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USDA Sugar and Sweeteners Outlook


18 July 2012

USDA Sugar and Sweeteners Outlook - July 2012USDA Sugar and Sweeteners Outlook - July 2012

On July 11, 2012, the U.S. Department of Agriculture (USDA) released its latest U.S. and Mexico sugar supply and use estimates for fiscal year (FY) 2012 and projections for FY 2013 in the World Agricultural Supply and Demand Estimates (WASDE) report.
USDA Sugar and Sweeteners Outlook

On June 29, 2012, the National Agricultural Statistics Service (NASS) published 2012/13 forecasts of area planted and harvested for sugarbeets and of area harvested for sugarcane for sugar and seed. Sugarbeet area planted is forecast at 1.244 million acres, close to prospective sugarbeet plantings of 1.241 acres predicted by NASS in March.

Although total sugarbeet area planted is forecast up 0.9 percent compared with last year, the forecast for total area harvested at 1.216 million acres is practically the same as last year. NASS forecasts sugarcane area harvested at 892,000 acres, an increase of 2.2 percent over last year. Area is forecast up in Florida–13,000 acres and 3.3 percent--and also in Louisiana, at 10,000 acres and 2.4 percent.

Based on the NASS report, the USDA increased beet sugar production for FY 2013 by 60,000 STRV to 5.105 million STRV. The USDA adopted Florida sugarcane processors’ forecast of FY 2013 production at 1.890 million STRV and also increased Louisiana’s cane sugar forecast to 1.425 million due to NASS’s projected area-harvested increase. The USDA made small adjustments to imports for both FY 2012 and FY 2013 and made no changes to sugar use for either FY 2012 or FY 2013.

Ending stocks for FY 2012 are estimated at 1.809 million STRV, implying a small 0.1 percentage point decrease in the stocks-to-use ratio to 15.4 percent. Ending stocks for FY 2013 are projected at 1.748 million STRV. The implied ending stocks-to-use ratio is 14.7 percent, up from 13.1 percent projected last month.

Final 2011/12 sugar production in Mexico is estimated at 5.048 million metric tons (mt). No changes from last month were made to trade or deliveries, implying an increase in ending stocks of 23,000 mt to 823,000 mt. No changes were made to 2012/13 projections of production, deliveries, or ending stocks. The increase in beginning stocks of 23,000 mt is assumed to flow into increased exports, now projected at 1.149 million mt.

Sugar and Sweeteners in the North American Free Trade Area

On July 11, 2012, the U.S. Department of Agriculture (USDA) released its latest U.S. and Mexico sugar supply and use estimates for fiscal year (FY) 2012 and projections for FY 2013 in the World Agricultural Supply and Demand Estimates (WASDE) report.

U.S. Sugar Production for 2012/13

On June 29, 2012, the National Agricultural Statistics Service (NASS) published 2012/13 forecasts of area planted and harvested for sugarbeets and of area harvested for sugarcane for sugar and seed. Sugarbeet area planted is forecast at 1.244 million acres, close to prospective sugarbeet plantings of 1.241 acres predicted by NASS in March. Area planted is up from last year by small percentages in Great Lakes, Great Plains, and the Northwest. There is no forecast growth in the Red River Valley or in California. Although total sugarbeet area planted is forecast up 0.9 percent compared with last year, the forecast for total area harvested at 1.216 million acres is practically the same as last year.

NASS forecasts sugarcane area harvested at 892,000 acres, an increase of 2.2 percent over last year. Figure 2 shows sugarcane area forecasts by State. Area is forecast up in Florida–13,000 acres, 3.3 percent, and also in Louisiana— 10,000 acres, 2.4 percent.

NASS does not forecast sugar crop yields or production until August in Crop Production. Until then, the Interagency Commodity Estimates Committee (ICEC) for sugar forecasts sugar crop yield and production and the implications for sugar production. Table 1 details ICEC assumptions for sugarbeet and beet sugar production variables for 2012/13, along with a time series of the same variables covering the preceding 10 years. Sugarbeet yield for 2012/13 is a production-weighted average of regional yields. The key assumptions are a return to trend for the yield in the Red River Valley (forecast at 25.4 tons per acre, up from last year’s 19.5 tons per acre) and the early-season plantings this year. According to NASS reporting of sugarbeet crop conditions through July 10 (table 2), favorable crop conditions have been maintained in the Great Plains and in Minnesota. There has been some crop condition deterioration in North Dakota in the latest July 10 report. The combined percentage of good and excellent conditions in North Dakota fell from 83 percent in the July 3 report to 66 percent in the July 10 report. National sugar yield, forecast at a high 4.237 tons per ton, is a function of trend growth and the high sugarbeet yield forecast; see the equation in the table 1 footnote. Implied 2012/13 beet sugar production is 5.151 million short tons, raw value (STRV).

Because the WASDE reports on an October-September fiscal year basis, beet sugar production for FY 2013 at 5.105 million STRV is somewhat less than the crop-year total. Table 3 details ICEC assumptions for State-level sugarcane and cane sugar production variables for 2012/13, along with a time series of those same variables. For Florida, the ICEC has adopted the sugarcane processors’ forecast parameters published in the May 2012 Sweetener Market Data report. The processors expect sugar per acre to be close to the 2011/12 level. With the expected increase in area harvested, production is forecast at 1.890 million STRV. Underlying Florida sugarcane production is forecast at 15.933 million STRV, implying a record sugarcane yield of 40.47 tons per acre.

For the other sugarcane-producing States, the ICEC uses trend parameter estimates and recent production performance to forecast cane sugar production. Because NASS does not forecast 2012/13 area harvested for seed until the December Crop Production, the ICEC assumes the same seed area percentage as in 2011/12. Louisiana cane sugar production is forecast at 1.425 million STRV, with a sugar yield just below that realized for 2011/12. Unlike the other cane producing States, Texas is expected to reduce area harvested by 4,000 acres. Offsetting this reduction, however, is an assumption that sugar yield will recover from 3 years of lower than average performance.

Hawaii sugar production for calendar year 2012 is projected at 170,000 STRV. Most of 2012/13 production takes place in 2013, for which there are no NASS forecasts. The ICEC assumes slightly improved performance in 2013 to arrive at a projected 2012/13 production of 180,000 STRV.

U.S. Sugar Production for 2011/12

The USDA did not make any changes to 2011/12 production in the WASDE. It should be noted, however, that beet sugar production in May amounted to only 68,036 STRV.

The Sugar and Sweetener Outlook has been assuming that September-August crop-year beet sugar production would come to 4.525 million STRV. To reach this total, production in the next 3 months would have to exceed 211,439 STRV. It is unusual for production in any of the 3 months after May to exceed the amount produced in May. By this reckoning, reaching the crop year estimate may be difficult unless there is early current-crop production in August (i.e., crop planted in the spring of 2012 but harvested before September 1), as was the case with the 2010/11 sugarbeet crop. Also, early-season production occurring in September could help to achieve the fiscal year estimate of 4.750 million STRV. There will be continuing attention paid to the progress of the 2012/13 crop and the prospect for an early start to the harvest.

Other WASDE Changes Affecting U.S. Sugar

The USDA reduced estimated tariff-rate quota (TRQ) imports for 2011/12 by 16,536 STRV. The new estimate is 2.1 million STRV. It is now expected that this amount of sugar entering from Colombia and Central American countries under the calendar year Free Trade Agreements TRQs will enter in the 3 months after the end of the current fiscal year. The USDA also increased imports expected to enter from Mexico in 2012/13 by 27,420 STRV. The new total is projected at 1.331 million STRV. There were no changes made to sugar use for either 2011/12 or 2012/13. Last month there was some concern regarding the pace of 2011/12 sugar deliveries for human consumption. However, since then, the Farm Service Agency has made revisions to Sweetener Market Data for direct consumption imports that put the delivery pace in line to achieve the 11.3 million STRV estimate in the WASDE.

U.S. Sugar Prices

Since August 2009, monthly world sugar prices (average of Intercontinental Exchange (ICE) nearby no. 11 raw sugar contract) have been above the U.S. sugar loan rate (18.00-18.75 cents per pound) except for a short 4-month period in 2010. These higher world prices have helped to keep U.S. prices (nearby ICE no.16 contract) above the average range of 20-23 cents per pound that was characteristic of the period between FY 1983 and FY 2009. In addition to world price levels, there is now more attention focused on the relationship between sugar availability in the United States and the margin between world and U.S. raw sugar prices.

World sugar prices have been on down-trend since July 2011 (30.51 cents per pound) through last month (20.44 cents per pound). As detailed last month in the Sugar and Sweetener Outlook, the USDA estimates 2011/12 world sugar in surplus at 10.002 million metric tons, raw value (MTRV) and projects a 2012/13 surplus of 10.692 million MTRV. These surpluses, plus a depreciation of the Brazilian real currency unit by 12.9 percent since January 2012, have put a downward expectation of world raw sugar prices through 2013. All else constant, lower world raw sugar prices translate into lower U.S. raw sugar prices.

In spite the downward trend, world sugar prices started increasing in mid-June from their May-through-first-half-ofJune low points (which ranged from 18.90 to 21.05 cents per pound). Figure 3 shows first-week averages of the October 2012, March 2013, and May 2013 no. 11 contracts for April, June, and July. First-week June averages for the three contracts were decidedly below the averages of 2 months earlier, but the first-week-July averages increased to about midway between the April and June averages. LMC International has pointed to several weather-related events to explain the recent increases since early June: wet weather in Center/South Brazil and Australia affecting production and exports, a slow start to the monsoon rains in India, and the possibility of a return of El Niño weather pattern in the second half of 2012. It is far from certain that these concerns will continue into the remainder of 2012 and 2013.

The margin between world and U.S. raw sugar prices averaged 11.13 cents per pound for October 2011 through March 2012. The average for April-June has been 8.39 cents per pound, a reduction of 24.6 percent from the earlier period. For the period of October 2011 through March 2012, the ending FY 2012 stocks-to-use ratio in the WASDE ranged between 5.3 and 10.4 percent. On April 19, 2012 (after the publication of the April WASDE), the Secretary of Agriculture increased the FY 2012 sugar TRQ and the U.S. Trade Representative reallocated the existing the TRQ away from countries that could not fulfill their originally allocated TRQ. At the time, it was expected that an additional 450,000 STRV would enter into the United States as a result. Also since April, there has been greater certainty about potential sugar imports from Mexico. In the April WASDE, these imports were projected at 730,000 STRV and are now estimated in the July WASDE at 1.139 million STRV. The stocks-to-use ratio in the July WASDE is at 15.4 percent. The average ratio since May has been about 15.0 percent.

Figure 4 shows average monthly U.S. raw sugar prices since October 2011 as a combination of world sugar prices and the U.S.-world price margins. The world price has decreased from an October high of 26.30 cents per pound to 21.89 cents for the first week of July. The margin proportion of the U.S. price has decreased to about 22 percent in July. With the stocks-to-use ratio for FY 2013 projected at 14.7 percent, the U.S.-world raw sugar margins may well be less than they have averaged in the recent past. If world raw sugar prices resume their month-earlier downward trend, the outlook for U.S. raw sugar prices would be lower as well.

Sugar in Mexico

Sugar production through the end of June has amounted to 5.048 million metric tons (mt). Unless earlier data is revised, this total should be the final estimate for the 2011/12 production season. Figure 5 compares the geographical distribution of production for 2011/12 with that of 2010/11. Production this year exceeded that of last year in Central, Northwest, Pacific (mainly Jalisco), and South regions. Production in the Gulf region, mainly Veracruz, recovered in the latter part of the season and finished only about 5 percent below last year. Production in the Northeast, as predicted by the Comite Nacional Para El Desarrollo Sustentable de la Cana de Azucar (CNDSCA), was far below last year’s production level. Although there are not yet any official CNDSCA forecasts for 2012/13, growing conditions have been favorable in most regions. The USDA projects 2012/13 production at 5.3 million mt.

Figures 6 and 7 show Sugar and Sweetener Outlook estimates of Mexico sugar net returns and their price and cost components since 2000/01. Net returns before the full implementation of the North American Free Trade Agreement (NAFTA) averaged about 56 percent above production costs. Relative to the 2000/01 base, production-cost growth was exceeded by increases in market prices through 2006/07. The first 2 years of the implementation of the NAFTA sweetener provisions saw a lowering of net revenue and increased production costs. The net return fell 59 percent relative to the pre-NAFTA average and was negative in 2008/09. For the last 3 years, prices have been higher as sugar prices became more strongly correlated with those in the United States. Production costs in 2009/10 and 2010/11 were less than in 2008/09. These costs are projected to have risen in 2011/12, lowering the net return to about 60 percent. The USDA did not change its estimate of 2011/12 consumption or exports. According to CNDSCA data through the end of May, domestic sugar deliveries have totaled 2.785 million mt, about 4.27 percent above deliveries for the same period last year. The USDA is projecting a year-over-year increase of 3.8 percent. Deliveries of high fructose corn syrup (HFCS) have been strong as well–1.127 million mt, dry basis or 7.11 percent ahead of last year. HFCS deliveries as a proportion of combined sugar and HFCS deliveries stand at 28.8 percent through May.

The USDA increased its estimate of 2011/12 ending stocks by the amount of the production increase relative to last month’s estimate. It is now estimated at 759,900 mt. For 2012/13, the USDA kept projections of production, deliveries, and ending stocks at the same levels projected last month and allowed the increase in beginning stocks (equal to the ending stocks of 2011/12) to flow into increased exports. The exports are projected at 1.149 million mt. All but 10,000 mt are projected to be exported to the United States.

Published by USDA Economic Research Service

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