U.S. sugar imports

While a number of key topics were addressed at the International Sweetener Symposium in Stowe, Vt., last week, including nutrition panel labeling, bioengineered crops, politics and consumer trends, there also was an elephant lurking in the room that clearly was the undercurrent of the gathering.

The elephant in this instance was the antidumping and countervailing duty case against the Mexican sugar industry currently being investigated by the U.S. Department of Commerce and the U.S. International Trade Commission. The petition with the charges was filed March 28 by the American Sugar Coalition, membership in which closely coincides with that of the American Sugar Alliance, which represents the nation’s sugar beet and cane growers, processors and refiners and is the organizer of the symposium.

It’s not like the elephant was totally ignored. Several speakers referred to the case, including Frank Jenkins, president of JSG Commodities, who said he expected the case to be decided in favor of U.S. sugar producers following a protracted review by the U.S. government, after which a managed agreement would be implement by both countries.

Michael Scuse, U.S. Department of Agriculture undersecretary for farm and foreign agricultural services and the first speaker at the symposium, said, “The greatest area of uncertainty this year is the Mexican trade case.”

But because so much hinges on the case — namely U.S. sugar supplies and prices possibly for years to come — it was difficult to address some issues without knowing the final results.

Breaking down the arguments

From the user side, imports of sugar from Mexico have been needed in most years since the North American Free Trade Agreement began allowing unlimited sweetener trade between Mexico and the U.S. as of Jan. 1, 2008. Since the U.S. sugar program permits U.S. producers to supply only 85% of projected annual sugar needed for human consumption, imports have to make up the rest. Those come from a combination of tariff rate quota shipments related to World Trade Organization requirements, and from free trade agreements, mainly with Mexico. Several countries typically don’t fill their T.R.Q. minimums, as well as some U.S. producers, so extra supply from Mexico has been needed in some years. Users also note that Mexico was within its rights to ship (and U.S. buyers were within their rights to import) any amount of sugar from Mexico under NAFTA.

From the sugar producers’ standpoint, last year’s sharply lower sugar prices were the result of record high shipments from Mexico, a point on which users, producers and the U.S. government agree. When shipments early in 2013-14 were even greater than those of the same period for the record year 2012-13, producers saw continued low sugar prices that last year resulted in loan forfeitures and payouts by the U.S.D.A. under the sugar program of about $260 million.

Jack Roney, director of economics and policy analysis for the A.S.A., long had predicted that a flood of sugar imports from Mexico would at some point wreak havoc on the U.S. sugar market. Those forecasts, probably made since NAFTA went into effect, were borne out in 2012-13 and again in the first half of the current marketing year. In its petition, the coalition claimed Mexico was dumping subsidized sugar on the U.S. market at a cost of $1 billion to U.S. sugar producers in the current year.

Ironically, since the petition was filed at the end of March, projected cane sugar production in Mexico has been trimmed substantially to the point supplies there are tight and many expect Mexico will need to import sugar later in the year. At the same time, the U.S. sugar beet crop in the top-producing Red River Valley has been under stress from excess moisture and likely will come in below expectations. As a result, many believe the “problem” would have worked itself out this year as Mexican shipments are expected to drop sharply in the remainder of 2013-14 and the United States could use extra sugar to make up for potentially lost beet sugar supplies before the current year ends and the new year begins Oct. 1.

Sugar producers note that a major loophole in NAFTA, which allows Mexico to oversell sugar to the United States when prices in the north are advantageous and replace it with lower-price imports from the world market, still would have existed, setting up future oversupply situations in the United States.

What to expect

As has been said in this publication before, what appears most likely to result from the trade case will be some form of managed trade agreement between the United States and Mexico that usurps NAFTA’s open border and results in more orderly exports of Mexican sugar to the United States. Where that leaves U.S. exports of high-fructose corn syrup to Mexico, which have risen sharply under NAFTA to largely offset Mexico sugar exports to the United States, remains a major unknown that may result if further legal action, some sources suggest.

The general sense at the symposium was that the trade case will run its course, likely with no final decisions until early 2015, even though preliminary decisions are due from the D.O.C. by Aug. 25 and from the I.T.C. by Sept. 4, although nearly everyone expects the latter date to be extended due to “extraordinary circumstances” as allowed by law. There also was consensus (especially among producers) that the D.O.C. and the I.T.C. will find in favor of U.S. sugar producers, because most cases come out in favor of the domestic plaintiffs.

Trade sources also suggest the negotiated side of the case is progressing, which would then go into effect once the D.O.C. and I.T.C. decisions are made so as to manage trade going forward. It seems unlikely, most sources say, that those government bodies would suspend the case in lieu of any negotiated agreement, although that remains a possibility.

Ultimately, a managed sugar trade agreement with Mexico may be good for both sides if it results in more stable sugar prices and supplies, although it may be at price levels not to the liking of users, and U.S. sugar users clearly oppose such an agreement. A side benefit may be a more disciplined sugar industry in Mexico (the country’s acreage has been increasing since NAFTA began) and a closing of the export/import loophole Mexico has exploited, although that remains to be seen.

In the meantime, the market goes on with refined sugar offered as high as 38c a lb f.o.b. with prices mostly between 35c and 37c a lb, but with some actual trading below that level on the cane side. And trade remains slow until the elephant can be removed or at least become visible.