U.S. Takes First Step To Give Sugar a Lift

May 9th, 2013

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Category: Sugar

(Wall Street Journal) – The U.S. Department of Agriculture is expanding a sugar-export program, a first step in the agency’s effort to prevent a wave of defaults on loans made to sugar mills and processors.

U.S. sugar prices have dropped 12.6% this year, with futures on ICE settling Wednesday at 19.58 cents a pound, near a four-year low. If prices don’t rebound, sugar processors could default on as much as $809 million in federal loans later this year, forfeiting sugar that was put up as collateral for the loans to the USDA.

As a last resort, the USDA has said it is considering buying up to 400,000 tons of sugar to boost prices enough to prevent mass defaults. The sugar then would be sold to ethanol producers, at an estimated cost to the government of $80 million. The idea has drawn criticism from sugar consumers and lawmakers.

The USDA is expected to announce its decision on July 1. As an interim measure, it is allowing processors to export more, according to a notice published in the Federal Register. A refiner can import as much as 50,000 metric tons of raw sugar a day, but it can send overseas up to 100,000 tons of refined sugar. Previously, exports also were limited to 50,000 metric tons.

Market participants say changes to the little-used program won’t do much to cut supplies, which are expected to outstrip demand by 2.1 million short tons this year. U.S. supplies are building up after a large sugar-beet harvest and a steady flow of tax-free imports from Mexico. “I can’t see this making a big dent in the surplus,” said Sterling Smith, a futures specialist at Citigroup.

A USDA spokeswoman said the agency will know whether the changes are having an effect “in the next month or so.”

The sugar-export program was designed to keep U.S. refineries operating year-round by allowing them to import duty-free raw sugar when the U.S. harvests are complete and then export an equivalent amount of refined sugar—the white sugar found on supermarket shelves. These imports don’t count toward the duty-free quotas that the U.S. has in place because every ton of raw sugar that is brought in is shipped out in refined form.

The increase in the export limit took effect on May 1 and ends Dec. 31, 2014.

In the 2011-12 marketing year that ended Sept. 30, U.S. exports of raw and refined sugar totaled 244,033 metric tons, up 8.5% from the previous marketing year. Those figures don’t include refined sugar in exported products.

Under the export program, processors also can sell the refined sugar to U.S. sugar users, such as candy makers, who then ship products containing an equivalent amount of the sweetener to the world market.

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