USDA Sugar and Sweeteners Outlook

Reports » USDA Sugar and Sweeteners Outlook » USDA Sugar and Sweeteners Outlook - August 2012

14 August 2012

USDA Sugar and Sweeteners Outlook - August 2012

USDA’s National Agricultural Statistics Service (NASS) forecasts a 2012/13 sugarbeet crop of 35.336 million tons, which, if realized, would be a record. Most producing regions in the United States have experienced excellent growing conditions through the summer months after earlier than normal planting in the spring

NASS forecasts sugarcane production for sugar and seed at 31.359 million tons, about 6.7 percent more than last year. Forecast harvested area is forecast 2.1 percent higher at 891,000 acres and yield is forecast 4.5 percent high at 35.2 tons per acre.

Due to the revisions made for fiscal year (FY) 2011 in the Sweetener Market Data, FY 2012 beginning stocks were lowered by 94,404 short tons, raw value (STRV) in the August 2012 World Agricultural Supply and Demand Estimates. The only other change was to reduce deliveries of re-export sugar to food manufacturers for sugar-containing product export by 15,000 STRV, based on pace to date, to 165,000 STRV. The only change for FY 2013 (apart from lower beginning stocks) was a reduction of sugar imports from Mexico by 172,500 STRV to 1.159 million STRV.

No changes were made to 2011/12 Mexico supply and use. Based on expected lower relative sugar prices relative to imported high fructose corn syrup (HFCS) from the United States, 2012/13 sugar deliveries are increased by 123,000 metric tons (mt) and HFCS deliveries are lowered by the same amount. These adjustments lead to reduced sugar exports, now projected at 1.002 million metric tons (mt).

Sweeteners in the North American Free Trade Area

In the first week of August 2012, the US Department of Agriculture (USDA) released several reports concerning the supply and use of US sugar for fiscal years (FY) 2011, 2012, and 2013. On August 7, 2012, USDA’s Farm Service Agency (FSA) released revised Sweetener Market Data (SMD) for FY 2011. On August 10, 2012, USDA’s National Agricultural Statistics Service (NASS) published its first forecasts of sugar crop yields and production for 2012/13. On August 10, 2012, the USDA published in the World Agricultural Supply and Demand Estimates (WASDE) its latest supply and use estimates/projections for US and Mexican sugar.

Revised FY 2011 SMD

The revised SMD for FY 2011 corrected several important erroneous supply-and-use entries originally submitted by US sugar refiners. The SMD increased refiners’ sugar imports by 12,072 short tons, raw value (STRV). Because this sugar had been previously reported as imported by entities that do not report to the USDA, it had been counted as direct consumption imports. Thus, this SMD correction reduced FY 2011 sugar deliveries by the same amount. Also, according to SMD, the refiners had originally overestimated their level of sugar intra-sales less receipts by 11,946 STRV and understated refining losses by 34,044 STRV.

Refiners had originally misreported deliveries for human consumption and refined sugar stocks. The SMD correction increased refiners’ deliveries by 65,900 STRV. This correction, along with that for direct consumption, increased total deliveries for human consumption (sum of deliveries by beet and cane processors, refiners, and direct consumption imports) by 53,827 STRV to 11,192,762 STRV for FY 2011. Based on refiners’ revised stock submissions, their FY 2011 ending stocks of sugar were 723,610 STRV, a reduction of 94,405 STRV. Total endingyear stocks are lower by 94,405 STRV as well—the revised estimate is 1.378 million STRV. The ending FY 2011 stocks level is the beginning stocks level for FY 2012.

Sugar Crop Production for 2012/13

NASS forecasts a 2012/13 sugarbeet crop of 35.336 million tons, which, if realized, would be a record. Most producing regions have experienced excellent growing conditions through the summer months after earlier than normal planting in the spring. Adequate irrigation in western producing areas and sufficient rainfall in the Midwest (Michigan, Minnesota, and North Dakota) have boosted the potential for the record crop.

Although projected harvested area is about the same as last year, all major producing areas show improvements over last year’s disappointing crop yields (fig. 1). The national yield is forecast at 29.07 tons per acre, more than 5 tons per acre compared with last year. Of particular importance is the Red River Valley (Minnesota and North Dakota), which accounts for more than 50 percent of the US sugarbeet crop. (Figure 2 shows regional sugarbeet production forecasts compared with last year, and also makes the same comparison for sugarcane producing areas.) Yield is forecast at 26.84 tons per acre, up from 19.49 tons per acre last year and likely to be a record. The forecast yield for the Great Plains region (Colorado, Montana, Nebraska, and Wyoming) at 30.54 tons is 4 tons above last year and is likely to be a record as well. Forecast yields in Michigan and the Pacific Northwest (Idaho and Oregon) are high as well.

NASS forecasts sugarcane production for sugar and seed at 31.359 million tons, about 6.7 percent more than last year. Forecast harvested area is forecast 2.1 percent higher at 891,000 acres and yield is forecast 4.5 percent high at 35.2 tons per acre.

Growing conditions in both Florida and Louisiana have been favorable in the spring and summer months so far this year. In Florida, forecast harvested area is up by 10,000 acres to 410,000 acres and yield is forecast at only 0.3 tons per acre less than last year at 37.7 tons per acre. Florida production is forecast at 15.457 million tons, 2.5 percent higher than last year. In Louisiana, forecast harvested area is forecast up by 10,000 acres to 420,000 acres. Yield growth in Louisiana is projected to rise 12.3 percent to 31.0 tons per acre, resulting in a crop of 13.020 million tons, 15 percent higher than last year.

US Sugar Supply and Use for FY 2012 and FY 2013

Due to the SMD revisions made for FY 2011, FY 2112 beginning stocks were lowered by 94,404 STRV in the August 2012 WASDE. The only other change was to reduce deliveries of re-export sugar to food manufacturers for sugar-containing product export by 15,000 STRV, based on pace to date, to 165,000 STRV. Although FY 2012 beet sugar production is only 4.145 million STRV through June, an early mid-August start to the 2012/13 harvest could make it possible for production to reach the 4.750 million STRV estimate in the WASDE. This situation would resemble that of two years ago when the 2010/11 harvest started early and about 623,000 STRV of beet sugar was produced in August and September. FY 2012 ending stocks are estimated at 1.729 million STRV. The ending stocks-to-use ratio is estimated at 14.7 percent, 0.7 percentage points lower than last month.

The only change for FY 2013 (apart from lower beginning stocks) was a reduction of sugar imports from Mexico by 172,500 STRV to 1.159 million STRV. The increases in the sugar crop forecasts made by NASS were largely anticipated by the Interagency Commodity Estimates Committee (ICEC) for sugar. Additionally, the growth potential for beet sugar production in FY 2013 may be limited by processing capacity constraints in the Red River Valley. Processor reports indicate that a significant portion of huge crop may not be harvested. FY 2013 ending stocks are projected at 1.497 million STRV, implying an ending stocks-to-use ratio of 12.6 percent.¹

¹The FY 2013 sugar tariff-rate quota (TRQ) has not yet been announced by the Secretary of Agriculture. Until then, the USDA makes no projection for additional specialty refined sugar, mainly organic sugar, above the minimum level to which the United States is committed under World Trade Organization bindings. The additional specialty sugar TRQ amounted to 100,000 STRV in FY 2012.

Mexico Sugar and High Fructose Corn Syrup Supply and Use for FY 2012 and FY 2013

No changes were made to 2011/12 supply and use. Production is set at 5.048 million metric tons and there has been no announcement of increased imports under tariff-rate quota authority. Sweetener deliveries are on track to meet or exceed WASDE forecasts of 4.1 million mt for sugar and 1.72 million mt, dry weight, for high fructose corn syrup (HFCS). The USDA has been predicting a recovery of 4.2 percent in sweetener (sugar and HFCS) deliveries above last year’s low levels. As seen in figure 3, sweetener deliveries through June at 4.423 million mt are 5.0 percent higher than the same time period last month. HFCS deliveries (the sum of domestic production plus imports less exports) are 5.5 percent higher and sugar deliveries have recovered 4.9 percent relative to last year. Although monthly sweetener deliveries can be volatile, only three more months remain with the trends well established.

Projections for 2012/13 are less certain. The USDA increased its projection of sugar deliveries by 123,000 mt from 4.077 million mt (less than the 2011/12 estimate of 4.1 million mt) to 4.2 million mt. Estandar sugar prices in Mexico City in July averaged about 16 percent lower than their values at the beginning of the year. It is true that world sugar prices have shown some strength through the summer (fig. 4) because of possible production shortfalls in Brazil (wet conditions hindering the harvest and lowering total reducing-sugar levels) and in India (weak monsoon). However, most observers expect strong surplus conditions to eventually prevail and for world sugar prices to decline relative to current levels. Although the world price pass-through to Mexico is complex, there is probably more room for further price declines within Mexico that would favor more domestic consumption. Because the USDA retains its projection of overall sweetener deliveries at 50.62 kilograms per capita, any projected change in sugar implies an exact offset in HFCS deliveries. Therefore, the projection of HFCS deliveries is reduced to 1.683 million mt, dry weight.

Implications from the drought-affected US corn crop could have additional impacts. Net corn costs of producing US HFCS could increase as much as 38 percent from its June 2012 value to $345 per metric ton. Based on historical relationships, the unit export value of HFCS to Mexico would be forecast to increase 8 percent to an average of $452 per metric ton for 2012/13. Even if the 2012/13 Mexican price of estandar sugar were to assumed to stay at about the same level as early August 2012, that price of $695 would still be about 18.5 percent higher than the possible unit import value of HFCS 55 imported from the United States. Although this ratio is far below the 148-percent ratio average for 2010/11, it still may not be low enough to detract significantly from the trend of using HFCS 55 in place of sugar as the sweetener of choice in Mexican-produced carbonated beverages. Even so, a slowdown in HFCS use remains a real possibility.

The USDA assumes that ending sugar stocks in Mexico will equal 19.5 percent of sugar deliveries for human consumption, or 819,000 mt. Exports are projected as the residual that balances supply and use. That value is 1.002 million mt. All but 10,000 mt is assumed to be exported to the United States.