KANSAS CITY — While the coronavirus disrupted most markets beginning in March, challenges for the sugar market began the preceding fall and continued through 2020. But a new marketing year begins Oct. 1 for sugar with expectations of increased domestic supply, less demand disruption and lower prices.
A year ago this time the sugar beet harvest was humming along for what appeared to be a good crop with beet sugar production forecast at 5,005,000 tons, up 1% from a year earlier although down 5% from record output of 5,279,000 tons in 2017-18. Crop conditions were high with the US Department of Agriculture rating the beet crop above 80% good to excellent in the three largest producing states of Minnesota, Idaho and North Dakota, at 60% or above in all other states, and the Louisiana sugarcane crop at 64%. Then the wheels came off.
A snowstorm in October slowed beet harvest, then a severe cold snap in early November rendered thousands of acres of beets unharvestable. About the same time, frost in the northern cane growing areas of Louisiana damaged that crop with the good-to-excellent rating dropping to 47% by mid-November. By the end of November, two major beet processors had declared force majeure. Domestic sugar production during 2019-20 (ending Sept. 30) fell more than a million tons, or 11%, from 2018-19, with beet sugar down 14% and cane sugar down 8%.
The USDA, which manages US sugar supply under the farm bill, did a masterful job of maintaining supply with 2019-20 imports, based on September estimates, up 39% from a year earlier, resulting in total supply of 14,035,000 tons, down only 42,000 tons, or 0.3%, from 2018-19. Under the farm bill, domestic sugar production may account for only 85% of total US sugar use with the remainder from imports, mainly Mexico as well as some free trade agreement and World Trade Organization commitments. US production typically comes in at about 75% of US needs, but in 2019-20 it accounted for only about 65%.
This fall most sugar beet ratings are even higher than a year ago, as is the Louisiana cane rating, even after a brush with Hurricane Laura. But the market is understandably cautious after last fall.
The sugar beet harvest still was in its early stages with 15% of the crop lifted by Sept. 20 in the four largest producing states. Although underway in other areas, harvest won’t be “full bore” until sometime in October. Louisiana’s cane harvest, which usually starts around Oct. 1, started early with 2% completed by Sept. 20.
Bulk refined cane sugar prices in 2019-20 rose to 46¢ a lb f.o.b. on a spot basis in March and have held at that level ever since. It was the highest spot price since June 2012. Beet sugar was unquoted or nominal most of the year as spot supply was not available due to the poor harvest. It should be noted most of the sugar delivered in 2019-20 had been contracted the previous summer at 33¢ to 35¢ a lb for beet and 35¢ to 37¢ a lb for cane. But users needing additional supply had to pay the higher prices or seek refined sugar imports that carried hefty tariffs.
Pricing for 2020-21 has been based on expectations of more normal domestic sugar production. Most beet sugar was contracted between 34¢ and 36¢ a lb f.o.b. Midwest, and refined cane from 37¢ to 40¢ a lb (depending on the region). But as beet processors’ sales of prospective 2020-21 production reached or exceeded 90% in the past couple of weeks, prices were firm to higher to slow sales until more was known about the beet crop.
Adding to recent firmness in sugar prices was a fire at the Domino Sugar refinery in Arabi, La., on Aug. 27. Although the fire was limited to silo areas and the plant again was producing its full range of products, output was reduced pending repairs.
On expectations of much higher domestic sugar production in 2020-21, the USDA sharply reduced its import projections in the Sept. 11 World Agricultural Supply and Demand Estimates report. Imports from Mexico were forecast at 888,000 tons, raw value, down 36% from the current year. The USDA can raise the export limit for duty-free imports from Mexico during 2020-21 and can boost tariff-rate quota (TRQ) imports from other countries after April 1, 2021, if it determines US supply isn’t adequate to meet demand. There were two TRQ increases in 2019-20, the most recent of 100,000 tons on Sept. 10.
Demand remains the hardest part of the equation to predict, especially with the uncertainty added by the coronavirus pandemic. Despite lower shipments to foodservice, US sugar demand has held up remarkably well this year, with the USDA raising its forecast of sugar deliveries for human use in 2019-20 by 100,000 tons, to 12,150,000 tons, in its September WASDE. The forecast, amid much uncertainty, was about flat for next year.