SUGAR AND SWEETENERS OUTLOOK -- SUMMARY January 24, 2006 January 2006, ERS-SSS-245s 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. ----------------------------------------------------------------- Increased Sugar Imports Compensate for Sugar Production Downturn On January 12, 2006, the U.S. Department of Agriculture (USDA) published its latest sugar supply and utilization projections for the 2006 fiscal year (FY) in the World Agricultural Supply and Demand Estimates (WASDE) report. Beet sugar production was projected at 4.435 million short tons, raw value (STRV), an increase of 79,000 STRV over the projection in the November WASDE. This increase was due to better expected recovery in the Upper Midwest and the Pacific Far West. Cane sugar production was projected at 3.158 million STRV. Both Florida and Louisiana have had difficult harvest seasons after major hurricanes. Florida’s production was projected at 1.455 million, the lowest level since FY 1990. Louisiana’s production was projected at 1.263 million STRV, actually a slight improvement after last year’s disappointing season. Overall, FY 2006 production is projected to be 283,000 less than in FY 2005. Sugar imports were projected at 2.77 million STRV, an increase of 674,000 STRV over FY 2005 imports and 590,000 STRV over FY 2006 imports projected in November. This latter increase was constituted by three components. First, on December 2, 2005, the USDA announced an increase of 450,000 STRV in the sugar tariff- rate quota (TRQ) for FY 2006. This amount was divided between a 300,000-STRV increase in the raw sugar TRQ and a 150,000-STRV increase in the refined sugar TRQ. (The FY 2006 raw sugar TRQ is now at 1,651,497 STRV, and the refined sugar TRQ is at 232,815 STRV.) The shortfall from this increase was expected to be 15,000 STRV, indicating a net import gain of 435,000 STRV. The second component was an increase in the amount of high-tier tariff sugar from Mexico. Based on reliable industry information, the USDA expects 230,000 STRV to enter this fiscal year, an increase of 130,000 STRV over November’s projection. The third component was an increase in sugar expected to be extracted from imported sugar syrups (thick juice and molasses) from 50,000 to 75,000 STRV. The USDA now relies on industry-supplied data for making its projections of this category of imports. The USDA projects FY 2006 sugar deliveries for domestic food and beverage use at 10.050 million STRV. With FY 2005 deliveries estimated at 10.046 million STRV, it would seem that the USDA expects no increase for FY 2006; however, deliveries in September 2005, the last month of FY 2005, surged above expectations by about 75,000 STRV. One hypothesis is that direct consumption imports resulting from early entry FY 2006 refined TRQ imports in September were not fully absorbed into end user marketing channels in September. These imports were estimated at 83,750 STRV, or about 78,500 STRV above the September import average of the preceding 13 years. In any event, deliveries in October and November returned to levels at or below those consistent with the current USDA forecast. Until a differing delivery pattern is discerned, the USDA will remain with the projection at 10.050 million STRV. Exports are projected at 175,000 STRV. Other deliveries for the sugar-containing product re-export and polyhydric alcohol programs and livestock feeding are projected at 165,000 STRV. Projected ending fiscal year stocks are the difference between total supply and total use: 1.320 million STRV. This implies an ending year stocks-to-use ratio of 12.7 percent. From September 2 through December 9, the average lower range of the refined beet sugar spot price in the Midwest has been estimated by the Milling and Baking News at about 40 cents a pound. The increase from August through the whole of December is calculated at 40.6 percent. It is unclear how much sugar is actually selling in the spot market. Producer price indexes (PPI), compiled by the Bureau of Labor Statistics, for both refined beet and cane sugar have increased by much less than the refined beet spot price. The beet sugar PPI through December has increased by 20.6 percent since August, and the refined cane sugar PPI has increased by only 7.2 percent over the same period. The PPIs are meant to reflect actual prices for deliveries made during the month (but are expressed as a ratio of a base-period price). Because many of these prices were probably contracted before the end of August, they were slower to reflect the full impact of the supply-disrupting effects of the August/September hurricanes (Katrina, Rita, and Wilma). With an increasing supply of refined sugar (from the beet sugar processors, increased refined sugar imports, and the re-opening of the Chalmette Refinery), the lower range of the refined beet sugar spot price has been declining since mid-December. As of January 13, it was at 34 cents a pound. The U.S. raw sugar price, the nearby No.14 futures contract, has increased since August but not as markedly as the refined beet price. The raw price in August averaged 20.49 cents a pound. The average increased by about 1.2 cents into September and did not vary much through most of December (October average: 21.71 cents, November average: 21.82 cents; and December: 21.74 cents). The raw price has been increasing since before Christmas, averaging 23.0 cents a pound through the first half of January. There have been concerns regarding sugar availability from Mexico and from certain Central American countries with whom Free Trade Agreement implementation legislation has not been finalized. Also of concern has been the high world price of raw sugar that has made raw sugar imports from certain TRQ exporters less certain.