US Sugar Supply: When a Solution is Not a Solution

Today, buyers and procurement managers are facing extreme difficulties to consistently supply their manufacturing lines with the necessary ingredients to keep production running. Refined sugar is no exception. Currently, industrials are not even able to solicit quotes from the already short list of U.S. suppliers in addition to struggling to receive sugar already under contract. In the past seven days, the USDA has taken two forms of action to add to the U.S. sugar supply by way of increasing raw sugar availability. We believe these latest actions taken by the USDA will help alleviate raw sugar prices in the near term but will not address the refined supply shortage. The only practical action to help alleviate some of the supply constraints would be to give immediate additional access to Mexico in the form of refined sugar above 99.5 Polarity.

Let us explain… On Friday, upon the request of the USDA, the Department of Commerce increased Mexico’s Export Limit to the United States by 135,000 STRV. As this was done after May 1st, the definition of ‘Other Sugar’ as defined in the Mexican Suspension Agreements apply, where the sugar may measure up to 99.5 polarity. The USDA stated that it “has identified a need for additional sugar supplies in the U.S. market”. And the Foreign Agricultural Service provided notice to increase the FY 2022 TRQ by 90,718 MTs, while also extending the entry period to October 31st. The allocation by country is yet to be published. These two recent announcements follow earlier action taken in the year as the USDA looks to slowly replenish the beet sugar supply that came in lower than expected. Replacement of this refined supply, to date, has strictly been in the form of raw sugar. So why won’t this help?

To answer this question, we feel a distinction must be made between the U.S. raw sugar price and the availability of refined supply. Recent USDA action has helped to temper nearby NY #16 raw sugar futures, putting the forward curve at an inverse for the first time in quite a while. Today, the Sep/Nov spread traded at 100 points discount.

Of course, prices next year have remained unphased as the proverbial clock gets reset at the end of September when the USDA will solve for 13.5% S/U ratio as mandated in the Mexican Suspension Agreements.

The difficulties that buyers are facing in the market with regards to refined sugar supply aren’t caused by cane refineries not being able procure raw sugar. According to the data published by the FSA in the ‘Dairy and Sweeteners Analysis’ report, raw sugar inventories held by cane refineries were 877, 316 MTs on April 30th this year, the highest since December 2020. Since the beginning of FY 2015, it’s the second highest April recorded inventory, behind April 2018 where cane refiners held 957,580 MTs at the end of the month.

As a result of restricted imports, world priced sugar paying the full Tier Two tax has been the fall back, and the NY #16s market has traded up as a result. So when discussing the tightness seen in U.S. raw sugar supplies, this can only be in reference to low dutiable sugar. To say that cane refiners don’t have access to raw supply at current prices, would be to say that the world market is also short supply and unwilling to ship to the US.

The reliance on High Tier sugar can be seen in the ‘Sugar Monthly Import and Re-Export Data’ report published by the Foreign Agricultural Service. From October 2021 through May 2022, 184,547 MTs of sugar have entered the U.S. Commerce paying the full prohibitive Tier Two Tariff, with over 50% being Brazilian origin.

Simply put, raw sugar is available… albeit at a price.

The issues that sugar buyers face today are much more a direct result from issues further up the supply chain, after the raw sugar has arrived. This is proven simply by the White Premium being demanded in the spot market by traditional refineries, which when referencing the Wholesale Northeast Refined Cane Price published by the ERS of 65.60 c/lb, is 29.45 c/lb against a NY #16s value of 36.15 c/lb.

As a result of the lower than anticipated beet crop for the current year, and continuing fears about next year’s crop due to delayed plantings, domestic suppliers are putting customers on allocations and managing contracts on a month-to-month basis, providing no flexibility. Across the industry, suppliers are requiring longer lead times on orders, restricting rescheduling of POs, and imposing additional fees and charges.

The irony is, the same suppliers that default on their contracts, are now enforcing stricter contract terms.

Refined sugar buyers are now exposed to an extremely fragile U.S. supply, where exorbitant pricing has taken a back seat to security of supply.

Without an increase in the quota of Mexican sugar over 99.5 pol, buyers will continue to be a victim of the logistical and operational inefficiencies around U.S. refined sugar supply.

What can buyers do?

1) Contact the USDA requesting an immediate increase in the quota for Mexican sugar above 99.5 Polarity.

2) Consider changing sugar color specifications to 350 RBU as a long-term solution to higher prices. Demand for Sugaright 350 continues to increase as innovative customers and savvy buyers realize the long-term benefit.

The Sugaright and CSC Team are currently at the IFT First Food Expo.