Mexico Cancels Sugar Shipments

(AGWeek) –  Mexican cancellations of certain shipments of sugar into the U.S. may be a positive sign for beet farmers, but it’s too soon to say how significant they are, officials of U.S. sugar organizations say.

Jack Roney, director of economics and policy analysis for the American Sugar Alliance, says the cancellations announced on March 6 indicate the Mexicans realize they had miscalculated the amount and kind of sugar they could send into the U.S. and may have been continuing to “dump” sugar into the market at below-Mexican prices.

Roney declined to comment on Mexican claims that the cancellations are related to changing personnel in the U.S. Department of Commerce and U.S. Department of Agriculture after the election.

Implications

Roney, whose organization represents both beet- and cane-growing and processing industries, says it’s too soon to say whether cancellations of the shipments will have a significant or long-lasting effect on supplies and prices, which ultimately affect prices paid to shareholders of the Red River Valley’s beet sugar cooperatives.

Roney says the Mexican sugar imports have been depressing U.S. refined sugar prices severely, and any let-up in supplies should help. Reuters has reported that Mexico’s sugar chamber sent a letter to Mexican mills on March 6, suggesting that existing permits would be reissued in April.

“There are beet farmers — particularly young beet sugar farmers — who are going out of business because low sugar beet prices are coinciding with low prices in other commodities,” Roney says.

He says the low prices are not the only factor but have contributed to the closure of operations at the Torrington, Wyo., sugar beet plant, and have caused the end of the Hawaiian sugar cane industry after nearly two centuries of existence.

Kevin Price, Crystal’s vice president for governmental affairs, was cautious in evaluating the cancellations. He says the amounts may not be significant compared to annual trade.

“To the extent the cancellation of these licenses leads to more accurate management of Mexican sugar exports to the U.S., that would be helpful since Mexico was determined by our government to be violating subsidy and trade laws,” he says.

Part of NAFTA

Roney says the current news has its roots in the North American Free Trade Agreement, completed in 1994. That was designed to eliminate trade barriers across numerous categories, including sugar.

In 2013, the Mexicans exported 2 million tons of subsidized sugar onto the U .S. market when it only needed 1 million tons, collapsing the U.S. market and putting U.S. prices below forfeiture levels for the U.S. loan programs. The U.S. loan programs are designed to be operated at zero cost, but the government had to spend money clearing the sugar that was acquired through forfeitures.

The U.S. sugar industry sued the Mexican industry. The U.S. Department of Commerce found that Mexican subsidy levels and margins totaled as high as 80 percent for some of the Mexican exports. The U.S. International Trade Commission voted unanimously that Mexico had injured the U.S. industry. At the end of 2014, large duties were scheduled to go in place against Mexico sugar, but instead the U.S. and Mexican government authorities negotiated the “suspension agreements.”

These allowed the Mexicans to suspend the penalties and resume sending duty-free sugar into the U.S., but at agreed-to amounts equal to what the U.S. needs — both for its raw cane sugar refineries and what the refined sugar market can bear.

The agreements break down shipments by quarter, allowing only 30 percent of a year’s shipments in the first quarter, and up to 55 percent in the first half of the year, for example.

“Two years into the suspension agreements, it was apparent to us that they’re not working as intended,” Roney said. “Mexico has been finding ways to circumvent our cane refining industry.”

Raw versus refined

The vast majority of the sugar coming into the U.S. has been raw cane sugars, which U.S. cane refiners needed. The suspension agreements were designed to ensure adequate raw sugar supplies for cane refineries.

“The industry argued that the raw sugar refiners are of national security interest because — in the event of both a domestic beet sugar and domestic cane sugar production failure — the raw cane sugar refiners would be needed to supply the U.S. market,” Roney says.

U.S. raw sugar prices have soared to 31.7 cents per pound because the U.S. mills have been shorted by Mexican exports even as U.S. refined sugar prices have plummeted 24 percent since the suspension agreements were announced in late 2014, Roney says.

Reuters quoted Richard Pasco, president of the Sweetener Users Association, as saying the cancellations “adds to protracted marketplace uncertainty,” but Roney notes that members of that association purchase refined sugar, not raw sugar.

The Mexicans have been sending semi-refined sugar going to end-users, so it’s been hard for sugar beet refining companies to sell their refined sugar, Roney says. The U.S. beet producers have added to the oversupply by producing large crops due in part to favorable weather, despite reduced crop acres, he says.

“We have a case of too little raw cane sugar (for refiners) and too much refined sugar,” he says.

Roney says the U.S. sugar industry is eager to get U.S. and Mexican government authorities together to solve the problems.

“If we can’t solve them, we’ll urge the U.S. government to impose the duties that they were going to impose before,” Roney says. “If those duties keep Mexican sugar out, the U.S. cane sugar refineries can ‘go to the world’ to get raw cane sugar to make up the difference.”