Stocks, Not Shocks

It is clear that when the Mexican Suspension Agreement defined the targeted stocks to use ratio at 13.5% stocks, it insured prices above forfeiture levels, but it has not proven capable of absorbing shocks to supply.


The Problem

The USDA holds the responsibility to insure an adequate supply of fairly priced sugar to the food industry in the event of unforeseen shocks to the system. Recently sugar stock shocks have been borne out of:

· extreme weather events,

· a global pandemic,

· aged refinery reliability issues, and

· transportation challenges


Meanwhile the user community subsidizes the restrictive stocks to use philosophy through higher prices. Letting prices run is neither fair to consumers nor does it encourage the sugar producers to improve their overall reliability - why would you if you are rewarded with higher prices?



The Solution

The USDA has a dual mandate of default avoidance and supply security. The current price/supply scenario makes it clear that the 13.5% is no longer adequate to meet both objectives. A 15.5% stocks to use ratio would provide the market with enough sugar to minimize some of the effects of these weather, geo-political and industry related disruptions.


We commend some refiners who have begun to invest in warehousing capabilities, which will in a small way enable them to potentially smooth out supply disruptions; to become a better supplier without a government mandate.


But now it is time for the USDA to do fulfill both parts of its mandate. They have done an exceptional job of increasing the profitability of big sugar by creating a floor price to prevent default, but it is now time to work on the other half of its responsibilities - to insure adequate supply to the industry without displacing costs to the user community and eventually the consumer who has to fund this market dysfunction.



Immediate Action

There is little doubt that increased frequency of weather events and now a global pandemic have changed the risk calculations. Thus, CSC Trading and Sugaright are calling for an immediate lifting of the 13.5% stocks to use ratio to 15.5% and with that an elevation in the available supply of raw sugar into the market. Immediately.


And we are asking our Sugaright customers to contact their government officials and trade organizations to add their voice to ours. We commend all they have done to keep food on our shelves and in our stomachs during a very challenging time, most with minimal government support. And so, we believe they deserve a stable supply and a fair price of a key commodity.


Stocks, not shocks.

Featured Posts
Recent Posts
Archive
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square