Just a Little Bit of Sugar

On Friday, April 29th, the DOC increased Mexico’s export limit by 50,000 STRV as requested by the USDA stating the need for additional sugar for the US market. This announcement of 50,000 tons falls short of the 250,000 tons requested by the Sugar Users Association on March 12th. The increase comes before May 1st, where this additional quantity must enter adhering to the amended Suspension Agreement’s definition of Other Sugar, most notably below 99.2 polarity. With the increase, Mexico now has a total quota export limit of 977,920 STRV.

This increase comes at a time where Mexico is approaching the tail end of their crop. After over 31 weeks of production, the harvest will only continue for another couple of months. As this increase needs to meet the lower polarity requirements, it can create some logistical challenges for the originating mills as much of the sugar has already been produced with a higher polarity. On April 6th, Mexico advised the US that they could supply an additional 910,434 STRV, of which 302,044 would be below 99.2 pol. Since then, some major mill groups have reported decreases in expected production as they experience yield loss. However, at this time, we expect Mexico will be able to fulfill the additional access and still meet the lower quality requirements.

To drive more context around the increase, the US imports over 3,000,000 tons per year. When taking into consideration domestically grown cane, the total raw sugar supply available for cane refiners amounts to over 6,500,000 tons. As a result, we do not see a notable impact on raw sugar prices as a direct result of this export limit increase, certainly not to the extent of pushing the NY #16 prices back towards the Mexican minimum price equivalents.

Although this increase provides some noteworthy activity with respect to US supply and demand, very little has changed over the past several months, leaving end users and buyers uneasy about current pricing amidst an inflationary environment. Since Q4 of 2020, US raw sugar futures have steadily risen under the umbrella of historically strong refined prices, despite a reversion back to normalcy in our US beet and cane crops. Although we are transitioning from a year of crop failures to a historic harvest in some locations, it is clear our domestic prices do not transition as gracefully.

Simply looking at the current US balance sheet, current pricing does not reflect the available supply. Instead, current prices represent the combination of several factors as we transitioned between crop years. Current indications from suppliers are characterized by strong initial beet indications off of lower beginning inventories, a reluctance from the cane refineries of yielding back market share to the beet sector, and a dislocation of the raw sugar supply. This dislocation is the main influence on current 16s levels. The elevated prices in the NY 16s market do not reflect a lack of raw sugar supply, but rather the very few hands most of that supply rests in and the trade’s willingness, or unwillingness, to make it available to market.

The announcement by the DOC and USDA that came this past Friday serves as a minor solution of providing some liquidity to our raw sugar market. The equivalent of two cargos, the degree to which this increase provides substantial relief to buyers that remain short will be minimal. It can be argued that this increase is simply a swap for FY 2022 sugar. Current prices are well above Mexican minimum price equivalents delivered to the East Coast, and way above domestic forfeiture rates. However, domestic supply does not appear to be an issue and there is no explicit regulation about managing price, so the extent to which the USDA can act is limited. Adding complexity, is the fact that we are transitioning administrations where the Under Secretaries are still yet to be confirmed.

Now, several years after the implementation of the Amended Suspension Agreements and Countervailing Duties, it is evident that the current stable, albeit elevated, pricing environment is a direct result of those provisions then established. In contrast to last year, cane refineries need to meet deliveries with over 1,000,000 tons less of import availability, and any substantial increase seems unlikely. Looking ahead, we expect price alleviation will only come as a result of economically bringing the domestic supply to market.