Refined sugar prices in the United States are holding near two-year highs amid supply uncertainty largely related to the U.S. sugar producers ongoing trade case against Mexico, which heated up a bit more last week following a “threat” from Mexico to take the matter to the World Trade Organization unless a negotiated agreement could be reached soon.

U.S. refined beet and cane sugar prices have mostly held in the 37c to 40c a lb f.o.b. range since early September, with the exception of the West coast, where prices are a bit higher due to some unique transportation issues and higher demand for non-bioengineered sugar, which would likely have to be cane sugar that could normally be sourced from Mexico. About 95% of U.S. beet sugar comes from bioengineered seed.

At 37c to 40c a lb, refined sugar prices are about 35% above year-ago levels and near the same value as in the fall of 2012. Prior to March 28, when U.S. sugar producers petitioned the U.S. Department of Commerce and the U.S. International Trade Commission claiming Mexico was dumping subsidized sugar in the United States, U.S. refined beet sugar prices were 26.5c to 27c a lb, about the same as a year earlier and only 1c to 2c above five-year lows. Cane sugar prices prior to the petition were around 28c to 32c a lb. Refined sugar prices rose 8c to 13c a lb since the petition was filed.

In the petition, the American Sugar Coalition claimed Mexico’s dumping would cost U.S. producers about $1 billion in the 2013-14 marketing year that ended Sept. 30. In that year, U.S. imports of sugar from Mexico were estimated by the U.S. Department of Agriculture at a record high 2,136,000 short tons, raw value, equal to about 15% of total U.S. sugar supply, up slightly from 2,124,000 tons in 2012-13, the prior record, and nearly double the 1,071,000 tons imported from Mexico in 2011-12.

The North American Free Trade Agreement, which went into effect Jan. 1, 2008, for sweeteners, provides for unlimited duty free trade between the United States and Mexico. Since 2008, Mexican exports of sugar to the United States and U.S. exports of high-fructose corn syrup to Mexico both have roughly more than tripled.

But the picture, though unfinished, is expected to change considerably in the current 2014-15 marketing year. The U.S.D.A. in its September World Agricultural Supply and Demand Estimates projected U.S. imports of sugar from Mexico at 1,088,000 tons, down about 50% from the 2013-14 record, although import forecasts have been known to change dramatically as the year progresses. The 1-million-ton reduction in shipments from Mexico, coupled with lower 2014-15 beginning stocks and lower domestic production than last year with only a minor increase in tariff rate quota imports, is expected to trim the total U.S. sugar supply by about 1,200,000 tons, or 8%, from 2013-14. With a forecast modest 3% reduction in total use, ending stocks for the current year were projected at 1,028,000 tons, down 46% from 2013-14. The resulting ending stocks-to-use ratio of 8.5%, which is well below the U.S.D.A. target of about 15%, is seen as unsustainable and will require additional imports at some point. Under law, the U.S.D.A. cannot raise import quotas until April 1, 2015, unless an emergency of some type is declared. Because it cannot reduce import quotas, and because it is mandated to run the U.S. sugar program at no cost to the U.S. government, the U.S.D.A. tends to be cautious in its import adjustment de-cisions, especially with such uncertainty from the trade case that currently overhangs the market.

So far in the trade case, decisions have been in favor of the U.S. producers. The D.O.C. imposed countervailing duties ranging from 2.99% to 17.01% on sugar imports from Mexico as of Sept. 1. A decision on the antidumping portion of the case is due Oct. 24 and may impose additional duties on sugar imports.

But last week, according to a story on Dow Jones Newswires, Mexico count-ered, threatening to take the case to the W.T.O. unless a negotiated settlement was agreed upon prior to the Oct. 24 antidumping ruling and before sugar cane harvest begins in Mexico, which typically is in late November but may begin earlier this year because of tight sugar supplies there.

“If we don’t reach an agreement, everyone loses,” Mexico economy minister Ildefonso Guajardo said in the report. “The Americans would lose because we’d take them to the W.T.O.; Mexicans would lose because they’d lose access to a fundamental market.”

Talk of a negotiated agree-ment between the United States and Mexico has been tossed about almost since the petition was filed, but it’s no less complicated than the trade case and would have to be acceptable to both sides. At least two of the sticking points have been the type of sugar (refined or estandar, which must be further refined in the United States) and the minimum amount, which Mexico has indicated must be at least 1 million tonnes annually. Whether those points can be ironed out in an acceptable timeframe remains to be seen.

It wouldn’t be the first time the United States and Mexico have gone to the W.T.O. over sweeteners, or that a trade agreement for sugar and nonsugar sweeteners (HFCS) has been in place. The United States took Mexico to the W.T.O. to challenge Mexico’s antidumping duties on U.S. nonsugar sweeteners from 1997 to 2001 and on taxes in Mexico on beverages sweetened with nonsugar sweeteners (HFCS) from 2002 to 2006. The W.T.O. ruled in favor of the United States in both cases, resulting in a bilateral agreement on sugar and nonsugar sweeteners in 2006. Then came NAFTA in 2008 and the latest trade case in 2014.

Final decisions in the trade case itself aren’t due until March 2, 2015, with several other decisions along the way.

In the meantime, the U.S. market will work with adequate nearby sugar supplies but uncertainty going forward with prices likely to remain near current levels until more is known — whether it be in the trade case, in a negotiated agreement or a U.S.D.A. action to raise imports.