Perhaps the most shocking, or at least the most anticipated, data last week were the U.S. Department of Agriculture’s Aug. 10 U.S. corn crop forecast of 10,779 million bus, down 17% from its July projection, down 13% from 2011 and the smallest crop since 10,531 million bus in 2006, if realized. The U.S.D.A. survey-based estimate com-pared with the average of pre-report trade expectations of 10,971 million bus.
While the greatest impact of a small corn crop will be (or already has been) felt by livestock feeders, foreign buyers of corn and to some extent, ethanol producers (although the production mandate remains in effect) in the form of sharply higher prices, the sweetener industry also will be affected. Although only about 6%, on average, of the crop is used for corn sweetener production, the price increase may well be significant especially as it relates to exports to Mexico where delivered prices for high-fructose corn syrup are much closer to prices for standard sugar used by the beverage industry.
Speakers and attendees at last week’s International Sweetener Symposium in Coeur d’Alene, Idaho, sponsored by the American Sugar Alliance, had varying views on the impact of the smaller corn crop on corn syrup production, prices and exports. While a number of factors would be at play, including exchange rates, similar prices for U.S. HFCS and domestic sugar in Mexico would tend to encourage Mexican bottlers to use more domestic sugar.
Some, including Humberto Jasso Torres, director general of the Mexican Sugar Chamber, expect demand in Mexico of HFCS may fall considerably if delivered prices meet or exceed sugar prices there. Some in the trade estimated the swing (HFCS imports/sugar exports) may be as large as 35%. Others have suggested the impact may be much less due to forward contracting and the establishment of more stable export relationships between Mexican sugar mills and U.S. buyers.
Any change in exports of Mexican sugar to the United States, which may flow freely under the North American Free Trade Agreement, as can U.S. HFCS exports to Mexico, would impact the size of the expected surplus in sugar supply in the United States in 2012-13, which begins Oct. 1. In its Aug. 10 World Agricultural Supply and Demand Estimates, the U.S.D.A. lowered its projected exports of Mexican sugar for 2012-13 by 147,000 tonnes, and raised domestic use by 123,000 tonnes.
That there will be a sugar surplus this year and next year was a point of general agreement among speakers at the Symposium. It was more a discussion of how large the surplus may be.
In its July WASDE, which was the most recent available at the time of the Symposium, the U.S.D.A. estimated carry-over (ending stocks) of sugar in the United States on Oct. 1 at 1,809,000 short tons, raw value, an increase of 337,000 tons, or 23%, from last year. That’s in stark contrast to carryover that declined from year-earlier levels by 135,000 tons (8%) in 2007-08, by 130,000 tons (8%) in 2008-09, by 36,000 tons (2%) in 2009-10 and by 26,000 tons (2%) in 2010-11. During that four-year span, domestic sugar production declined by 614,000 tons (7%), while total use increased by 1,171,000 tons (11%) with imports, mainly from Mexico, increasing by 1,658,000 tons (80%) to narrow the gap.
But domestic sugar pro-duction rebounded in 2011-12 to 8,298,000 tons, the highest level since 2006-07, and is projected to rise another 452,000 tons, or 5%, to 8,750,000 tons in 2012-13. Sugar imports were expected to rise still further in 2011-12 to a historically high 3,799,000 tons, resulting in an ending stocks-to-use ratio of 14.7%, the highest since 15.3% in 2007-08 (August WASDE). While tariff-rate quota
imports may be kept at the World Trade Organization required minimum in 2012-13, sugar imports from Mexico were expected to rise still further in the July WASDE, but were cut by 172,000 tons in the August report.
Some in the trade consider U.S.D.A. sugar use projections as too high, which may result in an even larger carryover this year and next.
Bulk refined sugar prices have reflected current-year and 2012-13 surpluses. Nearby prices as low as 42c a lb f.o.b. Midwest are down 18% from mid-April and down 26% from a year ago. Recent selling prices for 2012-13 have been in the 38@41c a lb range, with some forecasting prices may dip to 35c or even lower should the oversupply play out. Both current and 2012-13 prices are the lowest since 2009.
Of course any change in sugar imports from Mexico due to the smaller corn crop could change the sugar surplus and price picture for next year.