SUGAR OUTLOOK – SUMMARY September 22, 2005 September 2005, ERS-SSS-244s Approved by the World Agricultural Outlook Board ------------------------------------------------------------ This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. The complete report will be available electronically about 1 week following this summary release. ------------------------------------------------------------ The USDA Acts To Increase Sugar Availability During the months of August and September 2005, the U.S. Department of Agriculture (USDA) announced a number of actions concerning the sugar marketing allotment program and the sugar tariff-rate quota (TRQ) for fiscal years (FY) 2005 and 2006. These actions were made in response to two events: (1) a perceived shortage of sugar in the U.S. market due to an expectation of lower beet sugar production in September 2005, on top of strong domestic demand and reduced raw cane sugar production in Florida and Louisiana during FY 2005, due to hurricanes and other weather-related events; and (2) the closure of two sugar refineries in Louisiana due to Hurricane Katrina. Announcements made prior to August 30 were influenced by the events described under item number 1, and announcements made on and after August 30 dealt more specifically with the shortage of refined sugar caused by Katrina. Citing conditions that had led to a tight sugar market, USDA decided to increase the FY 2005 Overall Allotment Quantity (OAQ) on August 12 by 250,000 short tons, raw value (STRV) to 8.350 million STRV. On August 19, USDA announced the reassignment of allocations among sugarbeet and sugarcane processors, and also reassigned the expected unused cane sugar allocation to FY 2005 Commodity Credit Corporation (CCC) sales and imports. In order to accommodate this last reassignment, USDA increased the FY 2005 TRQ by 84,447 STRV to 1,315,944 STRV. On August 12, 2005, the USDA also set the OAQ for FY 2006 at 8,600,000 STRV. The OAQ calculation was based on the World Agricultural Supply and Demand Estimates (WASDE) report projection of domestic sugar food and beverage use of 9.950 million STRV, less the amount of sugar expected from alternative (non-OAQ) sources. The OAQ was allocated to the beet sugar sector at 4.674 million STRV and to the raw cane sugar sector at 3.926 million STRV. The USDA determined that FY 2006 domestic cane sugar production would be insufficient to meet its allocation under the OAQ. On August 19, 2004, USDA fixed the reassigned cane portion at 120,000 STRV and reassigned it to the FY 2006 raw sugar TRQ. The FY 2006 raw sugar TRQ, which had been set on August 12 to 1,231,497 STRV (the minimum amount to which the United States is committed under the World Trade Organization (WTO) Uruguay Round Agreements was increased to 1,351,497 STRV. Hurricane Katrina initially halted operations at two Louisiana sugar refineries in Chalmette and Gramercy. Although operations soon resumed at Gramercy, the Chalmette refinery remains out of operation indefinitely, lowering refined sugar availability by about 90,000 STRV a month. On August 30, 2005, USDA responded to the effects of Katrina by increasing the FY 2005 OAQ by 225,000 STRV. On September 9, 2005, USDA once again increased the FY 2005 OAQ, this time by 105,000 STRV. The USDA expects these actions to permit additional beet sugar deliveries of 128,068 STRV before the end of the fiscal year. In the August 30, 2005, OAQ announcement, USDA allowed the early entry of refined sugar under the FY 2006 refined sugar TRQ, beginning on September 8. On September 9, 2005, USDA increased the FY 2006 refined sugar TRQ by 75,000 STRV and specified that it could enter prior to the start of the fiscal year. On September 12, 2005, USDA released its latest estimate of FY 2005 supply and use and its projections for FY 2006 in the WASDE. The USDA estimates FY 2005 sugar production at 7.950 million STRV, comprised of 4.623 million STRV of beet sugar and 3.327 million of raw cane sugar. The USDA projects FY 2006 sugar production at 7.964 million STRV, about the same as FY 2005. Beet sugar production is forecast at 4.375 million STRV (248,000 STRV lower than FY 2005) and cane sugar production is forecast at 3.589 million STRV (262,000 STRV higher than FY 2005). TRQ sugar estimated for entry in FY 2005 is 1.404 million STRV. Expected raw sugar TRQ imports are 1.266 million STRV, and expected refined sugar TRQ imports are 138,000. These refined sugar imports include early entries from the FY 2006 refined sugar TRQ and additional specialty sugar added to the FY 2005 refined sugar TRQ in August. TRQ sugar projected for entry in FY 2006 is 1.412 million STRV. With shortfall projected at 50,000 STRV, the raw sugar TRQ entries are projected at 1.301 million STRV. The sugar expected to enter under the terms of the Central American Free Trade Agreement, including the Dominican Republic (CAFTA), is projected at 70,000 STRV. Refined sugar TRQ entries in FY 2006 are projected at 41,012 STRV. The USDA estimates high-tier imports for FY 2005 at 107,000 STRV and projects FY 2006 high-tier imports at 50,000 STRV. Most of these imports are expected from Mexico. There has been no USDA announcement regarding Mexico’s net producer status for FY 2006. With 2 months of data remaining, USDA estimates FY 2005 deliveries for domestic food and beverage use at 9.875 million STRV. The USDA projects FY 2006 sugar deliveries for food and beverage use at 9.950 million STRV. The USDA estimates FY 2005 ending stocks at 1.528 million STRV, implying an ending stocks-to-use ratio of 14.86 percent. For FY 2006, ending stocks are projected at 1.014 million STRV, implying an ending stocks-to-use ratio of 9.83 percent. The last time the ending stocks-to-use ratio was below this forecast level was in FY 1974 when the ratio was 8.83 percent.