Sugar Prices Jump Ahead of USDA Purchases
Category: Sugar
Domestic-sugar futures rose to 3 1/2-month highs ahead of USDA purchases.
(The Wall Street Journal) – Domestic-sugar futures rose to 3 1/2-month highs Tuesday as the market anticipated the latest round of sugar purchases by the U.S. Department of Agriculture.
The USDA said last week that it planned to buy $18.7 million of domestic sugar Tuesday, after buying $43.8 million of such purchases earlier this month.
Domestic-raw sugar for September delivery on the ICE Futures U.S. exchange was recently 2.7% higher at 20.40 cents a pound, the highest intraday level since April 17.
“We’ve seen a little bit better performance out of a number of the sugar markets,” said Sterling Smith, futures specialist at Citigroup C +0.27% in Chicago, referring to rallies in the world raw- and refined-sugar markets. The domestic market is “playing a little bit of catch up here, and with the USDA coming in…that is quite supportive.”
Despite Tuesday’s rally, domestic raw-sugar prices on ICE are down 8.9% this year and below the USDA’s estimated threshold for loan forfeitures, which is 20.90 cents a pound.
Falling sugar prices have complicated the USDA’s efforts to keep the sugar program—a collection of loans, price supports and import restrictions—from imposing a burden on taxpayers. If sugar processors default on their loans, they will pay the government back with tons of the sweetener instead of cash.
About $470 million in loans to sugar processors remain outstanding, according to the USDA’s website.
The goal of this month’s purchases is to reduce domestic sugar supplies and thereby boost prices. The agency expects to trade the sugar it buys on Tuesday for import credits held by sugar refiners worth 136,000 metric tons. The 91,238 tons of sugar purchased earlier this month was exchanged for import credits worth 299,153 tons.
“We are still quite, quite oversupplied” though, Mr. Smith said. He estimates that U.S. supplies would need to be reduced by an additional 8% to 10% to hold domestic sugar prices solidly above the loan-forfeiture level of 20.9 cents a pound.
