Sweetener prices at a crossroad

by Ron Sterk
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Sweetener markets are possibly at their most critical time of the year, with old crop beet sugar and imported cane sugar supplies running low, new crop beet sugar barely available and negotiations for 2012 corn sweetener contracts just beginning, all at elevated pricing levels from a year ago and amid labor issues at the nation’s largest beet processor and general economic uncertainty.

At the same time, con-fectioners and bakers, part of the Coalition for Sugar Reform, descended on Washington in mid-September to call for an end to the current U.S. sugar program they contend is responsible for tight sugar supplies and high prices and to promote new sugar policy for inclusion in the 2012 farm bill.

The 2011-12 marketing year for sugar begins Oct. 1, 2011, major beet processor and cane refiner offering prices at 62c a lb f.o.b. for spot through Dec. 31, 2011, although last week major sugar refiners dropped offering prices for Jan. 1, 2012, to Sept. 30, 2012, to 59c a lb. Nearby prices are up as much as 15% from a year ago when prices declined about 10c a lb, or 15%, in mid-September as new crop beet sugar came to market earlier than usual. In contrast, this year’s beet crop is later than average and much later than a year ago. Aggregate sugar beet harvest in the four major states of Minnesota, North Dakota, Idaho and Michigan was 3% completed as of Sept. 18, compared with 10% in 2010 and 6% as the 2006-10 average, the U.S. Department of Agriculture said in its latest Crop Progress report.

Labor woes complicate beet outlook

Complicating the late beet crop in the Red River Valley was a lockout at all American Crystal Sugar Co. facilities that began Aug. 1 after union members rejected a new five-year contract offer at the end of July. Beet factories were running at minimal volume from the early harvest with replacement workers. Some in the trade expressed concern about those workers’ success once production is in full swing later in October.

A few processors had some sugar available from the 2010 beet crop, but it was at a price buyers resisted and often at locations requiring additional freight costs to reach buyers. Increasingly, it appeared buyers

were encountering more diffi-culty finding nearby supply. Plus, at least two of the largest beet processors were said to have prospective 2011-12 production highly sold and were effectively out of the market until new crop supply is assured.

At the same time, shipments of sugar from Mexico that reached record levels even before the end of the marketing year declined sharply the past three months as that nation’s 2010-11 supply runs low before the 2011-12 cane harvest begins. Preliminary shipments in August of 80,030 tonnes, raw value, dropped 36% from July and fell below the same month last year for the first time in 2010-11, according to Census Bureau data used by the U.S.D.A. Shipments of sugar and corn sweeteners, mainly high-fructose corn syrup, may cross the border in unrestricted volume and duty free under the North American Free Trade Agreement.

Corn sweetener prices may rise

While trade in sugar remains relatively slow until new crop U.S. beet and Mexican cane supplies become available in the next few weeks, the corn sweetener market is just heating up with a significant price increase from 2011 contracted levels appearing more likely. The initial indication of 2012 corn sweetener offering prices were up 15% to 30% from 2011. A number of factors suggest refiners are likely to seek increases nearer 30%, although the final tally is far from sure.

The Sept. 12 U.S.D.A. Crop Report indicated a 2011 corn crop of 12,497 million bus, up only slightly from 2010 but down 3% from the initial August forecast and well below projections of 13,505 million bus back in May. Still, corn futures prices last week were down nearly 15% from late August on ideas recent high prices may hurt demand. But corn prices still were up about 30% from a year ago.

Shipments of lower-priced HFCS to Mexico soared in 2010-11, replacing record shipments of sugar to the Untied States as Mexican refiners took advantage of strong U.S. sugar prices. Demand in 2011-12 is expected to ease slightly in Mexico as sugar exports fall as a result of expected lower cane production there.

HFCS demand could take a slight uptick in the United States. After a broad switch away from HFCS by U.S. food and beverage manufacturers the past few years, with sugar touted as “natural,” a few, including some national brands, have quietly reformulated back to HFCS because of high sugar prices. One industry calculation suggested even with a 30% increase, corn sweetener prices were equivalent to about 39c a lb sugar prices on a “sweetness basis,” or about 37% less than sugar at 62c a lb.

But some in the trade doubt corn refiners can hold on to a 30% increase, suggesting the final number may be closer to 15% or even less, which still would cover increased corn costs in most cases. Last year initial corn sweetener offers were up about 20% to 25% from 2009, but ended closer to up about 15%, with deals running the gamut depending on timing and location, with later-signed contracts at the lower end of the range. Also last year, the estimated size of the corn crop was decreasing each month from August forward with nearby futures prices rising to around $6 a bu in December from about $4 a bu in early August and a year earlier. This year, corn prices may have peaked in June and have fluctuated but traded lower since.

It will be a few more weeks before the corn sweetener picture clears.

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