Good-bye to 2022: The Bitter and the Sweet
It’s that time of year when we reflect on the past to help us inform the future. And so, we offer you some of the topics of 2022 that created both challenge and opportunity during the recent twelve months.
Government Influence on Sugar Supply and Prices: DOJ vs USDA
Alleging a risk of higher sugar prices for consumers via industry consolidation, the DOJ filed suit to prevent the purchase of Imperial Sugar by U.S. Sugar. The judge did not see it that way, and the deal was allowed to go through at a time of high inflation in food costs. In contrast to the actions of the DOJ, the USDA continued their oligopolistic tendencies to protect domestic growers resulting in guaranteed high prices through restricted supply of imported raw sugar. The question remains, “Who is watching out for the food manufacturers who require a fairly priced and assured supply of a key ingredient?”. If the DOJ and food manufacturers can’t influence fairness, it is hard to imagine who can.
Catastrophic Weather Events Become Routine
History is not always a predictor of the future; however, it projects some significant disruption in supply - either weather, crop failure, port labor strike or something combustion related. As a result, optionality will rule the day and fewer customers, of significant volume, remain single-sourced.
Lat year, two beet suppliers officially declared force majeure. In addition, we saw port, rail and river disruptions that effected supply - clearly the case for supplier diversification and higher raw sugar import quotas has never been stronger.
Sustainability Continues to Be a High Priority
Food companies have increased their requests for supply-chain visibility and transparency. And many are funding projects in their supply chain with a laser focus on impact. Several larger industry customers have requested SMETA audits and third-party validation of socially responsible business practices.
Where Have All the Workers Gone?
The labor market continued to be tight, accelerating the need for companies to seek efficiency, specifically moving away from labor intensive dry sugar handling, and moving towards liquid sucrose when possible. Fewer employees translate into lower labor costs. The end of dumping 50# bags may be near.
Transportation Got Expensive
Tanker carriers and trucking companies took strong pricing positions, citing increased fuel and labor costs. Note that the tanker carriers didn’t come off their prices once fuel dropped and trucking capacity opened up, which highlights the unfortunate stickiness to inflation. Service issues, borne out of driver availability, were rampant in the industry, which played to the customers that had local, consistent demand.
Supply/demand drove demand for oil as the global economy recovered, this led to a flurry of fuel surcharges in early 2022. The nature of our micro-refinery business model provides some insulation to those rising costs, as it is less impactful, and Sugaright hedges fuel to protect customers. We have never sent a customer a fuel surcharge invoice in our history.
Supply Chains Got Shorter
Sugaright’s micro-refinery strategy of co-locating near large customer concentrations continued to gain momentum. Customers reduced costs, while improving their sustainability, cost and service scenario. Our competitors continued to put capacity in remote, weather ravaged parts of the country - creating significantly more challenging supply chains to the industrial users. Additionally, traditional refiners keep investing in old assets in a desperate attempt to keep them viable - preventing innovation, expansion and improved customer experiences.
Early Buyers Made the Play-offs
Hail Mary’s are successful 2.5% of the time in the NFL, that is about how successful buyers were who waited too long to book volume last year. Prices continued to escalate throughout 2022 - with spot pricing nearing $1/# in some markets. The winners were Buyers who bought early and went with trusted sources.
Next week, we will make our predictions for 2023. What will change? What will stay the same? What opportunities can be found in the midst of constant change?