Deja Vu All Over Again
The consensus is out. Food prices are entering an inflationary environment due in large part to the increased cost of commodities, including sugar.
CSC Sugaright has always stood on the side of the sugar users, supporting government measures to expand imports under quotas to ensure that supply and demand remain in balance. Such practices ensure that food manufacturers and consumers do not pay more than a fair price for sugar.
A Bit of History Gives Warning
For 30 years, the longstanding US government policy had been to keep sugar prices moderately above the loan forfeiture levels set in the farm legislation. Obama’s administration went the complete opposite direction, limiting imports under quotas, forcing the domestic prices to full Tier 2 levels over the world market (which was also spiking).
If we look to the past during a similar time, a 2009 Promar International Report by Tom Early gives warning on how a similar supply/demand situation resulted in some of the highest sugar prices in a decade.
The refined sugar price is above world market refined prices by roughly the second tier duty of 16.2 cents (35.74/kg), surely not a coincidence. The Number 16 has shot up as refiners had to bid quota sugar away from the strong world market. For producer-owned refineries it just means they make their money at the mill rather than the refinery. But for Imperial and others, it is a real cost. Prices will stay high as long as USDA sits on its hands. If they take no action until April, refined prices will probably go to 50 cents or more. The charts on the next page show various price comparisons. They include estimates for November. Retail consumer prices for sugar will likely go over the 60-cent mark by December. They averaged 58.6 cents in September, up by about a third from four years ago. And a five-pound bag that was $2.00 back then is headed for $3.00 now.
And Then There Was the Mexican Suspension Agreement
This change in policy continued until 2013 when the US, Mexico and virtually the entire world had bumper sugar crops, bringing high prices to an end. Low prices also brought on the dumping suit by the US sugar industry against Mexico. The result was a Suspension Agreement which added an additional 5 cent per pound support to the US domestic price, at the expense to the consumer and to the benefit for the US growers.
Under the next administration, in 2017, an agreement on final amendments to the antidumping duty (AD) and countervailing duty (CVD) suspension agreements raised the price of both raw and refined sugar from Mexico even more to the detriment of all US sugar users.
To date, it appears the decision makers at the USDA of the current administration have no interest in increasing sugar supply, even though both cane and beet prices are trading at least 50 percent above the cost of production. Token quota reallocations done too late in the year as well as minor increases in the specialty quota are for show, not substance.
On top of this, severe drought in the upper mid-west will likely bring on force majeure from beet suppliers, and eventually an increase in the quota from Mexico. However due to the terms of the Suspension agreement, the final quota will not be known until April of 2022, after the current crop year so too late for industrial users to respond.
World sugar prices are likely going higher due to weather issues in Brazil.
We predict US sugar prices are very likely going to trade at full Tier 2 levels (World price plus freight plus 16 cents per lb tariff). March #11 futures are trading at 19.00 cents per lb as of this writing:
19.00 FOB origin +3.50 freight + 16.00 tariff= 38.50 (Prices and costs are approximate).
No one wants to go back to 2010. While our government cannot control the price of most commodities, sugar is one where they have tremendous control, and they are sending the message: “We want inflation.”
Bi-partisan efforts in Congress to reform the US Sugar Program have failed in the past, but new legislation is being proposed that could offer more protections to manufacturers and consumers, specifically by addressing the use of import quotas to minimize price increases.
CSC Sugaright supports such efforts to protect our Sugaright customers and ultimately the consumer. And we appeal to the US government to reestablish policies that expand imports under quota to maintain a fair price for all.