Supply questions bolster domestic cash sugar prices

by Ron Sterk
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The sugar market was in some turmoil last week during the International Sugar Organization/DataGro New York Sugar Conference, commonly referred to as “sugar week.” International corporate news highlighted conversation at the meeting while forecast increased global sugar production kept pressure on futures prices but appeared inadequate to keep cash prices in check, all underscored by U.S. Department of Agriculture data showing growing demand for sugar at the expense of corn sweeteners in the United States and an opposite trend developing in some other countries.

The biggest news of the week may have been an announced marketing venture between Sucden Americas Corp., a subsidiary of the privately held French company Groupe Sucres et Denrees, a major global sugar trader, and the Amalgamated Sugar Company L.L.C., the United States’ second largest beet sugar producer. The transaction, still pending approval by both companies’ boards of directors but expected to close in early June, would create a joint venture called National Sugar Marketing that may sell more than 10% of U.S. refined sugar, making it one of the five largest sellers in the United States. One trader, though, noted Sucden had been supplying Mexican sugar to Amalgamated for years and saw the deal as more of a formalization of existing business although perhaps on a larger scale.

Also on the international front last week German sugar company Suedzucker AG agreed to take nearly a 25% stake worth $255 million in British global trading company ED&F Man, providing a capital increase for Man and allowing Suedzucker to expand beyond Europe. Man also has been a major player in the Mexican sugar market.

Global sugar production was forecast at 168.5 million tonnes in 2011-12, up 5% from 2010-11, the U.S.D.A. said in its latest Sugar: World Markets and Trade report, in part due to increases for top-producing Brazil and top-consuming India, and a rebound from flood losses in key exporter Australia. Private analysts recently forecast 2011-12 global sugar surpluses of 5 million to 10 million tonnes, compared with the latest I.S.O. forecast of 3 million tonnes and the U.S.D.A. forecast of 6.5 million tonnes compared with a deficit in 2009-10 and a small surplus in 2010-11.

Despite the increases, there appears to be general agreement sugar supplies will remain tight in the year ahead, especially in the United States, due to low beginning stocks, growing demand and uncertainty about the 2011 U.S. sugar beet crop.

“Per capita sugar consumption in 2010 was 66 lbs, its highest level since 1999, while corn sweetener per capita consumption at 64.5 lbs was at its lowest level since 1986,” the U.S.D.A. said in its Sugar and Sweeteners Outlook last week. “For the first time since 1985, total sugar available for consumption exceeded total corn sweeteners.”

But all is not lost for corn sweeteners as consumption of high-fructose corn syrup in Mexico was up 24% in the first six months of the marketing year, as price advantages led Mexico to replace record large shipments of sugar to the United States with imports of HFCS. Mexico’s use of HFCS is expected to level in 2011-12, and sugar exports to the United States are forecast to drop by 35% from 2010-11.

The U.S.D.A. forecast global sugar use at a record 162 million tonnes in 2011-12, up about 2% from this year with stocks dropping 400,000 tonnes. Growing demand in the United States has made uncertainty over the 2011 sugar beet crop more significant. While the U.S.D.A. forecast 2011-12 U.S. beet sugar production even with the current year at 4,800,000 tons, raw value, beet growers stressed the 2011 beet crop was running 10 to 14 days behind average and depended on a good growing season and a late frost to reach potential. Planting was well behind average in the key Red River Valley, and cool, wet weather was slowing crop development in most other states.

“There is much uncertainty in forecasting this crop year’s sugar beet production,” the U.S.D.A. said in its Outlook last week. “All in all, tight U.S. sugar market conditions are forecast for fiscal year 2012.”

As a result of tight current stocks and 2011-12 domestic and import supply uncertainties, major U.S. cane and beet refiners last week raised bulk refined sugar offering prices for spot through September 2012 (end of 2011-12 marketing year) to 57c a lb f.o.b. from 54c in the October-December 2011 quarter, and from about 55c in the nearby market.

As may be expected, domestic and world raw sugar futures prices in New York saw volatility, with outside markets such as crude oil and the value of the U.S. dollar often providing more day-to-day influence than actual sugar fundamentals. Nearby world futures were well off early February highs near 30c a lb, but also recovered slightly from eight-month lows near 20c a lb in early May to near 22c last week, with traders expecting prices to hold near the lower end of the range. Nearby domestic raw futures faired somewhat better, falling from February highs near 41c a lb to early May lows near 35c and climbing above 36c last week.

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