US Sugars Outlook January 2010

Higher cane sugar production in Louisiana more than offsets lower output in Florida and Hawaii. The Florida and Hawaii estimates are based on reduced area harvested, as reported by processors to the Farm Service Agency. Louisiana sugar production is based on factory-level information through the end of December and projected output for the remaining 2 weeks of the campaign in January. Imports and exports under the U.S. reexport program are reduced 50,000 STRV—each based on the slow pace to date. Sugar use is unchanged. Ending-year stocks are increased 124,000 STRV to 1.140 million STRV.

For Mexico, projected FY 2010 supply is reduced 242,000 metric tons, raw value (MTRV) from last month. Production is lowered 100,000 MTRV, based on weather reduced sugar yields to date. Imports of 55,000 MTRV under Mexico’s import quota, which did not arrive in FY 2009, are expected to arrive in FY 2010. This shift is nearly offset by reduced imports from U.S. refiners under the re-export program. For FY 2009, reduced ending stocks result from lower imports and higher exports based on final data from Mexico.

U.S. Sugar

In the January 2010 World Agricultural Supply and Demand Estimates (WASDE), the U.S. Department of Agriculture (USDA) published complete-year U.S. sugar supply and use estimates for fiscal year (FY) 2009 and projections for FY 2010. U.S. beet sugar production for FY 2010 is projected at 4.400 million short tons, raw value (STRV), a drop of 450,000 STRV from its expected value in August 2009 and only 5.6 percent more than last year’s small crop of 4.166 million STRV.

Rain and low temperatures since the beginning of October have affected the sugar beet harvest in northern growing areas. This has resulted in lower sugar beet yields (down from 28.2 tons/acre projected in August to 25.8 tons/acre estimated at the end of the harvest) and, by processor reports, lower beet sucrose levels. The forecast sugar beet crop in the Red River Valley is 13.5-percent lower (15.324 million tons) than the forecast in August (17.709 million tons). The crop forecast in Michigan is down by 9.6 percent from August’s 3.672 million tons to 3.318 million tons. Also, the Great Plains crop is down 5.8 percent from August (3.907 million tons compared with 4.147 million tons). Only in the Pacific Northwest and California is the crop forecast about the same as in August (6.970 million tons).

The cane sugar forecast for FY 2010 is 3.437 million STRV, a year-over-year increase of 3.6 percent. Relative to last year, the largest increase is in Florida: this year’s estimate of 1.680 million STRV is about 6.5 percent higher than last year’s 1.577 million STRV. Estimated sugarcane yield is higher at 36.4 tons/acre compared with last year’s 32.9 tons/acre, but harvested sugarcane area for sugar is 12,000 acres lower at 372,000 acres. Florida’s estimate was made as of early January and does not take into account the recent nighttime below-freezing temperatures that may have affected the crop.

FY 2010 sugar production in Louisiana is estimated at 1.450 million STRV. This amount is 53,000 STRV more than last season and is also 150,000 STRV more than what was expected in the December 2009 WASDE. Harvested sugarcane area for sugar is estimated at 390,000 acres, an increase of 10,000 acres over last year and, more surprisingly, 15,000 acres more than that estimated in December 2009 for this year’s crop. Estimated sugarcane is 31.0 tons/acre, up from last year’s 28.3 tons/acre and the December estimate of 30.0 tons/acre. It has been speculated that, although this year’s sugarcane crop might be larger than last year’s, lower sucrose content might limit the size of the crop. Nonetheless, sucrose yield per acre is now calculated at 3.72 STRV, up from last month’s implied level of 3.47 STRV.

With the closing of the Gay and Robinson sugar mill in Hawaii, less cane area is available for the 2010 harvest. Accordingly, FY 2010 Hawaii sugar production is forecast at 137,000 STRV, compared with 192,000 STRV in FY 2009. The Texas cane mill has been reporting production at 170,000 STRV since November. This represents 11.8 percent growth over last year, attributable to a larger sugarcane crop (3.3 percent higher) and better sucrose recovery: 12.45 percent (high for Texas) compared with 11.50 percent last year.

On September 25, 2009, the USDA established the FY 2010 import tariff-rate quota (TRQ) for raw sugar at 1,231,497 STRV, the minimum amount to which the United States is committed under the World Trade Organization (WTO) Uruguay Round Agreements. The FY 2010 refined and specialty sugar TRQ was established at 99,251 STRV. This amount includes the WTO minimum amount of 24,251 STRV, 1,825 STRV of which is reserved for specialty sugar, as well as an additional 75,000 STRV for specialty sugar to accommodate a rapidly expanding organic food sector.

Imports for FY 2010 are projected in the January WASDE at 2.377 million STRV. Expected raw sugar TRQ entries are the allocated amount (1.231 million STRV) less shortfall (196,744 STRV), or 1.035 million STRV. Expected refined sugar TRQ entries are projected at 95,994 STRV. This is less than 100 percent because a required allocation made to Mexico of 3,256 MTRV is redundant because Mexico has unrestricted import access under the North American Free Trade Agreement (NAFTA). (Note that total sugar TRQ shortfall is 200,000 STRV.) Other TRQ entries under free trade agreements are projected at 126,348 STRV, of which 98.2 percent come from parties to the Central American Free Trade Agreement (CAFTA). Other program sugar imports outside the sugar TRQ for FY 2010 are projected to total 350,000 STRV. (This was reduced in the January WASDE by 50,000 STRV due to slow paceto- date entries.) These other USDA import programs include the Refined Sugar Re-export Program, the Sugar- Containing Products Program, and the Polyhydric Alcohol Program. High-tier tariff sugar imports and sugar in imported syrups are projected at 10,000 STRV.

Sugar imports from Mexico for FY 2010 are projected at 760,000 STRV. Although Mexico is forecast as a small net importer next year, strong U.S. demand for raw sugar is projected to be a large draw for Mexican estandar sugar, especially if the U.S. raw sugar TRQ does not increase in the second half of FY 2010. Many Mexican sugar mills face difficult financial conditions that make sales to the United States attractive compared with holding the sugar in inventory for domestic sales at uncertain prices later in the year. Even so, sugar prices in Mexico have been decreasing since September 2009 and are now close to corresponding U.S. sugar price levels. It was in September that the Mexican Government announced TRQ allocations that allowed for sugar imports up to 550,000 metric tons to meet domestic demand through the rest of 2009. The Mexico City estandar price in mid-September was at 47.0 cents/pound (lb) and the refined sugar price 50.2 cents/lb. During the week ending January 8, 2010, Mexican estandar and U.S. raw sugar prices were both about 36-38 cents/lb, and corresponding refined sugar prices were between 45- 48 cents/lb in each country.

Sugar entries through the end of November (not counting high-tier tariff sugar) are estimated at 528,225 STRV, or about 22.2 percent of expected imports. Raw sugar TRQ entries are estimated at a relatively high amount of 367,915 STRV, or 35.6 percent of the expected total, through only 2 months of the fiscal year. Imports from Mexico have totaled only 76,993 STRV, or 10.1 percent of the expected total. These imports arrived in U.S. Customs territory on surface transport rather than by ocean transport. Most of these imports were probably for direct consumption and not for further processing.

Estimates of monthly production, deliveries, and ending-year stocks are sourced from Sweetener Market Data (SMD), as published by the Farm Service Agency (FSA). These data are from FSA surveys of sugar refiners and processors. The SMD contains several “miscellaneous” use categories. These account for intra-industry sales less receipts, refining losses, and residual inventory adjustments. Corresponding with full implementation of NAFTA in January 2008 has been a sustained trend of increasingly large negative miscellaneous SMD use. In an effort to correct for this large and growing imbalance in the data accounting, FSA instituted a new method of estimating imported refined sugar (counted as a food delivery) each month. The approach is explained by FSA in their September 2009 SMD released in November. However, the imbalance is only partially eliminated. Given the unresolved data accounting problem, the World Agricultural Outlook Board (WAOB) (with the concurrence of the Sugar and Sweetener Team at the Economic Research Service) decided to combine the food deliveries and miscellaneous categories in order to maintain comparability across FY 2008-10. In effect, ending-year sugar stocks reported by SMD are assumed valid but SMD-reported deliveries for food use are likely overstated. FSA is expected to resolve the data problem eventually and publish revisions to the food deliveries series. In the meantime, the sugar WASDE reports the combined series of food deliveries and miscellaneous uses for FY 2008-10.

In the January WASDE, combined sugar food use deliveries and miscellaneous use for FY 2008 are estimated at 10.506 million STRV and at 10.479 million STRV for FY 2009. These compare with the food use deliveries earlier estimated at 10.571 million STRV for FY 2008 (lowered by 65,000 STRV) and 10.735 million for FY 2009 (lowered by 256,000 STRV). The combined series for both FY 2008 and FY 2009 still imply significantly higher sugar deliveries compared with FY 2007 sugar food use deliveries of only 9.913 million STRV. Sugar food use deliveries and miscellaneous use for FY 2010 are projected at 10.140 million STRV. The USDA expects substantial reductions in imports of direct consumption refined sugar from Mexico. Ending FY 2010 stocks are projected at 1.140 million STRV, implying an ending-year stocks-to-use ratio of 10.8 percent.

The Inter-Continental Exchange (ICE) raw sugar March No.16 futures contract has averaged 36.8 cents/lb since the first of the year through January 11, about 9 cents/lb higher than the corresponding world price (No.11 ICE March contract). The high margin reflects tightness in domestic supplies and is needed to keep the U.S. competitive in bidding TRQ sugar away from other importing countries. Also, uncertainty about future TRQ increases and less-thancertain Mexican imports are being factored into the market. In like fashion, the refined beet sugar price in the Midwest has been quoted at 45 cents/lb from October through December and is at 48 cents/lb as of January 8.

Mexico Sugar and HFCS

Mexico sugar production for fiscal year (FY) 2010 is forecast at 5.300 million metric tons, raw value (MTRV), only 40,000 MTRV more than the FY 2009 disappointing production total of 5.260 million MTRV. Within the Mexican Government, the interagency group that oversees the nation’s sugarcane industry—Comite Nacional Para El Desarrollo Sustentable de la Cana de Azucar (CNDSCA)—in November 2009 projected sugarcane area at 643,000 hectares, a decrease of about 20,000 hectares from last year. Yield was forecast at 66.2 metric tons (mt) per hectare, a slight increase over last year’s 64.2 mt, and sucrose recovery was forecast at 11.69 percent, tel quel basis, about the same as last year. These parameters imply sugarcane production at 42.540 million mt and sugar production at 4.974 million mt, tel quel, or 5.272 million MTRV. Other groups within Mexico have their projections, and most fall with these ranges.

Sugar production through January 2, 2010, has fallen behind forecasts. The Union Nacional de Caneros (a sugar growers’ union) had estimated 858,644 mt of production through January 2, but only 650,872 mt has been produced, a gap of 207,772 mt. Nationally, sugar production is 1.3 percent higher than in the same period last year; however, in the largest sugarcane-growing State of Veracruz, production is running 5.5 percent below that of last year. The harvest there has been negatively affected by cold and wet harvest conditions. About 2.8 percent less area has been harvested compared with last year, and sucrose recovery is only 9.2 percent, a full percentage point less than last year through the same date. Indications are that factories scheduled to open have had their opening dates pushed back.

In the January 2010 WASDE, Mexico FY 2009 exports and imports were adjusted based on official trade statistics issued by Mexico’s Secretariat of the Economy. Excluding exports of flavored sugar under tariff code 170191 (USDA treats these products as sugar-containing products), total exports amounted to 1.290 million mt, tel quel, or 1.367 million MTRV, of which 63.1 percent were refined sugar under tariff code 170199. Almost all exported sugar (98.3 percent) was shipped to the United States (excluding Puerto Rico).

Total imports of sugar into Mexico are reported at 150,710 mt, tel quel, or 159,752 MTRV. Most of these imports— 82.2 percent—were from the United States. Most imports from the United States, if not all, occurred under the U.S. Refined Sugar Re-Export Program with the purpose of supplying sugar to Mexico’s sugar-containing product reexport program, or IMMEX. Prior to the January WASDE, the USDA had been estimating FY 2009 Mexico sugar imports at 215,000 MTRV, the sum of re-export sugar from the United States and sugar for human consumption under Mexico’s allocated amounts of TRQ access for calendar year 2009. The gap between the expected and realized import total (that is, 55,000 MTRV) is added to the level of imports expected in FY 2010. Additionally, the USDA expects exports under the Refined Sugar Re-Export Program to drop about 50,000 STRV in FY 2010. Because these exports go mostly to Mexico, Mexican FY 2010 imports were adjusted downward by 45,000 MTRV. The net increase in FY 2010 imports is, therefore, 10,000 MTRV, for a total of 720,000 MTRV.

The USDA projects Mexican sugar exports at 690,000 MTRV (see U.S. sugar section above), which would make Mexico a small net importer of sugar in FY 2010. Mexico domestic deliveries of sugar in FY 2009 and FY 2010 were not changed in the January WASDE.

Official trade data finalized the estimation of high fructose corn syrup (HFCS) imports for FY 2009. Imports of HFCS42 from all countries amounted to 21,500 mt, dry basis.1 Imports of HFCS55 from all countries amounted to 297,900 mt. Assuming domestic HFCS production at about 345,000 mt, total HFCS supply is calculated at 664,400 mt. With official trade data indicating that FY 2009 HFCS exports were at 11,000 mt, apparent consumption is calculated at 653,400 mt. With high sugar prices in Mexico expected for much of FY 2010, the USDA expects HFCS consumption in FY 2010 to grow to 900,000 mt.

Further Reading

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February 2010