Estimates of world sugar supplies continue to shrink, supporting firm cash and futures prices amid ongoing strong demand. World ending stocks on Sept. 30, 2011, were forecast at 196,000 tonnes, a 20-year low and potentially limiting options to supplement U.S. supply.
Complicating the global sugar situation is strong crude oil prices, mainly the result of unrest in Libya, which some expect will attract more sugar to the ethanol sector in Brazil, the world’s largest sugar producer and exporter.
The mood at the International Sweetener Colloquium in mid-February was noticeably bullish on sugar prices due to tight supplies, with one presenter forecasting prices may rise as high as 70c a lb, although most saw that extreme only in the event of a major refinery or weather catastrophe.
The International Sugar Organization (I.S.O.) recently reduced its 2010-11 global sugar surplus forecast to 196,000 tonnes from 1.29 million tonnes forecast in November, leaving the stocks-to-use ratio the lowest in more than 20 years. The I.S.O. trimmed its 2010-11 production forecast by 910,000 tonnes, to 168,045,000 tonnes, due to mostly weather-induced reductions in Australia, China, Japan, Ukraine and the United States. Global consumption was revised upward by 180,000 tonnes, to 167,849,000 tonnes.
Last week the U.S. Department of Agriculture in its March World Agricultural Supply and Demand Estimates lowered its projected carryover of sugar in the United States on Oct. 1, 2011, to 1,185,000 short tons, raw value, down 12% from its February projection and down 22% from a year earlier. The reduction was based mainly on a 60,000-ton decrease in projected Florida cane sugar production and a 110,000-ton decrease in projected imports from Mexico, which still would be the second highest ever after 2008-09. Both reductions were the result of earlier cold weather. Projected 2010-11 U.S. sugar use was unchanged, tightening the ending stocks-to-use ratio to 10.4% from 11.8% in February and 13.3% last year.
U.S. beet processors basically are sold out of prospective 2010-11 supply from the 2010 crop still being processed. The options for additional sugar are duty free imports from Mexico and additional Tariff Rate Quota (T.R.Q.) imports of raw cane.
Bulk refined cane sugar prices were raised to 61c a lb f.o.b. from 57c by one refiner last week, reflecting tight raw cane supplies. Current year New York domestic raw sugar futures have been trading between 39c and 41c a lb through the September 2011 contract (old crop) since early February. The New York nearby May world raw contract has been trading from 27@33c a lb during the same period after hitting a 30-year high just over 36c on Feb. 2, although prices declined late last week.
Tighter global supply will tend to keep world sugar futures prices high and their discount to domestic raw prices narrow so as to discourage above quota raw imports. It’s generally thought the spread between domestic and world raw sugar futures needs to be around 15c a lb to offset the high duties before refiners will import above quota. Last year the spread between domestic and world raw prices was wide enough to compensate for the higher duty, thus encouraging additional imports and supplementing U.S. supply.
I.S.O. chief Peter Baron said in an interview with Reuters he expected New York world raws to trade in a range of 23@30c a lb since supplies were tight but still available globally.
Similarly in the United States, processors have stated there is no shortage of sugar, but it’s available at a price buyers would prefer not to pay.
Without above quota imports, the other option to supplement U.S. sugar supply would be for the U.S.D.A. to increase the T.R.Q., thus allowing additional imports without incurring high duties. Although the U.S.D.A. already has been petitioned by sugar users to increase the T.R.Q., the department has a history of caution in adjusting import quotas before April 1. Prior to that date the U.S.D.A. must declare an emergency to raise the quota, according to U.S. legislation. With shipments from Mexico remaining strong, it would appear unlikely the U.S.D.A. would make such a move prior to April 1.
Pricing for bulk refined sugar for 2011-12 is mostly around 51c a lb, only modestly below current prices. With sugar demand steadily increasing domestically and globally, and current production inhibiting a build-up in stocks globally, it appears a significant break in prices may be some time away. Plus, other factors are complicating U.S. production.
Domestically, multiple lawsuits concerning bioengineered or “Roundup Ready” sugar beet seeds continue to hang over growers as they prepare to plant the 2011 crop. While Monsanto Co. and the U.S.D.A. won the most recent battle when an appellate court allowed production of 2012 seed by overturning a district court order to destroy seed stock, or stecklings, the overall “war” goes on. Further complicating matters are two-plus year highs for many other crops, which sugar beet growers may opt to plant rather than face uncertainty from the courts, depending on obligations between growers and their cooperatives.
At its recent Agricultural Outlook Forum, the U.S.D.A. forecast 2011-12 U.S. beet sugar production, from the 2011 sugar beet crop, at 4,845,000 short tons, raw value, up 45,000 tons from 2010-11 despite the potential for increased planting of conventional sugar beet seeds, which tend to yield lower than the bioengineered seed, and the potential for a shortage of conventional seed, although the latter seems less likely than it did a few months ago. The first WASDE projection for 2011-12 U.S. sugar production will be issued May 11, although initial planted area numbers will be released March 31 in the annual Prospective Plantings report.