Sugaronline Friday Editorial - Opening the Flood Gates by Meghan Sapp
Published: 04/13/2012, 12:15:00 AM
The USDA is likely to announce additional sugar import quota soon, but how much and when are still up in the air.
It seems there’s a sugar surplus at last, but that surplus hasn’t made its way to the US yet. With last year’s crop a bit smaller than hoped, and Mexico’s crop—and therefore exports—a lot smaller than hoped, the country has found itself in a tight squeeze.
This week’s monthly report from the USDA shows that the stocks-to-use ratio has fallen down to dangerously low levels again, to just 6.8%. It’s still better than the measly 5.3% estimated for January but it is nowhere near the 15% it should be or even the 12% that 2010/11 ended at.
Luckily for the sugar users out there, it’s April. And in America, April means that the USDA can boost the sugar import quota.
Sugar users are complaining about sugar prices of between US$0.55 and US$0.58 per pound that they claim would be half that price in Europe (which is pretty cheeky since no one’s allowed to tap Europe’s surplus, meaning some countries have been paying EUR1,000 per metric tonne).
The US import quota is always set at 1.231 million short tons for fiscal years running Oct. 1 through Sept. 30, but as the domestic crop is harvested and processed through the winter, the USDA won’t boost import quotas until April 1. Everyone is expecting it to happen, and one would imagine it would happen soon, but the big question mark is over the number. Exactly how much sugar will the USDA let in?
Last year, the USDA boosted quota by 350,000 short tons on April 11. Then again on June 21 by 120,000 short tons of raws. And yet again on September 30, but this time it was 150,000 short tons raw value for refined sugar, and even then it could come in under the 2011 period through the end of November. Sugar allowed in during beet harvest season? Yep, the market was that tight.
And here we are, more than six months later, and it’s tighter than it was then. So with April 1 come and gone, the Sugar Users Association is calling for a major boost in quota. In fact, they’re calling for 1.1 million short tons, nearly double the traditional quota and a third more than what was brought in as additional quota last year.
What’s more, they want the majority of that sugar brought in to be refined to compensate for the missing refined sugar imports from Mexico.
The argument is that bringing in that kind of volume of sugar will boost the stocks-to-use ration back up to where it should be, bringing sugar prices down to more “reasonable” levels. At least in the eyes of sugar users. That’s probably not how the sugar producers see those levels. In fact, the levels they’re at now seem pretty “reasonable” to your average beet farmer.
Just as this time of year usually means the sugar users will pressure the USDA to allow more sugar imports, typically it’s also the same time of year that the sugar producers will wave their hands in the air to stop those imports from flooding the market and lowering their prices. Strangely, they’re being awfully quiet (at least publically) on the matter. Perhaps they’re too focused on keeping the sugar program intact in the new Farm Bill to worry about such shortterm issues like increased import quotas or perhaps they know something the rest of us don’t.
As the USDA could announce additional quota any minute now, some are holding their breath. Others, it seems, think that the impact of a huge quota announcement such as 1.1 million short tons could have a detrimental effect on the global sugar market. That could be what is holding the USDA back, as they try to figure out a plan for how much to announce and when. Much in the same way the Indians should have done with their exports, but of course, didn’t.
In 2010, in a market completely dissimilar to this one, the USDA only made two announcements: one on April 23 for 181,437 metric tonnes of raws, and the second on July 6 for 272,155 metric tonnes of raws. That’s about 2/3 of the additional quota granted for 2011. If one was going by precedent, then adding another third to 2011’s quota for 2012 wouldn’t be out of the question. That could reach the 1.1 million short tons that the sugar users are looking for.
But the USDA is not India. If they do do it, it’ll be in smaller tranches and several months apart. So who’s willing to play the “guess the number of coins in a jar” game to figure out how much quota the USDA is going to announce in the next week or so? The Philippines are, it seems.
If and when new quota is announced, the Philippines have already made it known that they’re ready and willing to export as much additional quota as they are offered. They were told that they’d know in the second or third week of April how much additional quota they’d get, which would be less than 100,000 tonnes though likely between 50,000 and 80,000 tonnes.
Keeping that in mind, perhaps the first additional tranche to be announced will be something akin to last year’s giant quota boost of 350,000 short tons. Now won’t the market, especially in London, have a field day with that one?