World Sugar Prices Hit Rock Bottom, But Poised For Recovery

August 13th, 2019


Category: Sugar

(AgJournalOnline) -The world sugar market, which has been battered by low prices, may soon get a reprieve, according to the head of the International Sugar Organization.

Jose Orive, the group’s executive director, addressed the International Sweetener Symposium recently with encouragement that world sugar prices may have hit bottom, and signs are pointing to a recovery.

That’s good news for farmers worldwide who have been struggling with prices as low as 12 cents per pound — well below the average cost of producing sugar. To survive falling prices, many foreign governments have increased subsidies, which has only increased overproduction.

“The world is still suffering from high accumulated stocks that will need to be absorbed by the market before we can see any improvement in price,” Orive explained. But he is optimistic because production from big sugar suppliers appears to be declining, which will let stocks fall.

Brazil, the world’s largest exporter, has seen production fall rapidly since 2017-2018. Production by the second biggest exporter, Thailand, is also down as farmers switched to alternative crops. Europe, another major producer and exporter, has also devoted fewer acres to sugar beet production this year.

However, Orive warned that there are factors that could quickly change the outlook.

Weather could provoke production variations, while consumption growth is declining as the war against sugar continues, he said. Government policies also have an impact.

India, now the world’s largest sugar producer, is a prime example of the rapid impact policy changes can have on the market.

There, farmers are guaranteed prices for their crops and these price guarantees have continued to climb despite downward market signals. These cane prices combined with export quotas and subsidies are all being challenged in the World Trade Organization for violating international rules.

“The global sugar market is the most distorted commodity market in the world because of subsidies,” noted Jack Roney, a U.S. sugar industry official who moderated the panel. “Today’s low prices are a result of these subsidies, and any bullish signals can be quickly undone by government intervention.”

Roney said the extreme volatility of the world market is the reason America has a sugar policy, and he urged governments around the world to put an end to subsidies.

“U.S. farmers are highly efficient, and we want to operate in a free market, but that cannot happen until all countries set aside their subsidies and let a real market form,” he concluded.

Farm Returns Below 2% for Fifth Straight Year as Rural Economy Slumps

The average rate of return for U.S. farmers is 1.3 percent this year, marking the fifth straight year of returns below 2 percent, said John Newton, the chief economist for the American Farm Bureau Federation and another speaker at the International Sweetener Symposium.

That translates to a negative median farm income of -$1,449 this year, forcing most producers to depend on a growing amount of off-farm income to make ends meet. Returns this low create challenges for agriculture — from keeping pace with rising input costs to repaying operating loans — and the impact ripples throughout the rural economy, he said.

Commercial debt in agriculture is at record highs, loan delinquency rates are rising, and Chapter 12 bankruptcies have increased sharply, Newton told the audience. Some major lenders are reducing their exposure to agricultural loans and reducing lending volumes.

Brian Cavey, senior vice president of government affairs for CoBank, said his bank continues to be a major agricultural lender, with 100 percent of its business focused on farm credit, agribusiness lending and rural infrastructure. But he agreed that current tailwinds in the rural economy are troubling.

“Right now, the name of the game is managing risk and uncertainty,” Cavey said.

“This kind of environment necessitates strong farm policies to give lenders confidence that loans will be repaid in a timely manner. Protecting crop insurance and opposing cuts to the farm safety net are top priorities for CoBank,” he added.

CoBank was one of the biggest champions of America’s no-cost sugar policy during the recent Farm Bill debate for that reason. The National Farmers Union, like the AFBF, was another vocal supporter of sugar policy and its president explained that keeping sugar policy strong will be key to weathering the current storm.

“Farmers are facing an uncertain future, and they need some long-term predictability,” Cavey concluded. “With continued low commodity prices and the impacts current trade disputes are having on rural America, the real question that we need to be asking ourselves is how to strengthen farm policy even more.”

Congressman Glenn G.T. Thompson, of Pennsylvania, the second highest ranking Republican on the House Agriculture Committee, kicked off the symposium by telling sugar producers that his vision for the committee’s future is to achieve a robust rural economy.

“This requires the right farm policy for all our commodities, including sugar, that exceeds the expectations of our farm families,” he said. “If we can exceed your expectations, then rural America is going to do quite well.”

Thompson, who is the Ranking Member of the House Agriculture Subcommittee on General Farm Commodities and Risk Management, explained that he would continue to be a vocal supporter and champion for the country’s sugar producers.

Sugar policy is part of the 2018 Farm Bill and attempts to weaken it by a handful of opponents during debate on the House floor were summarily rejected thanks to Thompson and others.

“We defeated efforts to repeal the sugar program with a remarkable 141-vote margin,” he said. “That type of decisive [vote] should resolve once and for all that our current U.S. sugar policy is good for both the American consumer and for our hardworking sugar producing farm families.”

No-cost sugar policy, which is based on loans that are repaid with interest, is particularly important given the heavily subsidized nature of foreign sugar production, he noted.

In addition to maintaining a strong farm safety net, Thompson outlined other areas that he thinks are important for the House Agriculture Committee and Congress as a whole.

“The greatest challenges before agriculture are regulatory reform and resolving trade agreements,” Thompson said. “Tackling both of those areas will help our farmers compete on a level playing field.”

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