Forum and wire reports, Published July 29 2013
USDA tries new strategy to stem glut of sugar imports
Record production and imports are poised to sweeten the U.S. market a bit too much.
“This is a lot of sugar for our country to cope with,” said Jack Roney, director of economics and policy analysis at the American Sugar Alliance, an industry group of U.S. sugar producers.
“Prices are dropping to levels not seen since the 1980s, and the USDA is trying to avoid the consequences of that catastrophe.”
To deal with the glut, the U.S. Department of Agriculture has taken the unusual step of retiring sugar-import credits and purchasing more than 100,000 tons of sugar, which allowed it to take 330,000 tons of surplus sugar off the market.
The plan, which cost $43.8 million, weaved through a maze of sugar policy, transferring purchased sugar from the Agriculture Department to refiners in an attempt to lower foreign imports. In return, refiners surrendered import credits that had been awarded to allow them to bring in sugar from overseas.
Kevin Price, director of government affairs for Moorhead-based American Crystal Sugar Co., said the company supports the USDA’s attempts to balance the sugar market.
“We appreciate the actions USDA has taken in recent weeks. It’s been helpful in using the tools and the laws within its authority to try to reduce the oversupply,” Price said.
“The issue is serious,” he said. “Prices have dropped dramatically in the last several months and we’re not sure where things are headed.
“We do know there is a lot of excess sugar in the U.S. market and that Mexico is the biggest reason; they continue to send us way more sugar than we need,” Price said.
David Roche, president and CEO of Minn-Dak Farmers Co-op, based in Wahpeton, N.D., said Minn-Dak also appreciates what the USDA is trying to do.
But, he added, “We’re not sure it will be enough, or timely enough.”
Price and Roche said American Crystal and Minn-Dak, like other companies around the U.S., are weighing whether it will be necessary to take advantage of provisions in federal law that allow companies to forfeit commodities to the government as a means of paying off federal loans they have taken out.
The Agriculture Department expects the steps it’s already taken to save an estimated $66.9 million by avoiding loan forfeiture costs from its sugar loan program. But many in the industry say the move doesn’t make up for what they claim is outdated policy.
Brian Mabry, acting coordinator of the USDA’s communications office, said officials had to act among “atypical market conditions this crop year, including record yields and increased imports.”
Mexico’s recent sugar surplus is causing problems because provisions in the North American Free Trade Agreement give it unlimited access to the U.S. market.
A June Agriculture Department report predicts Mexico will export its record sugar surplus to the U.S., shipping more than 1.9 million tons into an already-saturated market.
“It’s really become one market only separated by the costs of moving product around,” said Tom Earley, vice president of Agralytica, a Washington food and agriculture consultancy.
Couple the solid season in Mexico with what Agralytica says is another strong crop in the U.S., and domestic prices are at prolonged lows.
Sugar prices are nearing levels unseen since the 1980s. Prices have fallen to 16 cents per pound for raw sugar. U.S. prices peaked at an average of 38 cents per pound in 2011, after having fallen to 18 cents in 2000.
And a low price for sugar means trouble for growers, Price said.
“It certainly reduces the return to American Crystal shareholders,” he said. “If the price of sugar is low, the payments to the growers will be lower.”
Price thinks the government should continue its efforts to rebalance the market and “get it back to a fair level that allows us and other companies to repay these (USDA) loans with interest and gives growers an opportunity to make a decent return raising beets.”