Sweetener supplies more abundant in 2009

by Ron Sterk
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Strong prices for refined sugar and weaker prices for many other crops, nearly opposite the price structure at the same time last year, may encourage growers to increase sugar beet plantings in 2009, market analysts predicted.

At the same time, the impact on price and supply of robust exports of sugar to the United States from Mexico, predicted by some to be well above U.S. Department of Agriculture projections (see story on page 36), is being closely watched by the trade.

Another factor expected to have a major impact on sugar supply this year is the rebuilding of The Imperial Sugar Co. cane refinery in Savannah, Ga., which was mostly destroyed by dust explosions and fires in February 2008.

William Tierney, head of North American research for LMC International, said he expects a 4% increase in sugar beet planted area in 2009. Mr. Tierney, speaking at the International Sweetener Colloquium in Orlando, Fla., early last week, said he also expected better yields in 2009, which would boost domestic sugar production even more for 2009-10.

In its Agricultural Projections to 2018, released Feb. 12, the U.S.D.A. projected 2009 sugar beet planted area at 1,408,000 acres, up 3% from 2008, and harvested area at 1,356,000 acres, also up 3%. It should be noted that the early U.S.D.A. numbers are based on numerous assumptions, including trends and normal weather, but not actual surveys.

While most analysts have yet to put a specific number on the expected increase in sugar beet plantings for 2009, with planting still several weeks away in most areas, there appears to be consensus that area will increase because of the price relationship of sugar to other crops.

Price relationships between sugar and other crops have changed significantly from a year ago as farmers make planting decisions for this year. Beet sugar prices are 35c a lb nationwide, up 46% in the Midwest and up 35% in the West from this time a year ago. Meanwhile, mid-February spring wheat prices were down about 60%, soybeans were down 30% and corn was down 25% from the same time last year. Grain and oilseed prices were rising at this time last year, eventually peaking at record highs.

"With beet sugar prices averaging slightly over 35c a lb this far into fiscal year 2009, expected returns on growing sugar beets may well justify additional area being planted for the 2009-10 crop," the U.S.D.A. said in its latest Sugar and Sweeteners Outlook.

Sugar beet plantings plunged 14% in 2008 as farmers opted to plant what at the time were much more profitable crops, such as wheat, soybeans or corn depending on the area. Acres harvested fell even more, by 19% from 2007, to the smallest area since 1960 as 52,000 acres were left unharvested in the Upper Midwest. But sugar beet production declined only 16% due to record-high yields, in part the result of increased plantings of bioengineered sugar beets with "built-in weed control" that reduces competition for water and sunlight.

"Yields for the last three seasons have been above trend," the U.S.D.A. said in its Sugar and Sweeteners Outlook. "Yields in the future will likely increase measured trend due to expanded use of glyphosate-tolerant sugar beets."

Actual production of beet sugar in 2008-09, primarily from the 2008 crop, was forecast at 4,225,000 tons, raw value, down only 10.5% from a year earlier, the U.S.D.A. said in its Feb. 10 World Agricultural Supply and Demand Estimates. The smaller reduction in sugar production compared with sugar beet outturn is the result of expected early processing of some 2009 crop beets, typically marketed in 2009-10, actually marketed in the 2008-09 year.

One sugar beet processor indicated it already was planning to begin fall beet slicing in September, depending on weather and crop development, to be able to handle a larger beet crop this year as well as to pull as much sugar production as possible into the 2008-09 marketing year in hopes of relieving anticipated tight supplies of refined sugar in the July-September period.

Sugar beet growers may have to make their planting decisions more on price relationships to other crops than on potential sugar prices at harvest or for the 2009-10 marketing year. Although the 35c refined sugar price covers most sugar sold for the remainder of 2008-09, future prices will be affected by sugar supplies of both domestic and foreign origin. Beet processors a few weeks ago floated the 35c price for 2009-10 sugar, but admitted there were too many unknowns to accurately price sugar that far forward.

One such unknown is the supply of Mexican sugar, which may come into the United States unrestricted under terms of the North America Free Trade Agreement. The larger supply of sugar shipped from Mexico into the United States so far this year has somewhat relieved the tight domestic supply situation, but has had minimal affect on U.S. refined sugar prices, according to traders. It remains uncertain of the impact should Mexican shipments remain strong into the summer months.

A key factor in the supply of domestic cane sugar in the second half of the 2008-09 marketing year will be the restart of the Imperial plant in Savannah. Imperial president and chief operating officer John Sheptor told Colloquium participants the refinery would reopen to ship bulk supplies this spring while the packaged sugar operation, which is designed to take 50% of the plant’s sugar outturn, will not be operational until later in the year. Other sources have narrowed the opening for the bulk operations to late April. But some in the trade remain skeptical of the projected openings because of previously missed targets. Prior to the February 2008 disaster, the Savannah plant accounted for about 6% of total U.S. sugar production, 15% of cane refining capacity and more than 50% of Imperial’s annual outturn. The reduced cane refining capacity has been cited as one factor in pressuring prices of raw sugar prices.

Already last fall the U.S.D.A. said it believed the domestic market would require additional supplies of sugar during the year and promised "appropriate adjustments ... to ensure an adequate supply of sugar."

But trade sources indicated the U.S.D.A., which is empowered to administer the U.S. sugar program as outlined in the 2008 farm bill, has a difficult task.

"We’re in a very difficult situation right now," Dan Colacicco, director of the Dairy and Sweetener Analysis Group of the U.S.D.A.’s Farm Service Agency, said at the Colloquium.

Under the farm bill the U.S.D.A. cannot adjust import levels (tariff rate quota, or T.R.Q.) before April 1, barring an "emergency" situation, which has not yet been fully defined. Because of the reduced U.S. cane refining capacity, a result of the explosion in Savannah, it would be of little help to increase raw sugar import levels, especially since domestic raw values already are below forfeiture levels.

Further, the U.S.D.A. tends toward caution in making changes to import quotas, Mr. Colacicco said. Import quotas may be raised but not lowered once they are raised. As a result, the U.S.D.A. initially sets projected import levels at required World Trade Organization minimums and then adjusts raw and refined quotas based on market conditions as the year progresses.

In its latest WASDE, the U.S.D.A. raised projected 2008-09 sugar imports 1% from January, to 2,531,000 tons, including volumes limited by quotas as well as unlimited supply from Mexico. The department reduced its projection of 2008-09 U.S. sugar production by 85,000 tons, raw value, to 7,715,000 tons, all in the cane sector and mostly due to losses in Florida where freezing temperatures damaged cane crops in January. Total available supply, before any import quota adjustments, was projected at 11,906,000 tons, down 46,000 tons from the January projection and down 665,000 tons, or 5%, from 2007-08.

The U.S.D.A. lowered projected total sugar use by 40,000 tons from January, to 10,840,000 tons, due to reduced exports. Food use was unchanged from 10,500,000 tons. The resulting stocks-to-use ratio was 9.8% for 2008-09, the lowest since 1974 and well below the average of 14.5% preferred by the U.S.D.A.

Prices, stronger dollar prompt large sugar exports from Mexico

ORLANDO, FLA. — Speakers at the International Sweetener Colloquium last week forecast a significant increase in Mexican sugar shipments to the U.S. in the current marketing year.

Pedro Figueroa, director, United States/NAFTA Sugar, ED & F Man Sugar Inc., told the group he expected Mexican exports of semi-refined (estandar) and refined (refinado) sugar to the United States may reach 750,000 tonnes in the 2008-09 marketing year (October-September).

The stronger U.S. dollar in relation to the Mexican peso has encouraged refiners to "export as much as they can" to the United States, Mr. Figueroa said. Stronger sugar prices in the United States compared to values in Mexico also have added incentive to export larger volume to the United States.

Hector Marquez Solis, director, trade & NAFTA Office, Embassy of Mexico, also said at the Colloquium he anticipated exports to the United States may reach 750,000 tonnes this year. He indicated nearly 550,000 tonnes already had been shipped and another 200,000 tonnes were in inventory "ready to commit."

The 750,000 tonne number is well above the latest U.S. Department of Agriculture forecast of 620,000 tonnes. The U.S.D.A. forecast was up 45,000 tonnes from its January forecast but still 57,000 tonnes below its 2007-08 estimate.

In its Jan. 29 Sugar and Sweeteners Outlook, the U.S.D.A. noted Mexico had shipped 43% of its projected full-year exports in the first quarter (October-December) of 2008-09, compared with just 11% in the same period a year earlier.

Mr. Figueroa said he expected shipments of semi-refined sugar would slow by mid-April, but Mexican shipments of refined sugar would increase during the remainder of the marketing year. He expects total shipments to consist of about 400,000 tonnes of estandar and 350,000 tonnes of refinado sugar.

This article can also be found in the digital edition of Food Business News, February 17, 2009, starting on Page 33. Click here to search that archive.

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