U.S. sugar supplies – finding equilibrium

by Ron Sterk
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Tight raw sugar supplies for some U.S. refiners and increasing demand for non-bioengineered sugar appeared to be two major threads of discussion at the recent International Sweetener Colloquium. The two issues are related and complicated.

The topic of raw cane sugar supplies for U.S. refiners was addressed in the Colloquium’s opening remarks by Michael Scuse, U.S. Department of Agriculture undersecretary for Farm and Foreign Agricultural Services, which oversees the U.S. sugar program. He said the 2014 managed trade agreement with Mexico had created market imbalances, which have led to challenges at the U.S.D.A. and in the sugar sector, including inadequate raw sugar supplies for U.S. cane refiners.

“U.S.D.A. needs to better understand the quantity and quality of sugar imported from Mexico,” Mr. Scuse said, adding that the U.S.D.A. was considering options to boost U.S. raw sugar imports, such as reallocating tariff-rate quota imports from countries unable to ship their quota to countries that have excess sugar. Under the U.S. sugar program, the U.S.D.A. cannot raise the T.R.Q. import quota until April 1 unless it’s determined an emergency situation exists. Reallocating imports doesn’t raise the quota and may help relieve the cane sugar supply stress, but Mr. Scuse also iterated the U.S.D.A.’s traditionally cautious approach to dealing with the T.R.Q.

Raw supply, biotechnology concerns expressed at the International Sweetener Colloquium.

The managed trade agreement referred to by Mr. Scuse is the Dec. 19, 2014, Agreement Suspending the Countervailing Duty Investigations on Sugar from Mexico, which was the result of petitions claiming harm filed by U.S. sugar producers. The agreement sets a floor price for exports of sugar from Mexico to the United States as well as specific shipment periods, the amount of refined sugar exports and a target quantity that maintains a U.S. ending stocks-to-use ratio of 13.5%.

It appears a larger-than-expected share of exports from Mexico, while not classified as refined sugar, have been going directly to end users and thus bypassing U.S. cane refiners. The potential for raw cane shortages was addressed early in the trade agreement negotiations by U.S. cane refiners, principally Louis Dreyfus Commodities’ Imperial Sugar Co., which currently, along with AmCane Sugar L.L.C., has a challenge to the agreement in the Court of International Trade. Imperial said as much as 500,000 tons of additional raw sugar are needed and has asked the U.S.D.A. to increase import quotas.

The situation is complicated by the fact there is no shortage of sugar in the United States because of ample supplies of beet sugar from a record 2015 crop. Under the sugar program, the U.S.D.A. is charged with maintaining adequate sugar supplies mainly through import adjustments at no cost to the U.S. government (i.e. avoid forfeitures against loans to processors). Trade sources suggested a reallocation may be likely but doubted the U.S.D.A. would raise the T.R.Q. because of the possibility of forfeitures that may result from excess beet sugar supplies.

Further complicating the issue has been increasing demand for non-bioengineered cane sugar over beet sugar, which is nearly all from bioengineered seed. While a broad debate continues over bioengineered labeling, The Hershey Co. last year made the issue real for the sugar industry when it announced it would move to all non-bioengineered cane sugar. While there hasn’t been a surge in companies following Hershey’s lead, it certainly is being considered by some users.

Conversations at the Colloquium indicated beet sugar producers estimated about 5% of their demand was at risk due to increased demand for non-bioengineered cane sugar. Some industry sources, especially on the West coast, have put the percentage far higher than that, but it remains an unknown. Some contend that if increased demand for cane sugar widens the price spread between cane and beet sugar to more than 2c a lb, demand for cane may subside.

The U.S.D.A. forecast domestic sugar production in 2015-16 would be 57% beet and 43% cane, but that at least 51% of total sugar supply in the United States will be non-bioengineered cane sugar (3,839,000 tons domestic production and 3,162,000 tons imported) and 36% would be domestic beet sugar, with the remaining 13% carryover stocks consisting of about the same percentages of beet and cane sugar. Domestic cane sugar output was forecast to decline 6% in 2016-17 in part due to the end of cane production in Hawaii after this year’s harvest.

“There are companies that are wanting to go to non-G.M.O. sugar,” Mr. Scuse said. “It is going to cause a problem going forward.”

Reuters pointed out that it was the first time the U.S.D.A. has publically expressed concern that increased demand for non-bioengineered sugar could contribute to tight supplies of cane sugar.

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