum a rising star in the Southeast. Who knew?!

By Barney Bernstein, Senior Associate, Entira

Call it the dark horse of the Southeast: Grain sorghum, known also as milo, is often in the shadow of its taller, always evolving and more famous cousin—corn. But sorghum is gaining popularity as an alternative to corn inside unfamiliar territory in the Carolinas and Virginia.

What’s driving this growth in sorghum production? Leadership for this change can be attributed to an untapped opportunity envisioned by Entira client Murphy-Brown LLC, the livestock production subsidiary of Smithfield Foods, Inc., and the world’s largest producer of pork products.

Murphy-Brown’s Challenge

Facing a severe grain deficit in a key production region and rising costs to move grain from the Midwest, Murphy-Brown needed a less costly alternative to shipping corn from other parts of the country. Grain accounts for roughly 70% of the total cost to grow a pig. Transportation and basis costs now are almost $1.20-1.40/bu and since one pig requires about 10 bu of corn to finish, the costs to transport these grains by rail—on top of record-breaking corn prices—were becoming more than production efficiencies could offset.

Sourcing grain locally was not an option either, as there were not enough feed grains produced regionally to come close to Murphy-Brown’s feed demands. And, Murphy-Brown is about 30% of total demand for feed grains in the grain deficit region. First there’s corn, historically averaging 85-90 bu/acre, making it a marginal crop at best in the hot, dry environment of the Coastal Plain and Piedmont of the Carolina’s and the western area of Tidewater Virginia. And then there’s wheat, which has been viewed more as a cover crop than a cash crop due to its historically low yields (roughly 35-45 bu/acre).

Murphy-Brown needed alternatives. They needed new feed sources, ideally nearby. Was there a local solution? Murphy-Brown was built as a family-owned business based in North Carolina, and they had a deep desire to maintain those local ties and support the regional economy.

The company invited Entira to help them evaluate the market situation and guide strategy development. We started by facilitating situation and strategy development meetings with ag-chem distribution, NC Department of Agriculture, extension and universities. The outcome? Encourage farmers to grow sorghum in the Coastal Plain and Piedmont areas, and develop and promote intensive wheat best management practices.

Creating a New Market for Sorghum

Sorghum? Sorghum hadn’t been grown (at least to a significant degree) in North Carolina in 20 years. But the reality of sorghum is that it can deliver consistent yields on marginal, sandy soils and in drier conditions on better soils. It also has a number of crop rotation benefits for farmers looking to break weed and pest cycles.

So in 2011, Murphy-Brown introduced sorghum contracts for 2012 production, paying 95 percent of the corn price per bushel. The first-year goal was 50,000 sorghum acres (up from 15,000 acres in 2011), but 72,000 were planted in North Carolina alone. Sorghum acres are expected to grow even higher in 2013. And as a secondary focus, Murphy-Brown’s strategy includes improvements to wheat productivity and acreage in the same region. Wheat yields have increased from about 45 bu/acre to 60 bu/acre with acreage growing from about 650,000 acres in 2011/2012 to almost 1,000,000 acres for the 2013 harvest. Much of the improvements are due to favorable weather and strong crop prices. But, promotion of the need for local feed grains and aggressive local buyers have also played a role.

Working Together through Implementation

We believe Murphy-Brown cinched this program’s success by wisely bringing in strategic partners on the front-end, recognizing the value of specialized talents and the right perspectives in shaping a solid strategic plan. As a right-hand partner in Murphy-Brown’s strategic endeavor, Entira has had the privilege of working alongside the strategic minds of Murphy-Brown leaders and representatives from universities and ag distributors to create a plan to overcome the limited availability of local grain for livestock production. This carefully planned and meticulously implemented move on Murphy-Brown’s part has created a new market for sorghum in the region, increased wheat production, and the program is expanding in 2013.

Another part of the strategy is a tri-state feed grain initiative to support sorghum production in the Upper Southeast by developing best management practices for production, harvest, storage and marketing of grain sorghum and wheat, and to drive a consistent message to farmers through their multiple trusted advisors. Through this coalition, Entira and Murphy-Brown have worked with all value chain participants and influencers, including North Carolina State University, Clemson University, Virginia Tech University, the North Carolina Department of Agriculture and Consumer Services, The North Carolina Biotechnology Center, the North Carolina Pork Council, the North Carolina Small Grain Growers Association and the United Sorghum Checkoff Program.

Managing Change

The changes require a pretty significant shift in mindset. One hurdle is gaining buy-in from suppliers to ensure there’s enough grain sorghum seed distributed to this region to meet the demand, because distribution here seems to frequently lose out to Midwestern markets.

In addition, the internal change from a rail-based grain acquisition system to a local truck-based grain acquisition system requires a cultural change. It has not been without pain, but the direction is set and culture is changing faster than anticipated 24 months ago. The company set up 12 delivery points for grain sorghum and is striving to make that process easier and more efficient for local farmers.

Murphy-Brown is making sorghum more enticing for farmers, and the coalition’s efforts are providing the support farmers need to be successful. It’s bringing better quality grain for feeding Murphy-Brown hogs and the reduction in grain costs is looking good for the bottom line. If we assume Murphy-Brown captured all the milo produced in North Carolina during 2012, at an estimated average yield of 75 bu/acre, the company could have saved around $5 million just in this first full year of the program. And if you include wheat, where farmers doubled plantings from around 500,000 acres three years ago to almost 1 million acres this season AND increased yields 50%+, all parts of the value chain (farmers included) have enjoyed rich success. Murphy-Brown has enjoyed a 20x return on investment from the feed initiative!

In a time of so much uncertainty and volatility, businesses—including farmers—must focus on what’s most likely to sustain them for the long-term. Farmers are more consistently reaping profitable yields with sorghum and wheat; bankers see less risk; distributors have new opportunities to bundle products. And sorghum can help maintain competitive animal production in the southeast. Sorghum seems to be a good bet.

Watch a video created by the Sorghum Checkoff that highlights Murphy-Brown’s program. For more information, email bbernstein@entira.net.