The rhetoric between sweetener user and sugar producer groups rose to a fevered pitch the past two weeks amid a published report that the U.S. Department of Agriculture may incur costs upwards of $80 million this year to remove surplus sugar from the U.S. market, which prompted a letter from four U.S. senators inquiring about the costs and about loans to sugar producers. At the same time it was indicated the sugar surplus in the United States and Mexico may grow even larger than currently estimated. Ironically, the U.S. International Trade Commission last week held its bi-annual hearing on the impact of sugar import restraints on the U.S. economy, at which both sugar user and producer groups squared off.

While debate over the U.S. sugar program, which has existed since 1934 with the latest iteration included in the 2008 farm bill, has been going on for years, it intensified last year as the farm bill came up for renewal. Congress was unable to complete the farm bill in 2012 and instead extended the current bill through September 2013. The intensity built the past few months as it became obvious sugar supplies in the United States were in heavy surplus, bulk refined sugar prices dropped to five-year lows, and a seemingly endless, and still possibly increasing, supply of sugar continued to flow in from Mexico.

The market fundamentals are:

• U.S. bulk refined beet sugar prices were quoted by Food Business News at 27c a lb f.o.b. Midwest the week of March 18-22, the lowest since 24c a lb in February 2008.

• New York nearby domestic raw sugar futures were trading around 21c a lb and world raws around 18½c a lb the week of March 18-22.

• The U.S.D.A. loan forfeiture levels averaged 24.09c a lb for refined beet sugar and 18.75c a lb for raw cane.

• The U.S.D.A. forecast U.S. 2012-13 sugar ending stocks at 2,358,000 tons, raw value, up 19% from 2011-12, up 71% from 2010-11 and the highest on record.

• The 2012-13 U.S. ending stocks-to-use ratio is forecast at 20.04%, up from 17.2% last year, from 11.8% in 2010-11, the highest since 20.97% in 2000-01 and over 30% above the U.S.D.A.’s target ratio.

The oversupply may be even larger based on comments in the latest U.S.D.A. Sugar and Sweeteners Outlook. It said Mexico’s Comite Nacional Para El Desarrollo Sustentable de la Cana de Azucar (Conadesuca) issued updated forecasts just after the March 8 U.S.D.A. World Agricultural Supply and Demand Estimates that reflected considerably larger 2012-13 Mexican production, stocks and exports than did the U.S.D.A.’s WASDE. Since there are no restrictions or duties on the amount of sugar Mexico may export to the United States, the assumption is most of the excess supply will come north.

While the U.S. and Mexican markets are overrun with sugar, a March 13 story in The Wall Street Journal brought the debate to a higher level because of the cost that may be incurred as it appears the United States will take responsibility in reducing the oversupply for both countries. In brief, the story said the U.S.D.A. was considering implementing the feedstock flexibility program prescribed in the 2008 farm bill but never used at a potential loss of $80 million to remove 400,000 tons of excess sugar from the U.S. market to prevent sugar processors from defaulting on government loans of $862 million.

That story prompted a letter later the same week from four senators asking the department to “explain” the potential cost and provide details about the loans. Some in the trade wrote the letter off as grandstanding since three of the four senators who signed it also were sponsors on Feb. 14 of the bipartisan Sugar Reform Act seeking to make changes to the long-standing sugar program, and since the actions outlined in the story were prescribed in the farm bill and the loans were seen as general operating procedure.

But it’s more complicated.

Trade sources indicate the feedstock program is far from being operational because the regulations have yet to be reviewed by the Office of Management and Budget, which will take at a minimum 90 days, and probably longer due to a backlog.

Further, with the current sequestration, some doubt the U.S.D.A. could “find” the money to operate the feedstock program, which requires the department to buy sugar and resell it to “ethanol producers at whatever price they are willing to pay,” which some estimate is only 10@12c a lb.

And, some question whether the 400,000 tons indicated in The Wall Street Journal story are enough to make a significant difference in the huge oversupply, especially given that exports from Mexico could quickly replace it.

The U.S.D.A. is considering other options, perhaps more viable and lower cost, according to the trade. Those include limitations on imports (other than from Mexico), which must be backed by guarantees to countries worried about losing their export allotment if they don’t fill their quota. Another option may be a payment-in-kind program, used for sugar and other commodities in the past, under which U.S. sugar beet producers would plant their full allotted acreage but then receive existing sugar from the U.S.D.A. and plow under a like (PIK) amount of acreage. Some see the PIK option as the most viable and the least costly to the U.S.D.A.

The U.S.D.A. may say “something” around April 1 about the oversupply and what it plans to do, industry sources said. Before then the agency will release its annual Prospective Plantings report, which will give an indication of intended sugar beet planted area.

In the meantime, the market is on hold. Sellers have been reluctant to drop offering prices much further because they doubt it would do much to generate sales in a saturated market. Buyers have been reluctant to add coverage, hoping to capture the latest price decline. But last week they showed more interest in adding to coverage for 2014, and even inquired about buying for 2015 at current price levels, perhaps concerned any U.S.D.A. action may put a floor under prices, or even boost them slightly.