China's big private feed mills are increasingly turning to sorghum from the United States after using up their annual import allocations for preferred animal feed grain corn.

Rising Chinese imports are expected to boost sorghum prices over the next few months in the United States, the world's largest producer, which is forecast to reap a bumper crop this year. U.S. sorghum prices are about $20 a tonne higher than U.S. corn prices, partly due to China's buying, traders said.

Private mills in China have used up their allocated 2.88 million tonnes of corn import quotas this year and are not expected to ship in more corn until the end of the year when Beijing issues quotas for 2014. Domestic corn is not a viable option as it is way more expensive than U.S. sorghum.

As an alternative, the mills have already bought about 800,000 tonnes of U.S. sorghum for shipment in the 2013/14 year starting in September and total orders are likely to top 1 million tonnes, with prices still attractive, traders said.

"Big private mills have no corn import quotas left for the year and they are pretty clever in finding this alternative cheap supply - sorghum," said one industry source, who declined to be identified.

China issues a fixed 7.2 million tonnes of low-tariff rate corn import quotas annually under commitments made to the World Trade Organization, of which 60 percent is for state-owned firms. Corn is the preferred feed grain for mills as it produced widely and in large quantities.

Imports of sorghum, similar in feed value to corn, are not subject to quota restrictions, and buyers need only pay a 2 percent import tax and 13 percent value-added tax on their purchases. Mills would be subject to a 65 percent import tax if they imported corn above their quota allocations.

Big sorghum purchases by feed mills, mostly in the southeastern province of Guangdong, are rare in China where the feed grain is mostly used for making alcohol, analysts said.

China booked its largest weekly purchase of U.S. sorghum on record in late August, buying 120,500 tonnes.

U.S. sorghum is about 20 percent, or 400 yuan ($65.35) per tonne, cheaper than domestic corn <0#ASCORN-CN>, which has remained expensive because of Beijing's stockpiling policy, designed to support prices and subsidise farmers.

Price Distortions

The United States is expected to reap its largest sorghum crop in four years this year, with the total coming in at about 10 million tonnes, of which 30 to 40 percent will be exported, said the industry source, who is involved in promoting U.S. sorghum in China.

Feed mills such as New Hope Liuhe Co Ltd and Guangdong Haid Group make animal feed from grain to cater to rising meat consumption as China urbanizes.

Besides private firms, state-owned COFCO and Sinograin have also used up their total corn import quotas of 2.6 million tonnes, said one trading source.

Price distortions brought about by the country's stockpiling policy have driven buyers of agricultural commodities to overseas markets, and at about 2,000 yuan per tonne, U.S. corn prices are at least 13 percent lower than those in China.

The government said in July that it would raise the state purchase price of corn by nearly 6 percent to 2,260 yuan per tonne from farmers in the major producing areas in the northeast, with prices rising to more than 2,450 yuan per tonne for feed mills in Guangdong in the southeast.

With China continuing to stockpile corn, the price gap could widen further, some analysts predicted.

"If the government continues to stockpile corn next year and the year after next, corn imports without import quotas subject to a full tax rate of 65 percent may even be possible some day," said Shi Yan, chief analyst with Xinhu Futures Co. Ltd. ($1 = 6.1205 yuan)