Sweetener prices mixed heading into 2008

by Ron Sterk
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Corn sweetener and sugar prices appear to be moving in opposite directions, while the opening of the Mexican border under the North American Free Trade Agreement on Jan. 1, 2008, casts uncertainty over the entire sweetener market.

Most refiners raised 2008 list prices for corn sweetener products by 3c a lb, or 15% to 20% depending on region, from 2007 levels. For example, the Midwest list price for 42% high-fructose corn syrup (H.F.C.S.) was raised to 18.875c a lb, wet basis, and to 21.875c for 55%. The increase was deemed necessary because of higher costs for corn and transportation and uncertainty about commodity markets in general, according to letters from refiners.

While some expected resistance to the increase, refiners told Food Business News that contracts were completed without discounts. Others in the trade agreed that few if any concessions were made in completing corn sweetener contracts for calendar year 2008.

Bulk refined beet and cane sugar prices, meanwhile, are showing signs of weakness. Current price indications for 2008 are about even with 2007 levels, with Midwest beet sugar at 25c a lb f.o.b. But a large beet crop, flat consumption and a possible influx of sugar from Mexico are expected to push prices lower, possibly to near forfeiture levels, in coming months.

"Sugar prices are more likely to go down than up," said Tom Earley, executive vice-president of PROMAR International, an Alexandria, Va., consulting company. Prices could decline another ½@1c a lb, to around 24c f.o.b. Midwest, and "it’s possible" prices could dip to forfeiture levels, he said.

"A lot depends on where H.F.C.S. prices end up and if Mexico switches (to H.F.C.S. from sugar)," Mr. Earley said. He expected more resistance to higher sweetener prices from buyers than refiners indicated. Mr. Earley forecast a moderate increase in demand for U.S. H.F.C.S. from Mexican bottlers, which will free up more sugar for export to the United States. He also expects Mexico will have a "decent" sugar cane crop, adding to potential export supply.

The U.S. Department of Agriculture projected 2007-08 Mexican raw sugar production at 5,618,000 tonnes, up 6% from 5,300,000 tonnes in 2006-07. Mexico actually imported some sugar from the U.S. in 2006-07.

Both sugar and corn sweeteners may flow duty free between Mexico (and Canada) and the United States after Jan. 1, 2008, as prescribed in NAFTA.

Mr. Earley expects most pressure on U.S. sugar prices in the January-February period as the Mexican cane harvest is in full swing. He predicted Mexico will export 100,000 to 150,000 tonnes more sugar to the United States than currently projected by the U.S.D.A.

Another pressuring factor for sugar prices could be weakening demand, Mr. Earley said. As food prices increase due to sharp rises

in flour and vegetable oils, demand will suffer, he said, and sugar demand will indirectly be affected for those items that also contain sugar.

"Deliveries for the first several months of FY 2007 (Oct. 1, 2006 to Sept. 30, 2007) were far below expectations," the U.S.D.A. said in its latest Sugar and Sweeteners Outlook report.

The U.S.D.A. trimmed its projected domestic use of sugar for food in 2006-07 three times this year, by 150,000 tons in February, another 150,000 tons in April and a final 100,000 tons in September. Use for 2006-07 was projected at 9,850,000 tons in October, unchanged from September and compared with 10,000,000 tons projected for 2007-08, which is a 1.5% year-over-year increase.

By sector, industrial use of sugar has held about steady while retail demand has declined, the U.S.D.A. shows. Baking and cereal use of sugar in 2006-07 was up 6.3% from 2005-06, beverage use was up 16.7% and canned, bottled and frozen food use was up 9.9%. But confectionery use declined 5.7%, ice cream and dairy use was down 2% and deliveries to retail grocers and chain stores were down 6.1%, the U.S.D.A. said.

In a report published earlier this year, BCC Research, Wellesley, Mass., forecast sugar and sweetener usage in the United States would increase at an annual compound growth rate of 1.9% through 2011. The company estimated total sweetener use in 2006 at 16.915 million tonnes, including 11.9 million tonnes of corn sweeteners (71%), 4.6 million tonnes of sugar (27%) and 215,000 tonnes of sugar alcohols, honey and maple syrup (2%). BCC forecast annual growth in corn sweetener use at 1.9% and sugar at 2% from 2006.

Total use of non-caloric sweeteners was estimated by BCC at 13,400 tonnes in 2006, and was forecast to increase 3.3% annually in the next five years.

Another uncertainty about sugar prices rests in the final version of the new farm bill, still being debated in Congress.

This article can also be found in the digital edition of Food Business News, October 30, 2007, starting on Page 31. Click here to search that archive.

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