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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


20 April 2012

USDA GAIN: Mexico Sugar Annual 2012USDA GAIN: Mexico Sugar Annual 2012

Sugar production for marketing year (MY) 2012/13 (October/September) is forecast slightly higher at 5.45 million metric tons – raw value (MMT-RV) as producers continue to see better weather. Sugar production for MY 2011/12 was revised downward as the impact of the drought in Mexico affected several cane areas, reducing yields. High sugar prices compared to high fructose corn syrup (HFCS) prices are encouraging food and beverage manufacturers to continue substituting HFCS which, in turn, makes greater amounts of sugar available for export. The Post/New MY2012/13 sugar export forecast is 1.4 MMT-RV. Exports for MY 2011/12 were lowered from previous estimates to 1.15 MMT-RV, due to weather related production shortfalls.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

PRODUCTION

SUGAR

The Mexican sugar industry expects sugar production levels for MY2012/13 (Oct/Sept) to be similar or slightly higher than in MY2011/12. Although there is no official Mexican forecast for sugar production for MY2012/13, the Post/New forecast is 5.45 million metric tons - raw value (MMT-RV), a 2 percent increase over Post/New MY 2011/12 production estimate. Although current year sugar production has been affected since 2010 by a long drought, sugar cane producers are optimistic that recent rainfall (February 2012) will be beneficial for sugar cane yields and sugar content for MY 2012/13. Final production will depend on timely maintenance of sugar mills, appropriate cultivation practices, weather throughout the growing season, and harvest conditions.

The Mexican National Committee for the Sustainable Development of Sugar Cane (CONADESUCA) issued the Second Estimate of Sugar and Cane Production for MY 2011/12 with data through March 16, 2012. Accordingly, the Post/New estimate for MY 2011/12 sugar production is 5.34 MMT-RV (5.036 MMT-Tel Quel), which is down slightly from the revised production estimate published by CONADESUCA in January 2012, of 5.4 MMT-RV (5.098 MMT-Tel Quel). Sugar production has been affected negatively by weather related issues (the above mentioned drought and harvest-delaying rains) that have affected the pace and yield of sugar production. According to industry, rain events delayed the ongoing harvest to the extent that 8 mills had to suspend activities during the week of February 18, 2012.

The industry estimates overall cane yields at 64.9 MT/hectare (ha) for MY 2011/12, lower than the previous MY 2010/11 yields of 65.5 MT/ha. Mill yield estimates are expected at about 10.98 percent compared to mill yields of 11.75 percent in MY 2010/11. According to CONADESUCA’s Sugar Production Advance Report #18 of March 17, 2012 (week 25 of the current year’s harvest), 61 percent of the sugar cane harvest is complete, 65 percent of cane milling is complete, and 63 percent of sugar production is complete, based on estimated totals for each category. A total of 54 mills were actively working this cycle. The Post/New sugar production estimate for MY2010/11 remains unchanged at 5.49 MMT-RV.

There are currently 57 sugar mills across 15 of Mexico’s 32 states. During MY2010/11 and MY 2011/12, three mills did not operate due to diverse management issues. The cane that would have gone to these mills, however, was diverted to other mills for processing so overall sugar production was not affected. The three sugar mills that did not operate were Independencia, Concepcion, and San Gabriel in the state of Veracruz. As of Report #18, two sugar mills have completed their MY2011/12 operations.

Growers are organized within two major unions that represent over 95 percent of all cane growers. These unions are the National Sugarcane Growers (affiliated with the CNC- strong organization of peasants/small agricultural producers very close to the PRI Party) and the National Association of Sugarcane Growers (CNPR). All growers operate with contracts to deliver their cane to the mills. In Sugar Cane for Centrifugal exchange, they receive technical support and agrochemicals from the mills to grow cane. The industry has been fostering better working relationships between mills and sugarcane grower associations to better integrate overall sugar production.

Sugar Cane Production

Although there is no official Mexican forecast for sugar cane production for MY2012/13, the Post/New forecast is 45.9 MMT, just slightly above Post’s cane production estimate for the current year. This small improvement is driven by expectations for improved weather conditions. In addition, a continuation of the current high sugar prices may encourage better cane management practices (e.g., increased fertilizer applications) and expansion of production areas, factors that could result in even more available cane for harvesting in the next marketing year. The Post/New sugar cane production estimate for MY 2011/12 is revised upward just slightly from CONADESUCA’s revised production estimate (from 45.74 MMT to 45.85 MMT), based on CONADESUCA’s Second Estimate. Sugar cane production for MY2010/11 was revised slightly upward to 44.09 MMT based on updated CONADESUCA data.

As previously reported, virtually all sugar cane goes to the production of centrifugal sugar. Mills operate between November and May to coincide with the cane harvest. Although there is no official Mexican MY2012/13 forecast for sugar cane planted area, the Post/New forecast is 762,000 ha, a negligible increase over the current year estimate . In addition to sugar prices, area expansion will depend on weather conditions, production cost changes, and the level of continued investment by sugar mills. Post’s estimates for planted and harvested area for MY2011/12 are revised upward to 760,000 ha and 706,185 ha, respectively, based on CONADESUCA’s Second Estimate. The Post/New MY2010/11 planted and harvested area estimates were also revised upward based on CONADESUCA’s data.

Phytosanitary Issues

In 2010, the Plant Health Directorate from SAGARPA began operating the Phytosanitary Surveillance Program, establishing a monitoring network to detect on a timely basis, the presence and entrance of pests of quarantine importance, including orange rust (Puccinia kuehnii (Krüger)), a fungal pest that can cause substantial yield losses. Epidemiological surveillance of orange rust is operating in the states of Veracruz, Morelos, Chiapas and Quintana Roo, as these states are at risk for the establishment of the pathogen. Monitoring of this pest is focused mainly on varieties that are more susceptible, such as CP 72-2086 and MEX 79-431. Distribution in Mexico of this pest has been reported in the municipalities of Villa Comatitlán, Mazatán, Huehuetán, Huixtla and Tuzantan in the state of Chiapas, Sergio B. Homes, Othon P. White, in the state of Quintana Roo and Ursulo Galvan for the state of Veracruz.

Sugar Cane Reference Price

Cane growers receive payment for their cane from sugar mills. The price is negotiated each year and is based on a complex formula involving sugar prices and other domestic and international market conditions. These factors are used to determine the Sugar Cane Reference Price. According to Article 58 of the Law of Sustainable Development for Sugar Cane, approximately 57 percent of the Reference Price is paid to growers for their sugar cane. Throughout the year, depending on prices, two additional payments can be made to growers. The first opportunity is during the summer after mills have made significant sales. At the end of the cycle, a final adjustment is made, resulting in the next marketing year’s Sugar Cane Reference Price and a potential final payment to growers. As announced by the Secretariat of Economy (SE) on October 24, 2011, the Reference Price to calculate sugar cane payments for the MY2011/12 crop is $10,368.58 pesos per MT (US $768.61/MT at the exchange rate of 13.49 pesos per dollar) which is almost 1.5 percent more (in local currency) than last marketing year’s Reference Price of $10,222.26 pesos per MT (US$819.74/MT at $12.47 pesos dollar). (See Report MX1081 -2011 Sugar Reference Price). As outlined above, the October 2011 Reference Price was used to calculate the final payment to growers for the previous cycle, as well as the first payment of the MY2011/12 cycle to growers upon delivery of the cane to mills. Recent Reference Prices and payment levels are listed below in Table 1.

Sugar Wholesale Prices

The SE through the National Market Information Service (SNIIM) reports sugar prices on a monthly basis delivered to different cities in Mexico from different mills. The prices in Table 2 and 3 are for monthly prices of sugar delivered to the wholesale market in Mexico City on a 50-kilogram bag basis. Since February (Standard sugar) and March (Refined sugar) 2011, market prices increased month to month and this, reportedly, was one of the factors leading SE to announce TRQ’s as a means of controlling prices and/or speculation (See 2011 GAIN Reports MX1065 Mexico to Consider Additional Sugar TRQ’s and MX1078 Mexico Announces a New Sugar TRQ for MY 2011/12). However, with the beginning of the new harvest, October/November 2011, prices began to reflect a normal downward tendency. Regardless, sugar prices in 2012 remain higher compared to 2011 prices.

HFCS PRODUCTION

Despite high global corn prices, the Mexican high fructose corn syrup (HFCS) industry believes it will continue producing HFCS at almost the same levels as in the previous year. The industry is confident that future corn prices will be decreasing; therefore they expect their cost of production to be lower. According to industry sources, HFCS production for MY2011/12 and MY2012/13 is forecast to be between 465,000 MT and 467,000 MT dry basis. Production for MY 2010/11 was 466,795 MT dry basis. Industry members indicate that there is no additional HFCS manufacturing capacity being built or expanded in Mexico. Sources report that it is easier and more financially prudent at this time to import the remainder of the HFCS demand. The Mexican HFCS industry produces fructose with domestic and imported U.S. yellow corn. According to IDAQUIM, the industry group that represents HFCS producers, this industry consumes about two million tons of yellow corn of which 80 to 90 percent is imported. The United States will remain the main supplier of corn to Mexico for the near future.

The Government of Mexico continues to encourage forward contract purchases between Mexican farmers and yellow corn buyers in an attempt to increase domestic production of yellow corn. According to industry sources, the February 2011 freeze that affected white corn plantings in Sonora and Sinaloa did not affect the industry as yellow corn is planted in other areas (e.g., the states of Chihuahua and Jalisco). However, the overall drought that affected Mexico has reduced acreage and yields of corn, increasing yellow and white corn imports for 2011 (yellow corn imports increased 11percent from 2010 levels).

SUGAR AND HFCS CONSUMPTION

Assuming current pricing trends and exchange rates, the sugar industry expects sugar consumption to follow its downward trend for MY2012/13 as substitution between sugar and HFCS continues. Consequently, the Post/New forecast for domestic consumption for MY 2012/13 is 4.085 MMT-RV (3.854 MMT-Tel Quel), one percent below Post’s new estimate for current year consumption. Post/New domestic sugar consumption estimate for MY 2011/12 was revised downward almost three percent from the USDA/Official estimate as substitution trends between sugar and HFCS intensified this year. According to industry sources, HFCS is still priced lower than sugar and therefore convenient for companies like soft-drink bottlers. Sugar consumption for MY 2010/11 was revised slightly upward from USDA/Official estimates to 4.18 MMT-RV (3.950 MMT-Tel Quel) based on CONADESUCA’s data.

HFCS displaced sugar consumption in several industries including soda bottling, the largest user of HFCS. Post expects HFCS consumption for MY 2011/12 and MY 2012/13 to increase only 3 to 5 percent above MY 2010/11 consumption levels, as the industry’s capacity to substitute for sugar is not growing as fast as they originally estimated. The HFCS consumption estimate for MY 2010/11 is 1,635,114 MT dry basis, based CONADESUCA’s information. This volume represents about 29 percent of total domestic consumption of sweeteners

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TRADE

The Post/New sugar export forecast for MY 2012/13 is 1.4 MMT-RV. This number is tentative and will tend to change depending on production and the extent of substitution between sugar and alternative domestic and imported sweeteners (HFCS). These are the two major factors influencing local supply and, consequently, local price—currently the biggest influence on export decisions. Sugar export estimates for MY 2011/12 have been fluctuating downward as harvest was delayed and production came in lower than expected. Therefore, Post/New sugar export estimate is revised downward 20 percent from previous USDA/Official estimates to 1.15 MMT-RV (1.085 MM Tel-Quel). This estimate could continue to slide if domestic prices reverse their downward trend. The industry, however, has contracted sugar exports of at least 848,000 MT-RV (800,000 MT-Tel Quel) so far. Sugar exports for MY 2010/11 are revised down slightly from USDA/Official estimates to 1.47 MMT-RV, based on CONADESUCA data.

The Post/New sugar import forecast for MY 2012/13 is estimated at 335,000 MT-RV, same as in revised MY 2011/12 estimates. A large portion of these imports could be used to cover the needs of the Mexican Sugar Re-export Program industries (IMMEX). The MY 2011/12 sugar import estimate is revised downward from the USDA/Official estimates to 335,000 MT-RV as the tariff rate-quotas (TRQ) were not filled as expected. According to the sugar industry, sugar imports under the June 29, 2011 TRQ of 159,000 MT-RV (150,000 MT Tel Quel) that ended on December 31, 2011, were approximately 90,068 MT-RV (84,970 MT Tel-Quel), of which about 50,000 MT-RV correspond to MY 2010/11. The additional October 20, 2011 TRQ for 159,000 MT-RV (150,000 MT-Tel Quel) that ended on January 31, 2012, was filled. The SE announced on February 2012 that it was preparing another TRQ for MY 2011/2012 for up to 250,000 MT, if or when SE identifies a need to import sugar to ensure sufficient domestic supplies throughout the year (See Policy Section). As in other occasions, the sugar industry believes that imports will not be needed for MY 2011/12. Imports for MY 2010/11 remain unchanged.

Sugar use under the other disappearance category is mainly for the Mexican re-export program (IMMEX). The forecast for MY 2012/13 for sugar use under IMMEX is expected to be at similar levels to MY 2011/12 as almost the same industries will be importing sugar for the processing of their products. MY 2011/12 sugar use for IMMEX industries is estimated at 335,000 MT-RV of which 200,000 MT-RV could be imported. According to official sources, IMMEX total use of sugar for MY2010/11 was 339,000 MT-RV. The IMMEX program allows sugar to be sold to Mexican food manufacturers as a raw material for further processing. These food manufacturers must then process the sugar within six months of the date of purchase (see GAIN Report MX8035 Modifications to the Mexican Sugar Re-Export Program) and export the processed product. Although this report does not consider these products when calculating sugar exports, the Government of Mexico classifies the sugar containing products sold under the IMMEX program as exports of sugar.

HFCS Imports

The HFCS import forecast for MY2012/13 is expected to increase about 4 percent over MY 2011/12, although the sugar industry believes imports could be higher. HFCS imports for MY 2011/12 are expected to be about 1.23 MMT dry basis as long as the soft-drink bottling industry continues to benefit from the difference in price between sugar and HFCS. The official estimate for imported HFCS is 1.19 MMT dry basis for MY 2010/11.

STOCKS

The Post/New sugar ending stock forecast for MY2012/13 is 821MT-RV. This is approximately two months of domestic consumption and includes IMMEX sugar use. Sugar ending stocks for MY 2011/12 are likely to end at 856 MT-RV depending on final sugar production. Stocks for MY 2010/11 remain unchanged.

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