SUGAR AND SWEETENERS June 28, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- SUGAR AND SWEETENERS Situation and Outlook is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. SSSV21n2. Please note that this release contains only the text of SUGAR AND SWEETENERS--tables and graphics are not included. Subscriptions to the printed version of this report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #SSS, $22/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Contents Summary World Sugar Production Consumption Trade Stocks and Prices U.S. Sugar Production Consumption Trade Stocks and Prices Policy U.S. Corn Sweeteners Production Consumption and Trade Prices and Costs Special Article: U.S. Import Quota-Exempt Programs for Sugar List of Tables Report Coordinator Peter Buzzanell(202) 219-0886 FAX (202) 219- 0042 Principal Contributors Peter Buzzanell Ron Lord Database Coordinator/Graphics & Table Design Fannye Lockley-Jolly Layout & Text Design Wynnice Pointer-Napper Word Processing Betty Barrett Approved by the World Agricultural Outlook Board. Summary released June 16, 1996. The next Sugar and Sweetener Situation and Outlook report is scheduled for release on September 19, 1996. Text and summaries may be accessed electronically. For details on electronic access, call ERS Customer Service (202) 219-0515. Summary USDAs revised estimate for 1995/96 puts world sugar production at a record 121.1 million metric tons, 2.1 million tons higher than the global consumption estimate of 119.0 million. (The estimates are unchanged from that released by USDA on June 3, except for revisions in U.S. numbers). Since publication of the Sugar and Sweetener Situation and Outlook in March, USDA has increased the 1995/96 world sugar production estimate by 1.8 percent or 2.1 million tons. The upturn is largely attributed to better than anticipated record outturns in India (16.5 million tons), Brazil (13.7 million), Thailand (6.2 million), and Mexico (4.75 million), and improved production results in Cuba (4.5 million) and the EU (17.15 million). These advances more than offset a downturn in the production estimates for the United States, China, and Pakistan. USDA also raised the world consumption estimate by about 900,000 tons. The upturn reflects higher than expected consumption in the United States and several Asian countries such as India, Malaysia, and the Philippines. The year-to-year growth rate is 4.2 percent, double the long-term trend as sharply higher consumption was estimated in several of the world's largest consuming countries, most notably India, up 5.8 percent to 15.2 million tons; China, up 3.1 percent to 8.3 million; the Philippines up 13.6 percent to 2.1 million; and Thailand, up 8 percent to 1.6 million. For Asia, total consumption grew an estimated 4.7 percent or 1.8 million tons between 1994/95 and 1995/96, spurred by the familiar litany of factors including population and income growth and expansion in the use of sugar- containing products, such as soft drinks and processed foods. USDA's initial 1996/97 projections for global sugar production and consumption are for a rough balance of 120 million metric tons each. This follows 2 years when world sugar production outpaced consumption, leading to a replenishment of global stocks. Higher stocks and the prospect of an approximate balance next year has led to a weakening of prices. For the first half of June, world raw sugar spot prices (f.o.b. Caribbean ports, Contract No. 11, New York) averaged 12.49 cents a pound, compared with nearly 14 cents a pound a year ago. Prices averaged 12.60 cents January-May 1996, versus 14.20 cents for the corresponding 5-month period in 1995. The weakening of world raw sugar prices reflect the production surplus in 1995/96. This season's estimated sugar surplus has not decreased world sugar prices as much as earlier expected. The relative strength of world prices is because much of this season's sugar surplus is locked in some countries with strong domestic demand and restrictive export policies, such as India. The direction of prices over the next several months will be influenced largely by weather. The 1996/97 cane sugar production season has already started in the Southern Hemisphere, where good crops are forecast for the major producers Brazil, South Africa, and Australia. If good harvest conditions continue in the Southern Hemisphere and if sugarbeet crops across Europe receive normal rains this summer, prices are likely to weaken. If adverse conditions develop in key countries, prices could rebound, especially since global stocks will still be relatively tight. Futures prices for raw sugar October 1996 and March 1997 are currently at 11.1 and 10.7 cents a pound, respectively, with contract highs and lows ranging from 12.5 to 9.5 cents. The preliminary forecast for 1996/97 world sugar production is 120.2 million tons raw value, down 1 percent from the revised 1995/96 record. USDA's initial forecast for global sugar consumption in 1996/97 is 120.1 million tons, up nearly 1 percent, or about 1 million tons, from 1995/96. Major consuming countries such as the United States, Mexico, Brazil, India, Indonesia, and China are expected to use an additional 1 million tons in 1996/97. Regionally, increased sugar consumption is expected in the Western Hemisphere, South America, the Middle East, and Asia. For Asia, total sugar consumption is projected at a record 41.6-million tons, up 22 percent, or 7.4 million tons, since 1990/91. World sugar trade is forecast to increase 2.6 percent in 1996/97 to a record 35.3-million tons because of expected greater export availabilities in the EU, Thailand, and Australia. Brazil is again expected to export 5.5 million tons, more than double that of the early 1990's. The structure of world sugar trade continues to be highly concentrated on the export side. The top six exporters (Brazil, EU, Australia, Thailand, Cuba and Ukraine) are projected to account for 71 percent, or 25.1 million tons, of expected global sugar exports. On the import side, the top five traditional major sugar importers (not counting the United States), Russia, EU, China, Japan, and South Korea, are expected to import a tonnage comparable with 1995/96,about 10.5 million tons. Import forecasts for the United States, the world's second largest sugar importer in 1995/96, will not be available until the U.S. Government sets the tariff rate quota (TRQ) for 1996/97. Among the smaller, but sizeable (over 500,000 tons annually) importers, Malaysia, Philippines, Indonesia, Iran, Egypt, Algeria, and Canada are expected to import at roughly the same levels or higher than in 1995/96. U.S. sugar production in fiscal 1996/97 (October 1996-September 1997) is projected at 7.13 million short tons, raw value, down 3 percent from the estimate for 1995/96. Beet sugar production is forecast at 4.0 million tons, representing 56 percent of total expected sugar production. Despite lower planted acreage, beet sugar production is forecast to increase 100,000 tons, or 2.6 percent, if sugar recovery from beets is close to the average of recent years. However, a sharp downturn in cane sugar production is expected to more than offset improved beet sugar production. Cane sugar production is foreseen declining by 310,000 tons to 3.13 million because of mill closings in Hawaii and damage from freezes this winter in Louisiana. U.S. sugar consumption for fiscal 1996/97 is forecast at 9.83 million tons, up 1.3 percent or 125,000 tons from the revised estimate for the current year. The year-to-year anticipated growth rate is in line with the projected long-term trend. Over the past decade of 1986-1995, the annual trend growth rate for sugar consumption averaged about 2.0 percent or 162,000 tons. Since the March Sugar and Sweetener Situation and Outlook, USDA has revised downward the fiscal 1995/96 sugar production estimate by 2.1 percent, or 160,000 tons, to 7.34 million tons, raw value. Beet sugar production was revised downward by 100,000 tons to 3.90 million tons. The revision reflects lower than anticipated production through March, and expected lower output in September 1996 because of the delay in planting beets. The late spring plantings will reduce the size of the early crop in Minnesota and North Dakota, and reduced acreage will lower the potential of the fall crop in California's Central Valley. Cane sugar production was revised downward from the March forecast by 60,000 tons to 3.44 million. Florida's sugar production, concentrated in the first half of the year, was somewhat lower than expected and data for Hawaii showed a continuing decline in output. USDA has raised the U.S. sugar consumption estimate for fiscal 1995/96 to 9.70 million tons, an increase of 180,000 tons over the March estimate and 363,000 tons, or 3.9 percent, over 1994/95. The big year-to-year boost brings consumption back onto trend after a year of zero growth, and is attributed to several factors: (1) increasing away-from-home and processed food consumption, including the heightened popularity of low fat-foods often high in sugar content; (2) increased activity under the sugar-containing products re-export program; (3) additional restrictions on imports of sugar-containing products which came into effect in January 1995; (4) unusually low deliveries in 1994/95 (caused in part by high September 1994 deliveries of sugar that would have been delayed if marketing allotments for fiscal 1994/95 had not been anticipated); and (5) the completion of the switches to just-in-time deliveries by major food processors which needed to work off internal inventories during 1994/95. A U.S. sugar import forecast for fiscal 1996/97 is not available because the level of TRQ imports has not been set. For fiscal 1995/96, total imports are estimated at 2.99 million tons, consisting of 2.33 million tons of TRQ sugar; 650,000 tons of sugar for the re-export programs; 10,000 tons for polyhydric alcohol for non-human consumption; and 1,000 tons of high tariff imports. On June 12, USDA raised the TRQ for raw cane sugar by 165,000 short tons (150,000 metric tons). USDA also raised the TRQ on April 1 by 220,000 short tons. These were the third and fourth quota increases for the fiscal year and reflected the changing domestic supply and demand situation in the U.S.sugar market. The TRQ on refined sugars has been unchanged at 22,000 metric tons since the start of the quota year. U.S. raw sugar prices (nearby futures, c.i.f., duty-paid, contract No. 14, New York) averaged 22.59 cents a pound in the first 12 market days of June (through June 18), comparable with the average price for the first 8- months of the fiscal year. Prices for the first 8-1/2 months of fiscal 1995 and 1994 were 22.45 and 22.02 cents, respectively. In recent months, prices have remained relatively strong. Downward revisions in the estimate of 1995/96 production and upward revisions in the consumption estimate have largely offset the potential price dampening impact of the April 1 increase in the TRQ. Wholesale refined beet sugar prices (f.o.b. plant, Midwest markets) averaged 25.26 cents a pound in fiscal 1994/95, and 28.32 cents for the first half of fiscal 1995/96, according to price data compiled by the Milling and Baking News. As the prospective size of the current beet sugar crop has fallen progressively since last fall, users have turned to cane refiners, tightening the refined sugar market. In March, the Chicago Midwest refined beet sugar price was 29.50 cents a pound, 4 cents higher than last year, and have remained near that level through mid-June. Despite high corn prices, production and use of corn sweeteners are expected to expand in 1996/97, reflecting continued strong demand from the soft drink industry,the primary user of high fructose corn syrup (HFSC). HFCS consumption is projected to increase 4 percent in 1996/97 to a record 8.4 million short tons, dry basis. HFCS prices continue to be lower than refined sugar prices, averaging 20.6 cents a pound, dry basis for HFCS-55 January-May 1996, 8.3 cents below the wholesale price of refined beet sugar (Midwest markets) for the corresponding 5-month period. World Sugar Production Somewhat Lower Production Forecast for 1996/97 The preliminary forecast for 1996/97 world sugar production is 120.2 million tons raw value, down 1 percent from the revised 1995/96 record of 121.1 million (table 1). Sugar produced from sugarcane is forecast at 83.5 million tons, down 2 percent from last year. Sugar processed from sugarbeets is forecast at 36.8 million tons, up 2 percent from last season, but 10 percent less than the record 41.1 million produced in 1990/91. The 1996/97 cane sugar production season has already started in the Southern Hemisphere where good crops are forecast for the major producers, Brazil, South Africa, and Australia. In the Northern Hemisphere, the sugarcane harvest and processing season runs from October through April. The new sugarbeet crop, concentrated in the northern hemisphere, was planted this spring in Europe under generally normal conditions, while some plantings were delayed by weather in the United States. The beet harvest and processing season begins in September in both Europe and North America. Weather will play a key factor in development of large segments of both the global cane and beet crops over the next several months. USDA's forecasts presented in this report assume that "normal weather" will prevail, i.e., normal temperatures and precipitation levels. Production Prospects in Selected Regions: Latin America Cuba: Sugar production for 1996/97 is forecast at 4.2 million tons, down 7 percent from this seasons revised estimate of 4.5 million. The projected downturn is a result of the extended 1995/96 harvest season which ultimately will reduce the cane supplies for the 1996/97 harvest. Additionally, the delay in completing sugarcane plantings will likely reduce the size of the 1996/97 cane crop. Cuba reportedly has secured further credits from foreign banks and trading houses towards the coming harvest. All 13 of the country's sugar producing provinces will receive credit for the 1996/97 sugar harvest that starts in November. Financing for the current harvest covered nine of the provinces and was worth more than US$120 million. Brazil: Sugar production for 1996/97 is forecast at a record 14.0 million tons, up 2 percent from last season. During the past 5 years, sugar output in Brazil has increased 4.8 million tons, mainly as a result of the diversion of cane from fuel-alcohol to sugar production, expanded use of improved varieties, and an increase in cane area. The total area planted to cane for sugar and ethanol production in 1996/97 is forecast at 4.5 million hectares. In late May, the government of Brazil forecast sugarcane production for 1996/97 at 280 million tons, up 12 percent from 1995/96. The government's plan calls for fuel alcohol production of 14 billion liters, up from 12.6 billion in 1995/96. Europe European Union (EU-15): The 1996/97 sugar production forecast of 17.2 million tons is up 1 percent from the estimate for 1995/96 because of an expected 2-percent increase in the sugar yield per hectare (table 2). Partially offsetting the increase in yield is a marginal reduction in harvested area, forecast down 1 percent from last season, to 2.05 million hectares. France and Germany, the EU's two largest producers accounting for about one-half of projected production, are forecast at 4.5 and 4.2 million tons, respectively. Sugarbeet harvested area is expected to be down marginally in both countries. Poland: Sugarbeet production is projected at 14.4 million tons in 1996, 8 percent over the 1995 crop. Improved profitability of sugarbeet production has resulted in increased contracting of beets for processing. A crop of this size will mean sugar production of almost 2 million tons, which will satisfy domestic demand and leave around 200,000 tons available for export. For 1996/97, contracted sugarbeet area is up 14 percent over 1995/96 area to 436,000 hectares, reflecting larger profits from last year and higher beet prices for the 1996 crop. All sugarbeets cultivated in Poland are produced under contract with the sugar industry. Former Soviet Union Russian Federation: Russia's sugar production for 1996/97 is forecast at 2.1 million tons, up slightly from the previous year. Sugarbeet area in Russia is expected to increase by about 50,000 hectares to 1.13 million hectares. Sugarbeet producers are expected to increase use of industrial inputs for beet growing and harvesting due largely to government incentives, increased subsidies, and improved availability of production credit. Expected improvement in cultivation could bring a slight increase in yield. Nevertheless, Russian yields remain below those of neighboring Ukraine and well below those normally achieved in Western Europe. Ukraine: Sugar production in 1996/97 is expected to be down 2.6 percent or 100,000 tons to 3.7 million. The decline is pinned on a somewhat smaller area in sugarbeets estimated at 1.42 million hectares. According to reports through mid-May, plantings were ahead of the pace achieved last year with 91 percent or 1.30 million hectares of the planned 1.42 million hectares planted. Reports from Ukraine indicate good field conditions and warm weather which is expected to foster early development of the crop. Africa Egypt: Record sugar production of 1.15 million tons is forecast for 1996/97; 985,000 tons from cane sugar and 160,000 tons from beet sugar. Sugarcane is grown mainly in upper Egypt where it accounts for about 15 percent of the total arable land area. It is relatively well adapted to the extreme summer heat of this region. Typically, sugarcane is planted in the fall. Harvesting operations normally begin 13 to 15 months later. Sugarcane harvesting usually runs from December through April. The commercial production of sugarbeets began in the early 1980's in the Delta region in an effort to stem the rising trend in imports and to reduce the country's dependence on sugarcane as the sole source of sugar. Sugarbeets are normally planted in October- November; processing begins in February and lasts through June. South Africa: Sugar production for 1996/97 is forecast at 2.4 million tons, up 36 percent or 631,000 tons from last season. The projected increase is based on a significant improvement in the weather and an increase in harvested area. The cane harvest for the 1996/97 season appears promising following four seasons of below-average production. The sugarcane crop is forecast at 22.0 million tons, up 31 percent from 1995/96. There is some concern that the milling infrastructure will be unable to handle such a big crop without delays and stoppages because, during the drought, one of the older mills in Kwa Zulu-Natal Province closed and another was relocated. Asia China: Sugar production in China for 1996/97 is forecast at 6.6 million tons, down 1 percent or 100,000 tons from last season. The 1996/97 forecast is based on current projections that the amount of sugar produced from cane will remain the same as last season, at 5.4 million tons, while sugar processed from beets will decline 8 percent, to 1.2 million, due to an expected 35,000-hectare decline in harvested area. These projections are based on the inability of sugarbeet mills to adequately pay farmers in 1996 and increasing competition from more profitable grain and vegetable crops. India: Sugar production for 1996/97 is projected at 14.1 million tons, down 15 percent or 2.4 million from the revised 1995/96 outturn of 16.5 million. Cane producers have become disgruntled by delayed payments for cane deliveries, and mills are being squeezed between high state cane prices and the lower open market prices. In response, sugarcane growers are expected to reduce the total area in sugarcane, including area for non-centrifugal sugar and seed, 3 percent, to 3.7 million hectares. Thailand: Sugar production for 1996/97 is forecast at 6.2 million tons, unchanged from last season's record production from the milling of approximately 58 million tons of cane. The favorable outlook for the upcoming season is due to several factors. They include ample rainfall in most major cane-producing regions, only minimal flood damage to cane fields, minor pest and disease problems, expanded harvested area due to attractive prices for cane, and greater use of improved cane varieties. At an international sugar meeting held in Bangkok in late March, Thai industry officials projected growth of the industry by the year 2001/02 at 70 million tons of cane and 7.7 million tons of sugar production. During the expansion period, emphasis will be given to improving yields rather than increasing area in sugarcane. Oceania Australia: The sugar production forecast for 1996/97 is a record 5.3-million tons, 6 percent above last season's outturn primarily because of favorable weather and an increase in sugarcane area. The Australian sugar industry is in an expansionary phase, with land assigned to cane growing rapidly and new growers continually entering the industry. Similarly, the sugarcane milling industry is undergoing a period of rapid change, with joint ventures, new partnerships, and the upgrading of facilities. The average throughput by mills in Queensland is currently about 1.2 million tons of cane per year, compared with 500,000 tons in 1970. Mills are now able to crush about 500 tons per hour, on average, up from around 220 tons in the early 1970's. Australian sugar production is projected to reach 5.7 million tons by the 2000/01 season. Fiji: Sugar production is forecast at 450,000 tons in 1996/97, relatively unchanged from last year. Sugar is by far the most important agricultural crop for the island nation and only tourism provides more foreign exchange earnings. There are about 23,000 sugarcane farmers harvesting about 74,000 hectares, and yields are about 50 tons per hectare. One major issue facing the Fiji sugar industry involves lease arrangements for sugarcane land. Most of the land in Fiji is retained by ethic Fijians as communal native land. Sugarcane farmers, most of whom lease their land, are not certain that leases will be renewed when they expire in the next few years. Also, many farmers are reluctant to invest as much as they otherwise might until the lease issue is settled, perhaps with new long-run leases. Production Revised Upward For 1995/96 Since publication of the Sugar and Sweetener Situation and Outlook in March, USDA has increased the 1995/96 world sugar production estimate by 2.1 million tons to a record 121.1-million tons. The upturn is largely attributed to better than anticipated record outturns in India, Thailand, Brazil, and Mexico and improved production results in Cuba and the EU. These advances more than offset a downturn in the production estimates for the United States, China, and Pakistan. The most-noteworthy single country production estimate revision occurred for India during 1995/96. Total sugar production, including 673,000 tons of khandsari (a low recovery centrifugal sugar), is expected to reach 16.5 million tons in 1995/96, 1 million tons higher than the previous estimate. A large cane crop, and reduced demand from gur and khandsari producers, left cane farmers with little option but to sell their remaining cane to sugar mills. Consumption Sugar Use Continues To Expand USDA's initial forecast for global sugar consumption in 1996/97 is 120.1 million tons, up nearly 1 percent or about 1 million tons from 1995/96. Major consuming countries such as the United States, Mexico, Brazil, India, Indonesia, and China are expected to use an additional 1 million tons in 1996/97. Regionally, increased sugar consumption is expected in North and Central America, South America, the Middle East, and Asia. For Asia, total sugar consumption is projected at a record 41.6 million tons, up 22 percent or 7.4 million tons since 1990/91. The growth is due to a mix of factors, including increased sugar production, population growth, higher consumer incomes, and rising demand for sugar-containing products, such as soft drinks and processed foods. In contrast, sugar consumption in 1996/97 in the EU, Eastern Europe, the former Soviet Union (FSU), and Sub-Saharan Africa is expected to remain at 1995/96 levels. For the EU, the lack of change reflects a mature market with a high level of per capita sugar use and the increasing availability of alternative sweeteners. In Eastern Europe and the FSU, consumption levels have stabilized after falling sharply in the early 1990's as these countries shifted from command to market economies which resulted in higher sugar prices and tight family incomes and a subsequent fall-off in sugar demand. While the economic situations in many of these newly independent countries has not improved greatly, the contraction in sugar use has apparently stopped. In Africa, consumption is expected to remain flat, especially in the poorer countries of Subsaharan Africa. In many of these low- income countries per capita sugar use remains below 10 kilograms, half the world average and only one-third the use level in western Europe. Consumption Estimate Adjusted Upward in 1995/96 Since the March report, USDA has raised the world consumption estimate by about 900,000 tons to 119.0 million. The upturn reflects higher than expected consumption in the United States and several Asian countries such as India, Malaysia, and the Philippines. The year-to-year growth rate is 4.5 percent, double the long-term trend as sharply higher consumption was estimated in several of the world's largest consuming countries, most notably India, up 5.8 percent to 15.2 million tons; China, up 3.1 percent to 8.3 million; the Philippines up 13.6 percent to 2.1 million, and Thailand up 8 percent to 1.6 million. For Asia, total consumption grew an estimated 4.7 percent or 1.8 million tons between 1994/95 and 1995/96 spurred by the familiar litany of factors including population and income growth and expansion in the use of processed foods containing sugar. Trade Trade Expansion Expected In 1996/97 World sugar trade is forecast to increase 2.6 percent in 1996/97 because of expected greater export availabilities in the EU, Thailand, and Australia. Brazil is again expected to export at a sustained level of 5.5 million tons, more than double that of the early 1990's. The export forecast by USDA is supported by the government of Brazil's Sugar Plan for 1996/97. Cuba, still one of the world's most important exporters, is likely to have a somewhat smaller exportable surplus than in 1995/96. In addition, South Africa is expected to reestablish itself in the export market after several years of drought reduced production. The structure of world sugar trade continues to be highly concentrated on the export side with the top six exporters projected to account for 71 percent or 25.1 million tons of expected global sugar exports (table 3). On the import side, the top five traditional major sugar importers, Russia, EU, China, Japan, and South Korea, are expected to import a comparable tonnage of sugar as they did in 1995/96, about 10.5 million tons (table 3). Import forecasts for the United States, the world's second largest sugar importer in 1995/96, will not be available until the U.S. Government sets the tariff rate quota (TRQ) for 1996/97. Among the smaller, but sizeable importers (over 500,000 tons annually), Malaysia, Philippines, Indonesia, Iran, Egypt, Algeria, and Canada are expected to import at roughly the same levels or higher than in 1995/96. For Malaysia, its rapidly growing economy is likely to require a record 1.2-million tons of sugar imports to service the demand by the fast growing beverage and food processing industries. The Philippines is expected to import about 700,000 tons again this year as domestic demand outpaces production and the policy to fulfill sugar allotted by the United States under the TRQ. Trade Estimate Raised in 1995/96 The 1995/96 world sugar trade estimate is revised up 7 percent to 34.4 million tons. Higher exportable supplies in Brazil, Thailand, Cuba, and India account for most of the increase which is almost 4 million tons more than the amount traded in 1994/95 (table 3). Export expansion by these countries will likely offset lower shipments from leading exporters such as Australia and the EU. Lower sugar production in Australia hampered its export availabilities, while the need to rebuild depleted stocks limited the EU's sugar shipments. In recent years, Brazil, Thailand, and Australia have increased their share of world sugar trade as Cuban exports declined. This year, Cuban production increased and the island regained a small part of lost market share. However, recent reports of problems between Russia and Cuba in fulfilling their mutual oil for sugar trade protocol clouds how well Cuba's sugar export trade is performing. According to recent trade reports, Cuba is lagging behind in its delivery of sugar to Russia. The current trade protocol, signed in the summer of 1995, calls for Russia to ship 3 million tons of crude oil in exchange for 1 million tons of Cuban raw sugar. A subsequent 3-year agreement for the barter of 10.5 million tons of Russian crude oil for 4 million tons of Cuban raw sugar was signed last fall. Given these agreements, Cuba is likely to remain Russia's leading supplier of raw sugar. Cuba's share of Russia's raw sugar imports represented 84 percent of a total 1.03 million in calendar 1994, then dropped to 44 percent of 1.17 million in 1995 due to a sharply reduced Cuban crop. Despite the current trade difficulties, Cuban exports of raw sugar to Russia are expected to rebound in 1996. For refined sugar, Ukraine is Russia's most important source of supply. Imports of refined sugar from Ukraine last year accounted for 1.34 million tons or three-quarters of total sugar imports, a 60-percent increase over 1994. There were several reasons for the jump in imports from Ukraine. First, Ukrainian sugar is cheap. Sugar delivered from Ukraine is not subject to import tariffs or the VAT. As a result, despite high production costs, Ukrainian sugar is the cheapest refined sugar that Russian traders can buy. Secondly, transportation expenses are very low due to closeness of major Russian food markets, located mostly in the European part of the country near Ukraine. A third factor favoring imports from Ukraine was the removal by the Ukrainian government of quotas and licenses for agricultural exports in March 1995. Ukraine is certain to continue to be a major Russian partner in refined sugar trade in the near future. For 1995/96, USDA expects Russian total imports to reach 3.2 million tons--the highest of any country in the world--with about one-half in the form of refined sugar, again mainly from Ukraine. Increased sugar imports by China, the United States, the Philippines, and Indonesia also are forecast to boost world sugar trade in 1995/96. Lower than expected output and stronger domestic demand have enhanced China's sugar imports in 1995/96. Lower sugar production in the Philippines and Indonesia increased those countries' need for foreign sugar this season. India, a chief importer during the past two seasons, is not expected to import any sugar in 1995/96. Because import data in many importing countries, especially in the FSU and China, are incomplete, and because a certain amount of sugar is smuggled every year, unrecorded sugar imports in 1995/96 are estimated at about 2.3 million tons. Stocks and Prices Global Stock Estimate for 1995/96 Increased USDA will not forecast 1996/97 world ending stocks until after the TRQ for the United States is announced. For 1995/96, world sugar ending stocks are forecast to grow by more than 2.0 million tons to 22.6 million, the second consecutive year of increases and the highest level of ending stocks since 1991/92. Record sugar crops in 1995/96 in Brazil, India, and Thailand have helped boost stocks. The stocks-to-use ratio is calculated at 19.0 percent for 1995/96, the highest since 1991/92. World Sugar Prices Weaken Higher stocks and the prospect of an approximate balance next year has led to a weakening of prices. For the first half of June, world raw sugar spot prices (f.o.b. Caribbean ports, Contract No. 11, New York), averaged 12.49 cents a pound, compared with nearly 14 cents a pound a year ago. Prices averaged 12.60 cents January-May 1996, versus 14.20 cents for the corresponding 5-month period in 1995. The weakening of world raw sugar prices reflect the production surplus in 1995/96. This season's estimated sugar surplus has not decreased world sugar prices as much as earlier expected. The relative strength of world prices is because much of this season's sugar surplus is locked in some countries with strong domestic demand and restrictive export policies, such as India. The direction of prices over the next several months will be influenced largely by weather. The 1996/97 cane sugar production season has already started in the Southern Hemisphere where good crops are forecast for the major producers, Brazil, South Africa, and Australia. If good harvest conditions continue in the Southern Hemisphere and if sugarbeet crops across Europe receive normal rains this summer, prices are likely to weaken. If adverse conditions develop in key countries, prices could rebound, especially since global stocks will still be relatively tight. Futures prices for raw sugar October 1996 and March 1997 are currently at 11.1 and 10.7 cents a pound, respectively, with contract highs and lows ranging from 12.5 to 9.5 cents. U.S. Sugar Production Production Downturn Expected in Fiscal 1996/97 U.S. sugar production in fiscal 1996/97 (October 1996-September 1997) is projected at 7.13 million short tons, raw value, down 3 percent from the revised estimate for 1995/96. Beet sugar production is forecast at 4.0 million tons representing 56 percent of total expected sugar production. Despite lower planted acreage, beet sugar production is forecast to increase 100,000 tons or 2.6 percent if sugar recovery from beets is close to the average of recent years. However, a sharp downturn in cane sugar production is expected to more than offset improved beet sugar production. Cane sugar production is foreseen declining by 310,000 tons to 3.13 million because of mill closings in Hawaii and damage from freezes this past winter in Louisiana. USDA's forecast for beet sugar is based upon the March 29 National Agricultural Statistics Service (NASS) Prospective Plantings less 50,000 acres, to account for more recent information gathered from beet sugar company officials and growers' associations. USDA's Interagency Sugar Estimates Committee forecasts total sugarbeet harvested acreage in 1996/97 at 1.35 million acres versus 1.42 million in 1995/96, a 5-percent decline (table 4). Percent of acreage harvested, and yields and recoveries (from beets) are 5-year olympic averages (high and low years are dropped when calculating the average). The fall-off in sugarbeet acreage, the largest in over a decade, is attributed to more remunerative prices for alternative crops, especially corn and wheat, and poor planting weather in some growing areas. For example, in the key sugarbeet growing area in the Red River Valley of North Dakota and Minnesota, plantings at the end of May were only 73 percent completed compared with the most recent 5- year average of 96 percent. In Northwestern Ohio, the Great Lakes Sugar Company, a subsidiary of Michigan Sugar Company, announced it would not operate its Fremont, Ohio plant for the 1996/97 season. The decision was made as a result of a sharp fall-off in sugarbeet plantings this spring reflecting poor planting conditions, mainly cold, rainy weather, and attractive prices for alternative crops such as corn and soybeans. According to Great Lakes officials, nearly 13,000 acres of sugarbeets were contracted, but only about one-half of that was actually planted. Production from this reduced level of plantings would not allow for cost-effective operation of the Fremont facility. This fall the reduced sugarbeet production from the northwest Ohio area will be shipped to factories in Michigan for processing. Included in the beet sugar production forecast of 4.0 million tons for fiscal 1996/97, is an estimated production of 309,000 tons of sugar from molasses de-ionization. Molasses de- sugarization is undertaken at eight facilities spread across the United States. Since 1990/91, the volume of sugar produced from molasses de-sugarization has increased six-fold as several facilities have come on line. From fiscal 1986 to 1995, the beet sugar production trend increase, including sugar from molasses, was 128,000 tons per year (figure 1). For cane sugar, the forecast assumes no change in area for Florida and Texas. Percent of area used for seed cane, yield, and recovery for the two states is based on the 5-year olympic averages for 1991-95 crops. Louisiana data were adjusted to account for freeze damage sustained last winter. The forecast for Hawaii takes mill closures into account. USDA will issue its first survey-based sugarcane acreage report on June 28. Over the last decade, fiscal 1986-1995, the annual production trend increase for cane sugar has been 20,000 tons per year as contraction in Hawaii has largely offset growth in Florida and Louisiana (figure 2). Fiscal 1995/96 Estimate Revised Downward Since the March Sugar and Sweetener Situation and Outlook, USDA has revised downward the fiscal 1995/96 sugar production estimate by 2.1 percent or 160,000 tons to 7.34 million tons, raw value (table 5). The revision reflects lower than anticipated production through March, and expected lower output in September 1996 because of the delay in planting beets. The late spring plantings will reduce the size of the early crop in Minnesota and North Dakota and reduce acreage in California's Central Valley. Beet sugar production was revised downward by 100,000 tons to 3.90 million tons. Beet sugar production for the first 6 months of fiscal 1995/96 (October-March) totaled 3.0 million tons, accounting for 77 percent of the revised forecast for the year. This compares with 3.32 million or 74 percent of the estimate for the corresponding period in 1994/95. The higher share of this season's beet sugar output foreseen produced in the first half of the year, reflects in large part, the smaller size of the 1995/96 sugarbeet crop to be processed, 28.03 million tons versus a record 31.85 the year before. In addition, the prospect that September 1996 output from the new crop (the last production month in fiscal 1995/96) is likely to be affected by the late plantings, and the expected short fall harvest in California due to sharply reduced plantings, have also been factors in reducing the estimate. In California, sugarbeet acreage has declined from over 200,000 acres a decade ago to less than 100,000 acres in 1996. In addition to the loss of acreage to more remunerative alternative crops, the number of beet processing factories in California has also declined from eight in 1990 to six in 1995. In a recent development, the Holly Sugar Corporation bought the Spreckels Sugar Company that had been operating 3 plants in California's Central Valley at Manteca, Woodland, and Mandota. The Spreckels factory in Manteca was not included in the sale and will be closed as well as Holly's plant at Hamilton City, California. This will leave only four sugarbeet processing plants operating in California--Brawley, Tracy, Woodland, and Mandota--all owned by Holly Sugar, a subsidiary of the Imperial Holly Corporation of Sugarland, Texas. To help maintain plant capacity and its customer base, the Woodland and Mandota plant have been used to process imported raw cane sugar during fiscal 1995/96. Cane sugar production was revised downward from the March forecast by 60,000 tons to 3.44 million (table 6). Florida's sugar production, concentrated in the first half of the year, was somewhat lower than expected as annual production for the year totaled 1.77 million tons versus the forecast of 1.80 million tons. In addition, data for Hawaii through March and preliminary data for April showed a fall-off in output. Hawaii harvests and processes cane sugar monthly with production traditionally picking up starting in March. But with the closing of factories and yield problems in other areas, monthly output has continued to weaken. USDA lowered its production forecast by 30,000 tons to 435,000 tons for the year. This contrasts sharply with Hawaii's annual cane sugar production of around 1 million tons in the mid- 1980's. On April 2, 1995, the Hawaiian sugar industry marked the centennial of the establishment of the Hawaiian Sugar Planters' Association (HSPA) Experiment Station. Despite its long record of accomplishment, the institution has faced a significant change in direction owing to the downsizing of the industry and reduced financial support. In recent years, HSPA has undergone a series of cutbacks in activities and staff. On April 2, 1996, the organization was officially changed to the Hawaii Agriculture Research Center (HARC). HARC will provide research services to a wide-range of participants in Hawaii's agricultural sector, and not just the sugar industry. HARC will be supported by the State of Hawaii, the sugar industry, and other agricultural interests in coffee, pineapple, and other crops. Consumption Expansion in Sugar Use Expected To Continue in Fiscal 1996/97 U.S. sugar consumption for fiscal 1996/97 is forecast at 9.83 million tons, up 1.3 percent or 125,000 from the revised estimate for the current year. The year-to-year anticipated growth rate is in line with the projected long-term trend. Over the past decade of 1986-1995, the annual trend growth rate for sugar consumption averaged about 2.0 percent, or 162,000 tons (figure 3). The anticipated increase reflects population growth and increased incomes. Population growth is projected up nearly 1 percent to 271.1 million (including Puerto Rico), including an increasing number of immigrants, many of whose traditional diets are high in sugar. Per capita sugar use is forecast at 67.0 pounds for fiscal 1996/97, up 5.1 pounds since fiscal 1986/87 when sugar use began to rebound after the soft drink industry completed its switch to HFCS. This forecast is somewhat below the average annual growth rates of recent years. The reduced growth rate, in part, is explained by a resurgence in inroads into sugar markets by corn sweeteners, including crystalline fructose, and expanded substitution of high intensity sweeteners (aspartame and saccharin) for sugar. Fiscal 1995/96 Use Estimate Increased USDA has raised the U.S. sugar consumption estimate for fiscal 1995/96 to 9.70 million tons, an increase of 180,000 tons over the March estimate and 363,000 tons, or 3.9 percent over 1994/95. The big year-to-year boost brings consumption back onto trend after a year of zero growth, and is attributed to several factors: o increasing away-from-home and processed food consumption including the heightened popularity of low-fat foods often high in sugar content, o increased activity under the sugar-containing products re- export program, o additional restrictions on imports of sugar-containing products which came into effect in January 1995, o unusually low deliveries in 1994/95 (caused in part by high September 1994 deliveries of sugar that would have been delayed if marketing allotments for fiscal 1994/95 had not been anticipated), and o the completion of the switch over to just-in-time deliveries by major food processors which had worked off internal inventories during 1994/95. The revised estimate is based on sugar deliveries for domestic food and beverage use of 9.59 million tons, transfers to sugar- containing products for export under the re-export program of 100,000 tons, and transfers to polyhdric alcohol producers of 10,000 tons. The recent year-to-year increase in deliveries peaked in 1989/90 at 3.2 percent. Last year deliveries were almost flat, but some processors, it should be emphasized, sold sugar in September 1994 that would normally have been delivered later in anticipation of domestic marketing allotments. In that month (September 1994), 936,000 tons of cane and beet sugar were delivered, the highest total in USDA's 5-year monthly delivery statistics, and 14 percent higher than deliveries in October 1994, the first month of the new fiscal year when domestic marketing allotments were imposed. Sugar deliveries for the first half of fiscal 1995/96 (October- March) totaled 4.62 million tons or 47.6 percent of the revised estimate compared with an average of 47.7 percent during the last 3 years. The first half of the 1995/96 increase over the previous year, first semester, is 4.57 percent; the forecast increase for the second half over the previous second half is 3.27 percent; and the 3-year average is 2.08 percent. The breakdown of deliveries between beet and cane sugar shows beet sugar at 2.15 million tons for the first 6 months of fiscal 1995/96, 46.5 percent of the total, and cane sugar at 2.40 million tons and 51.9 percent of the total. The remaining 1.6 percent of total deliveries for the first half of fiscal 1996 included importers direct consumption, sugar re-exported in products, and sugar for polyhydric alcohol and livestock feed use. Table 25 has delivery details by month and quarter. During the first half of fiscal 1995/96, industrial use of sugar increased 6 percent to 2.47 million tons, (table 26). Bakery/cereal and confectionery sectors continue to underpin industrial use accounting for 38 and 27 percent, respectively, of total deliveries to industrial users. Delivery levels for these industries were particularly strong during the first half of 1995/96, especially for confectionery. The sharp upturn in sugar use by the confectionery industry, up 5.8 percent for the October-March period, mirrors growth in demand for confectionery products, especially non-chocolate products which have a high sugar content. Non-chocolate or sugar-type confectionerywhich usually contain a greater proportion of sugar than chocolate candy have become increasingly popular, reflecting an increased variety of new products on the market, increased promotions and advertising by confectionery companies, and more marketings from vending machines and non-traditional outlets such as video stores. In addition, sugar-type confectionery is fat-free, thereby benefiting from heightened consumer choice to reduce fat in their diets. According to the confectionery industry, sugar-type products have grown 9 percent in volume terms over the past year and command 35 percent of the confectionery market. Chocolate- type confectionery with a 65-percent share of the total market grew by 7 percent since last year, but has been slowly losing market share to sugar-type products the last several years. USDA also tracks deliveries to non-industrial users (table 26). This group registered 1.84 million tons for the first half of fiscal 1996 versus 1.75 million the year before. In this group, wholesale grocers, jobbers, and sugar dealers accounted for 59 percent, or 1.08 million tons of the total, and retail grocers and chain stores 34 percent, or 634,000 tons. Deliveries to the sugar dealer category were up 6.8 percent due largely to strong demand by wholesale grocers such as "price club outlets." Trade Fiscal 1995/96 Tariff Rate Quota Raised The United States remains a large net sugar importer. A U.S. sugar import forecast for fiscal 1996/97 is not available as the level of TRQ imports has not been set (the initial TRQ for fiscal 1995/96 was announced by USDA on July 28, 1995). U.S. sugar exports for the forecast year are projected at 400,000 tons, largely consisting of refined sugar re-exports. The United States has a commitment, under the Uruguay Round Agreement, to the World Trade Organization (WTO) to import at least 1.256 million short tons of sugar per year at the low level of the TRQ. Imports under USDA's re-export programs are forecast at 550,00 tons in 1996/97. The import tariff on 96 degree raw sugar imports is 0.625 cents a pound, and 1.66 cents a pound for refined sugar. Countries with special preferences such as Caribbean Basin Countries (CBI) and Andean Preference countries have the duties waived. The tariff on imports above the TRQ is 17.17 cents a pound for raw cane sugar in 1996, and 18.12 cents on refined sugar. For fiscal 1995/96, total imports are estimated at 2.99 million tons, consisting of 2.33 million tons of TRQ sugar, 650,000 tons of sugar for the re-export programs, 10,000 tons for polyhydric alcohol for non-human consumption, and 1,000 tons of high tariff imports. On June 12, USDA raised the TRQ for raw cane sugar by 165,000 short tons (150,000 metric tons). USDA also raised the TRQ on April 1 by 220,000 short tons. These were the third and fourth quota increases for the fiscal year and reflected the changing domestic supply and demand situation in the U.S. sugar market (figure 4). The larger TRQ is expected to cause most cane refiners to run at, or close to capacity (figure 5, table 7). The TRQ on refined sugars has been unchanged at 22,000 metric tons since the start of the quota year. As of the beginning of June, 1.05 million tons of the revised TRQ had entered the United States including the entire refined sugar quota. This leaves approximately 1.3 million tons yet to enter the United States during the final 4 months of the final year. The TRQ on raw sugar is based on individual allocations for 40 countries, whereas the refined sugar quota is global, that is, it can be filled by any country on a first-come-first-served basis. The third import quota set by USDA is on specialty sugars. This quota totals 1,656 short tons and is divided among 23 countries. Through the beginning of June, 84 tons of specialty sugar had entered against the quota. Table 27 has detailed data for all three quotas (see page 42). Stocks and Prices Fiscal 1996/97 Beginning Stocks Higher Beginning stocks in fiscal 1996/97 are forecast at 1.47 million tons, up 231,000 tons from the beginning stocks for 1995/96. Since the fiscal 1996/97 TRQ has yet to be set, no ending stock figure can be calculated for September 30, 1997, nor a stock-to- use ratio--an indicator of potential market price levels. For fiscal 1995/96, ending stocks on September 30, 1995 are estimated at 1.47 million tons, up nearly 70,000 tons from the March estimate as the upward revisions in the TRQ in April and June were partially offset by the downward revisions in the production and re-export import estimates and the higher demand estimate. The new stocks-to-use ratio is 14.57 percent versus 14.00 in March, and 12.47 in 1994/95. According to USDA's stocks- and-price model, for every 1 percent change in the stock level there is a corresponding 0.3-cent a pound change in price of raw cane sugar. For this 2.0 percent positive change year-over-year, the model predicts about a 0.6-cent lower raw sugar price. In May 1996, the nearby (July) futures price for raw sugar averaged 22.54 cents a pound, compared with 23.10 cents in May 1995. According to USDA's Sweetener Market Data, compiled and published by the Farm Service Agency, sugar stocks on April 1, 1996, the midpoint in the fiscal year, totaled 3.29 million tons, compared with 3.93 million a year earlier (table 8). Beet processors held 1.41 million tons, 43 percent of the total, down 378,000 tons from a year earlier reflecting their much smaller 1995/96 outturn. The remaining stocks were held by cane mills, 1.30 million (40 percent), and cane sugar refiners, 581,000 tons (17 percent). No stocks were held by USDA's Commodity Credit Corporation (CCC). Normally at their highest point around April 1, U.S. sugar stocks are then drawn down to meet domestic demand. Stocks are usually the lowest at the end of the fiscal year. Sugar Prices Remain Firm U.S. raw sugar prices (nearby futures, c.i.f., duty-paid, contract No. 14, New York) averaged 22.59 cents a pound in the first 12 market days of June (through June 18), and 22.61 cents for the first 8-1/2 months of the fiscal year (figure 6). Comparable prices for the first 8-1/2 months of fiscal 1995 and 1994 were 22.45 and 22.02 cents, respectively. In recent months prices have remained relatively strong as downward revisions in the estimate of 1995/96 production and upward revisions in the consumption estimate have largely offset the potential price dampening impact of the April 1 increase in the TRQ. Wholesale refined beet sugar prices (f.o.b. plant, Midwest markets) averaged 25.26 cents a pound in fiscal 1994/95, and 28.32 cents for the first half of fiscal 1995/96, according to price data complied by the Milling and Baking News. As the prospective size of the current beet sugar crop has fallen progressively since last summer, users have turned to cane refiners, tightening the refined sugar market. In March, the Chicago Midwest refined beet sugar price was 29.50 cents a pound, 4 cents higher than last year, and has remained near that level through mid-June. Policy FAIR Act of 1996 After the longest farm bill debate in U.S. history, the Federal Agriculture Improvement and Reform (FAIR) Act of 1996 became law on April 4, 1996, significantly changing U.S. agricultural policy. The new Farm Act (P.L. 104-127) removes the link between income support payments and farm prices for many commodities by providing for 7 annual fixed-but-declining production- flexibility contract payments, whereby participating producers may receive Government payments largely independent of farm prices. This contrasts the past when deficiency payments were dependent on farm prices. Under FAIR, the raw cane sugar loan rate is fixed at $0.18 a pound, and the refined beet sugar loan rate is frozen at the 1995 level of $0.229 per pound. Under FAIR, loans are recourse when the tariff rate quota on (TRQ) sugar imports is at 1.5 million or below. When the TRQ exceeds 1.5 million, loans become nonrecourse. A recourse loan means the Government (USDA) can demand repayment of the loan at maturity, regardless of the price of sugar. In contrast, nonrecourse loans require that the Government accept the sugar when the loan matures in lieu of loan repayment in cash, at the option of the processor. Cane processors are required to pay a penalty of $0.01 on each pound of sugar forfeited to the Government. Beet processors are required to pay $0.0107 per pound of sugar forfeited. The marketing assessments paid on all processed sugar are increased by 25 percent from previous levels. Authority for domestic sugar marketing allotments is repealed, but the remaining authority to restrict imports (which must be at least 1.256 million tons under the Uruguay Round agreement) provides a measure of price support. The following text box provides a side-by-side explanation of, and the differences between sugar legislation in the 1990 and 1996 farm laws. U.S. Corn Sweeteners Production U.S. Corn Crop Forecast Higher Corn production in 1996/97 (September/August) is projected at 9.13 million bushels, down 250 million from the initial forecast in May, but up 1.8 billion bushels from 1995/96, (figure 7). The lowered projected crop since the May estimate is due to reduced plantings because of prolonged wet conditions in the eastern Corn Belt. But compared with last year, corn plantings are expected to rise nearly 11 percent to 79 million acres. This acreage would roughly equal the 79.2 million acres planted for the record 1993/94 crop and would be the highest since 1985, when plantings were 83.4 million (table 9). The average corn yield is projected at 126 bushels per acre, based on a linear trend fit over 1960-95, assuming normal weather and growing conditions. This compares with an average of 113.5 in 1995/96, when conditions were less than favorable. Bigger corn supplies becoming available this fall will allow marked increases in feed and residual uses along with a recovery in food, seed, and industrial (FSI) uses. Corn feed and residual use is projected to rebound 7 percent from estimated use in 1995/96. FSI use of corn in 1996/97 may total 1,675 million bushels, up 4.7 percent from 1995/96. Use in corn sweeteners is expected to increase 4 percent. New sweetener facilities have become operational and will expand output. Corn use in starch production is expected to increase 2 percent as the economy continues a modest expansion. Fuel ethanol is expected to take 5 percent more corn than in 1995/96 as plants are brought back into production. Some plants are supposed to be converted to beverage and industrial production as well as fuel, which could keep fuel production from reaching its previous high. Food use of corn in 1996/97 is likely to continue expanding in line with population increases (table 9). Corn sweeteners represent nearly 10 percent of the projected domestic use of the 1995/96 crop, and 45 percent of FSI use. For 1996/97, corn used for high fructose corn syrup (HFCS) is expected to total 505 million bushels, up 4.1 percent from the previous year. Corn used for glucose syrup and dextrose is expected to total 250 million bushels, up 4.2 percent from 1995/96 (table 10). HFCS Output Continues To Expand U.S. corn sweetener production in fiscal 1996/97 (October/September) is forecast to total 12.7 million tons, dry basis, up 4.1 percent from the current year. This projection reflects expanded industry capacity and is based on recent growth trends equal to 1990-95 averages, excluding the high and low years. HFCS production for fiscal 1996/97 is forecast at 8.5 million short tons, dry basis, up 330,000 tons (figure 8). HFCS- 55 will likely account for nearly two-thirds of the total and HFCS-42 the remainder. Combined glucose and dextrose production are projected to reach 4.2 million tons, up 150,000 tons from the fiscal 1995/96 estimate. For the current year, HFCS production is estimated at 8.16 million tons, up 4.3 percent or 336,000 tons from the previous year. For the first half of fiscal 1995/96 (October-March), HFCS production totaled 3.64 million tons versus 3.49 million for the comparable period in 1994/95 (table 11). The growth in HFCS production continues to be underpinned by industrial demand from the soft drink industry. Consumption and Trade U.S. Corn Sweetener Domestic Use Also Continues To Expand Total U.S. corn sweetener use in 1996/97 is expected to reach 12.1 million tons of which U.S. production is expected to supply 98 percent. USDA forecasts fiscal 1996/97 HFCS consumption at 8.4 million tons, up 4.0 percent from the current year. The consumption forecast for HFCS is based on projections of deliveries from domestic production and imports. On a per capita basis and using a U.S. population of 271.1 million (including Puerto Rico), domestic HFCS use is forecast at 61.7 pounds in fiscal 1997, up from 59.9 pounds the current year, and 49.3 pounds in fiscal 1990/91 (table 12). Glucose syrup and dextrose deliveries are forecast at 3.7 million tons, up 4.1 percent from the current year. For fiscal 1995/96, HFCS use is expected to total 8.05 million tons, up 4.2 percent from the previous year. Nonalcoholic beverages account for more than 70 percent for total HFCS domestic food and beverage use and 93 percent for HFCS-55 alone (figure 9). For HFCS-42, beverages are also the primary use, but other uses such as processed foods are also strong and growing (figure 10). HFCS domestic deliveries for the first half of fiscal 1995/96 totaled over 3.57 million tons, leaving 4.48 million or 55.6 percent for the remainder of the year, assuming USDA's current forecast. Over the past 5 years, deliveries during the last 2 quarters (April-September) averaged 28 and 27 percent, respectively, and reflects the increase in seasonality of soft drink demand. The major reason for recent growth of HFCS deliveries has been the rising use in nonalcoholic beverages, largely carbonated soft drinks as well as the increasingly popular noncarbonated sports and fruit drinks and ready-to-drink teas. According to supermarket sales data for the first 4 months of calendar 1996, soft drink sales were up 3.4 percent over the corresponding period in 1995. The soft drink industry in the United States expects a very good year as it heads into the peak summer season. Demand is expected to be fueled by heightened promotional campaigns and the upcoming Olympic games which are expected to bring a surge in foreign visitors to the United States. HFCS Trade Remains Small Trade in HFCS and the other corn sweeteners remains a small element in total U.S. supply and demand. For calendar 1996, U.S. imports of HFCS, mostly from Canada, are expected to increase marginally to 88,000 tons, but well below the average of the previous 5 years of 151,400 tons (table 13). U.S. exports are expected to total 116,000 tons. Exports over the last 5 years have ranged between 107,000 and 140,000 tons. Mexico is a major potential market, but problems in the Mexican economy have slowed the expansion of HFCS imports. Prices and Costs Corn Prices Remain High The tight corn supply situation has resulted in strong corn prices (figure 11). The average farm price for corn was $2.26 per bushel in 1994/95 and is forecast by USDA at between $3.15 and $3.25 for 1995/96. The cash price for corn (no. 2 yellow Central Illinois) averaged $4.86 per bushel in May 1996, $2.50 per bushel in May 1995, and $2.58 per bushel in May 1994. The cost of corn as a raw material input can be viewed either on a gross or net basis. The wet-milling process creates three valuable byproducts: corn gluten feed, corn gluten meal, and corn oil. Sale of these byproducts generates revenues that reduce the gross cost of corn. When corn prices rise, so usually do the byproduct prices, partly offsetting the effect of higher corn prices on corn sweeteners. In the calculation of byproduct credits, it is assumed that 1 bushel of corn weighs 56 pounds and produces 1.55 pounds of crude corn oil, 13.5 pounds of corn gluten feed, 2.65 pounds of corn gluten meal, and 33.33 pounds of corn sweetener, dry weight. Table 14 provides net cost of corn starch data through May 1996. Net corn sweetener costs averaged 5.57 cents a pound for the first half of fiscal 1995/96, more than double the comparable 2.66 cents a pound in 1994/95. High corn prices and higher demand from the beverage industry have only partially translated into higher prices for HFCS. HFCS- 55 prices (wholesale list prices, Midwest market) averaged 20.53 cents a pound dry basis for the first half of fiscal 1995/96 (October-March), 7.4 percent higher than a year earlier. HFCS-42 prices averaged 18.45 cents a pound versus 17.02 cents for October-March 1994/95. Despite the price increases, HFCS continues to sharply under-price refined sugar, as wholesale refined beet sugar prices averaged 28.32 cents a pound for the first half of fiscal 1995/96 (figure 12). The current pricing situation for HFCS also can be partially explained by the substantial expansion of corn wet milling capacity over the past 2 years--an increase of more than 25 percent according to industry analysts. The new capacity has come on line to service the upward trending demand for corn sweeteners in the United States and the potential, but not yet realized, market in Mexico. Special Article U.S. Import Quota-Exempt Programs for Sugar by Lynn Garrett Abstract: Historically, sugar refiners participating in the re- export program have used the program as a marketing tool that allows refinery volume to be quickly adjusted for the demands of foreign and domestic markets. Over 600,000 short tons raw value of U.S. refinery capacity is used for refining program imports of raw cane sugar. This is roughly equal to one average size raw cane sugar refinery. The gross raw cane refiner margin, as estimated from the export value of the refined product, minus the import value of the raw cane sugar, is highly variable. During the past 5 years the cumulative net trade value is estimated to have amounted to over a quarter of a billion dollars. Keywords: Re-export programs, refined sugar, sugar-containing products, polyhydric alcohol. Introduction Soon after the establishment of a restrictive sugar import quota in 1982, it became clear U.S. cane sugar refiners and manufacturers of sugar-containing products could not compete on an equal footing in the world market with their foreign counterparts who had access to raw and refined sugar at lower world prices. This inequity would result in a decline in the capacity and utilization of domestic food manufacturing facilities and, therefore, jeopardize the viability of domestic sugar refineries. Legal Authorization The above considerations led to the issuance of Presidential Proclamation No. 5002 of November 30, 1982 (47 FR 54269), which has since been superseded by additional U.S. note 6 to chapter 17 of the Harmonized Tariff Schedule of the United States (HTS). These provisions authorize the Secretary of Agriculture to allow the entry of imported raw cane sugar that is exempt from the higher tier duties and quota limitations of the tariff rate quota. In order to qualify for this exemption, the sugar must be refined and re-exported in refined form, or in sugar-containing products, or used for the production of polyhydric alcohols (except polyhydric alcohols used as a substitute for sugar in human food consumption). Such sugar must be entered under licenses issued pursuant to regulations promulgated by the Secretary of Agriculture. Establishment There are three quota-exempt programs for sugar administered by the U.S. Department of Agriculture. They are the Refined Sugar Re-export Program, the Sugar-Containing Products Re-export Program, and the Polyhydric Alcohol Program. The first two programs provide for access to quota-exempt sugar (at world price) provided that the sugar refined or the product manufactured is subsequently exported. The Polyhydric Alcohol Program allows for access to world-priced sugar to use in the manufacture of polyhydric alcohol which is used for non-food industrial processes. Background Historical View of the Sugar Re-export Program Authority for the program is provided in additional U.S. note 6 to chapter 17 of the Harmonized Tariff Schedule of the United States. Regulations governing "Sugar to be Re-exported in Refined Form" were issued by the Secretary of Agriculture on June 28, 1983. They were subsequently amended on January 4, 1984; September 5, 1985; October 4, 1990; and August 7, 1991. Participation and Program Activity There are eight licensed raw sugar cane refiners in the program, two operate more than one refinery. The volume of quota exempt sugar imported for processing during fiscal 1994/95 (October- September) was over 230,000 short tons raw value. The entry of sugar exempt from quota is allowed, provided that it is refined and either exported or transferred to a licensed sugar-containing product manufacturer within 90 days of the date of import entry of the raw cane sugar. Imports of quota-exempt sugars as a portion of total offshore receipts are highly variable from year to year. During fiscal 1994/95, licensed imports were 13 percent of total receipts of foreign sugar (figure A-1). Between the calendar years 1988 and 1995, licensees in the program annually imported between 255,499 short tons in 1995 and 693,347 short tons raw value in 1992 (table A-1). During this period, imports originated from 29 countries, although in recent years imports have been mostly from Colombia and Guatemala (figure A-2). Operational Aspects of the Program A specific application review process is conducted by the Licensing Authority (USDA) before a raw cane sugar import license is issued. The applicant's written application must include the site where the raw cane sugar will be refined, the maximum size of the license needed to accommodate imports, the refined sugar products to be exported, performance bond information, and certification statements relating to program rules. There is no limit on how much sugar may be imported and processed under this program. There is a license limit (license credits/debits) of 50,000 metric tons raw value (55,116 short tons) at any given time. A license credit balance occurs when the licensee exports domestically produced refined sugar before importing the quota exempt raw cane sugar. Conversely, a license debit balance would occur when the licensee imports raw cane sugar prior to exporting the refined sugar. The act of transferring the refined sugar involves the shipment of sugar to one of the sugar-containing product manufacturer licensees. The regulations governing the manufacturer license program are provided in 7 CFR 1530 Sugar Import Licensing Subpart B-Sugar To Be Re-exported in Sugar-Containing Products. Regulatory control of the program is dependent on the licensee's acquisition of documents indicating dates and quantities of sugar imported and exported or transferred. Once adequate documentation is acquired by the licensee, a certification of the transactions is provided to the Licensing Authority and transactions are then posted to the license. All licenses having a debit balance are required to be bonded. The Licensing Authority has discretion in issuing a license, verifying proof of the export/transfer document, denying credit, imposing penalties, and revoking a license. False certification made by the licensees on the basis of fraudulent documentation under this program became the subject of a joint U.S. Customs and USDA investigation, "Operation Bittersweet," which commenced in 1984 and concluded in 1991 with the final settlement between the Government and the companies involved. The investigation led to an amendment of regulations governing the refined sugar re-export program that were made effective on October 7, 1985. More than 40 individuals were convicted of federal felonies as a result of the Operation Bittersweet investigations. Other Programs Sugar-Containing Product Re-export Program Over 375 food processing firms are licensed to take part in this program. It allows for access to world-priced sugar through licensed refineries in the Refined Sugar Re-export Program. Product manufacturers export, in product form, an equivalent quantity of sugar within 18 months of receiving the world-priced sugar. The program began in January 1984, and has grown substantially, both in terms of the number of firms participating and the volume of sugar used. In recent years as much as 130,000 short tons of quota-exempt sugar has been transferred annually to product manufacturers, versus nearly 40,000 tons and 150 firms in the 1980'. Participants include major industrial sugar users, as well as small firms and agricultural cooperatives. Products exported under the program range from traditional confectionery products to cerium (imitation crab meat) to frozen and canned fruits and vegetables. Polyhydric Alcohol Program Ten industrial manufacturers of diverse non-food items such as foam cushions, bowling balls, and car bumpers use world-priced sugar in the manufacture of polyhydric alcohol for use in these industrial products. These firms are not required to export their products, but they are required, as a condition of their license to receive quota-exempt sugar, to detail to USDA the use of this sugar in their production processes within a limited time frame. The annual level of usage for this program is around 10,000 tons. Price Influences on Program Activity The differentials between world market refined sugar prices and world market raw sugar prices influence the overall license balance of the program. The effect of the price differences can occur on both a spot and deferred basis. As the world price differential between refined and raw sugar grows, the volume of export shipments tends to advance and program license credits for future imports expand. Since December 1994, the cumulative volume of program credit transactions (mostly derived from direct export shipments) have significantly exceeded cumulative raw cane sugar licensed imports. The growth of license credits (i.e. resulting principally from refined exports) without offsetting raw imports tend to put pressure on domestic inventory stocks of sugar held by the licensee or agent. The continuation of this type of activity would tend to support an upward movement in domestic raw sugar price (table A-2 and figure A-3). Pros and Cons of the Program Pros Increased Market Exposure to U.S. Products The most significant benefits of the program are provided to the refiner and food manufacturer. Since the program began in 1982, the number of country destinations for refined sugar exports has grown from principally only Canada to over 50 countries. This has given the United States over 13 years of experience in exporting refined sugar under the program. As new countries begin to import U.S. refined sugar the greater the exposure to the varied types of U.S. refined sugar products. U.S. exports of refined sugars are not limited to refined granulated sugar, but also include confectioners sugar, brown sugar, refined sugar syrups, and a host of specialized industrial refined sugars. Increased Utilization of Refinery Capacity Domestic raw cane sugar refiners are becoming more experienced in export marketing and have increased their dependence on the program. During the past 5 years, refiner participants have refined an annual average of over 600,000 short tons of raw cane sugar under the program. This annual quantity exceeds the quantity of sugar necessary to keep an average size U.S. refinery running for a full year. The program can also allow for better utilization of the raw cane refinery capacity that might otherwise go unused when raw cane sugar supplies from the domestic market are seasonally low. Refiner Benefit Another significant benefit of the program is the value added derived from the difference between the export refined product value and the import value of the raw cane sugar. A further benefit is the competitive advantage gained by sugar-containing product manufacturers. The vast majority of refined sugar exports made each year are for license credit. However, over the last 3 fiscal years (1993-95), non-program exports have occurred. These exports were refined beet sugar exports, primarily to Canada, and mostly when domestic marketing allocations were in effect. Excluding the other non-program exports, the accumulated net trade value of the refined re-export program during the past 5- years, has been over $265 million. This total value represents the difference between the total value of refined sugar export and the import value of the raw cane sugar licensed imports for the 5-year, fiscal year period from October 1990 through September 1995. The unit value of imports during the past 5 years has ranged between a low of 8 cents per pound in fiscal 1992/93, to a high of 12 cents per pound in fiscal 1994/95. The unit value of exports ranged from a low of 14 cents per pound refined weight in fiscal 1991/92 and fiscal 1992/93, to a high of 18 cents in fiscal 1994/95 (figure A-4). Refined Sugar Export Markets In the 7 years from 1988 through 1995, U.S. refiner licensees exported refined sugar to over 50 countries. Major destinations included: Canada, Mexico, Jamaica, Haiti, Peru, Dominican Republic, Chile, Bahamas, Netherlands Antilles, and Barbados (table A-3). On occasion, significant quantities of refined sugar have been exported to Russia, Syria, Jordan, Nigeria, India, and Turkey. In 1995, the leading destinations for refined sugar certified as being exported were Turkey and Haiti and accounted for over 16 percent and 14 percent respectively, of total export volume (figure A-5). Cons Uncertain Supply Situation The program can make the U.S. sugar supply situation uncertain. Program imports during the past 5 years have varied from 230,000 to over 667,000 short tons raw value. Estimating the volume of program imports can add a degree of uncertainty to any projected forecast of the U.S. sugar supply (table A-4). Regulatory Nature of the Program Program license balances that can indicate whether cumulative program activity is in a raw import or refined export position can be determined only within a 95-day historical window. Program regulations allow refiner licensees to make certification of direct export shipments up to 95 days after shipment is made. This lag period adds a degree of market uncertainty. List of Tables 1. World sugar supply and use and stocks-to-consumption ratio and world prices 2. European Union (EU-15) sugar production, supply, and distribution 3. World sugar trade, by leading sugar exporters and importers 4. U.S. sugarbeet crops: Area planted, by State and region, 1990-1996 5. U.S. sugarbeet area, yield, and production, 1985-96 6. U.S. sugar: Area, yield, production, output, recovery rate, and sugar yield per acre, crop years 7. U.S. cane sugar refiners: Company, factory location, and capacity 8. U.S. sugar stocks held by primary distributions, by quarters 9. U.S. corn supply and use 10. U.S. wet milled use of field corn, crop years 11. U.S. high fructose corn syrup (HFCS) production, quarterly, fiscal, and calendar years 12. U.S. (including Puerto Rico) sugar and HFCS consumption and per capita use, fiscal years 13. U.S. high fructose corn syrup (HFCS) supply and use, by calendar years 14. Net cost of corn starch to U.S. wet-millers, Midwest markets 15. World sugar production, supply, and distribution, by selected countries 16. World raw sugar prices, monthly, quarterly, and by calendar and fiscal years 17. World refined sugar prices, monthly, quarterly, and by calendar and fiscal years 18. U.S. raw sugar prices, duty/fee paid, New York, monthly, quarterly and by calendar and fiscal years 19. U.S. wholesale refined beet sugar prices, Midwest markets, monthly, quarterly, and by calendar and fiscal years 20. U.S. retail refined sugar prices, monthly, quarterly, and by calendar and fiscal years 21. U.S. wholesale list prices for HFCS-55, Midwest markets, monthly, quarterly, and by calendar and fiscal years 22. U.S. wholesale list prices for HFCS-42, Midwest markets, monthly, quarterly, and by calendar and fiscal years 23. U.S. cane sugar production by State (including Puerto Rico), and beet sugar, monthly, quarterly,and by fiscal and calendar years 24. U.S. beet and cane sugar production (including Puerto Rico), fiscal years and percent share of total 25. U.S. cane sugar (including Puerto Rico), and beet sugar deliveries, monthly, quarterly, and by fiscal and calendar years 26. U.S. sugar deliveries for human consumption by type of users, quarterly and by calendar years 27. U.S. sugar imports under tariff rate quota (TRQ) by country 28. U.S. sugar (including Puerto Rico) supply and use, fiscal years Special Article Tables A-1. U.S. raw sugar imports under the refined sugar for re-export program by country of Origin, calendar year A-2. U.S. sugar re-export program end of month license balance A-3. U.S. refined sugar re-exports by country of destination, calendar year A-4. U.S. sugar re-export program data analysis END-END-END