U.S.D.A. takes action to reduce sugar surplus

(Baking Business) – The U.S. Department of Agriculture on June 17 announced additional actions to reduce the current domestic sugar surplus, which it anticipates may remove around 300,000 tons of sugar at a cost of about $38 million, subject to sequester.

The U.S.D.A. said it intends to purchase sugar from domestic cane and beet processors and then conduct voluntary exchanges for credits under the Refined Sugar Re-export Program. The department intends to exchange “not less than 2.5 tons of import credits … per 1 ton of sugar,” resulting in a “minimum net reduction of 1.5 tons of sugar in the U.S. market per ton of sugar exchanged.”

The department anticipates the action may remove around 300,000 tons of domestic sugar from the U.S. market at a cost of about $38 million, subject to sequester, “which is one-third the expected cost of forfeitures.”

Sugar processors currently were evaluating the latest U.S.D.A. actions.

Traders indicated the U.S.D.A. action “was a step in the right direction” in reducing the surplus. They said a 300,000-ton reduction would be significant but “not enough to solve the problem.”

“Exchanging sugar for credits reduces imports into the U.S., and is designed to reduce the surplus,” the U.S.D.A. said. “It is a less costly option than loan forfeitures.”

The U.S.DA. also said June 17 that licensed refiners now have 270 days, up from 90 days previously, to make required exports or sugar transfers under the Refined Sugar Re-export Program.

“This action increases the pool of available re-export credits, facilitating the exchange announced above,” the U.S.D.A. said, adding that the temporary waivers made no permanent change to the Re-export Program.

“Record-breaking yields of sugar crops and a global surplus have driven down U.S. sugar prices, and U.S.D.A. is required to act to stabilize the domestic market,” the U.S.D.A. said. At the same time, the department is required by law to operate the sugar program at the least cost to the government.

“Today’s actions are designed to manage the sugar program while minimizing federal sugar program expenditures,” the U.S.D.A. said.

Domestic bulk refined sugar prices reported by Milling & Baking News currently are around 27c a lb f.o.b., down about 40% from a year ago and down 55% from 2011 highs.

The U.S.D.A. said the June 17 actions build on its May 1 announcement of two waivers provisions in the Refined Sugar Re-export Program, temporarily permitting licensed refiners to transfer program sugar from their license to another refiner’s license through Sept. 30, 2013, and temporarily increasing their license limit from 50,000 tonnes, raw value, of credits to 100,000 tonnes through Dec. 31, 2014.

Traders at the time said they thought the May 1 actions would have minimal impact on the domestic sugar surplus.

“The U.S.D.A. will closely monitor stocks, consumption, imports and all sugar market program variables,” the U.S.D.A. said. “U.S.D.A. will also, on an ongoing basis, evaluate the need for use of other tools authorized in the 2008 farm bill, including the Feedstock Flexibility Program.” The feedstock flexibility program currently is under final review by the White House Office of Management and Budget.