Sugar prices strong as supplies tighten

by Ron Sterk
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Food processors dealing with historically high sugar prices are hoping U.S. Department of Agriculture actions (and adjusted govern-ment data) ease the late-year supply strain until new crop beet sugar becomes available, but the weather must also cooperate on several fronts.

With major sugar cane and beet processors offering bulk refined sugar at 59@60c a lb through 2012, sugar users are dealing with historically high prices with no short-term let-up in sight, and the potential for even stronger values should “Mother Nature” prove uncooperative.

The greatest worry for sugar buyers and even sellers is a hurricane hitting near New Orleans, the site of two major cane refineries. Any significant down time at those facilities may send sugar prices to the stratosphere in the latter half of 2011 as alternative sources of sugar are limited. A hurricane hitting the “right” part of Florida also could be devastating. The hurricane season runs July through October.

Weather also is an issue farther north where late-planted sugar beets (mainly in the top-producing Red River Valley) need as late a frost as possible to maximize potential. Grower cooperatives likely will delay beet harvest as long as practicable to maximize sugar content but before any benefits are offset by frost.

Processors also are keeping an eye on sugar beet crop conditions, which have slipped the past couple of weeks in the Red River Valley. Rated good to excellent as of Aug. 7 in Minnesota was 58% of the crop, down from 61% a week earlier and compared with 89% a year ago, and in North Dakota was 72%, down from 79% both the previous week and last year, according to U.S.D.A. field offices.

In its Aug. 11 Crop Production report, the U.S.D.A.’s first 2011 sugar beet production estimate was 30.4 million tons, down 5% from 2010, with harvested area estimated at 1.22 million acres, up 5% from a year ago, and yield at 25 tons an acre, down about 10%.

Last year bulk refined beet sugar was offered at 45c a lb f.o.b. through May and rose to 64c the first week of September. But early sales of new crop sugar, the result of an exceptionally early sugar beet harvest, contributed to prices falling back to 54c by the end of September 2010, prior to the new marketing year starting Oct. 1. This year’s later harvest means new crop sugar will hit the market later, prolonging the tight supply situation rather than providing new supply early.

Also last year Mexico began its cane harvest early and contributed additional supply to the United States as shipments rose sharply in the October-December period of 2010 from the same period a year earlier. This year, Mexico has faced its own weather problems (drought and frost in some areas) and shipped so much sugar to the United States in the first half of the year it may have to import as much as 300,000 tonnes before the end of 2011. Shipments of Mexican sugar to the United States plunged sharply in June from May, according to U.S.D.A. data, and any major uptick in shipments the rest of this year is unlikely because of the tight supply situation in Mexico.

But data from Mexico may be “surprising,” even when funneled through U.S. agencies. In its Aug. 11 World Agricultural Supply and Demand Estimates, the U.S.D.A. boosted its estimate of U.S. imports of Mexican sugar by 220,000 tons for the current year to a record 1,624,000 tons, “due to higher imports from Mexico which reflect corrected import data for June and a stronger-than-expected pace for the rest of the fiscal year.” In July, the U.S.D.A. reduced projected imports of Mexican sugar by 110,000 tons. Confused traders awaited new data and an explanation about the data changes.

In an effort to ease tight supplies in the last quarter of 2010-11 (July-September), the U.S.D.A. on Aug. 1 said it would allow entry of 2011-12 tariff rate quota (T.R.Q.) imports beginning Sept. 1, 2011, a month before the new marketing year begins.

But the “found” Mexican imports reflected in the August WASDE boosted the 2010-11 ending stocks-to-use ratio to a respectable 15.5%, the highest since 2007-08, reflecting adequate supplies.

Should the United States or Mexico need to turn to the world market for additional sugar, recent lower output estimates from top-producing Brazil, and last week’s first ever import quota of 50,000 tonnes by Guatemala to ensure supplies to year end, indicate tightening supplies and likely continued firm prices.

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