Milling & Baking News - February 26, 2008 - 16

Corn Wet Milling

U.S.D.A. Sugar and Sweeteners Outlook
provides clearer near-term picture of industry
BY PETER A. MEYER

The U.S. Department of Agriculture's
Sugar and Sweeteners Outlook, published Jan. 29, was significant in that
this report was the first published after
the full implementation of the North
American Free Trade Agreement
(NAFTA) as of Jan. 1. Under NAFTA,
trade in sweeteners - sugar and highfructose corn syrup (HFCS) - is free
and unencumbered by duties, tariffs,
quotas or other impediments.
The free flows of sweeteners between the two countries means that if

(NASS) estimates sugar beet production at 31.912 million tons for a calculated yield of 25.6 tons per acre, a level
exceeded only by last year's record 26.1
tons. Because of these high beet yields
total beet sugar production is expected
to fall only 188,600 short tons, or 3.8%.
The largest unknown facing the sweetener industry in the United States is the
amount of sugar exports to Mexico and
imports from Mexico this year and for
the next several years. As the document
says, "The nearby No. 14 New York
raw sugar contract price is averaging

Average of alternative long-term Mexico sugar and
high-fructose corn syrup (HFCS) projections, 2012-20201/

Beginning Stocks
Sugar Production
Imports
Supply
Disappearance
Consumption
Other Disappearance
Exports
Ending Stocks

HFCS sweetener share in beverage industry
30 per cent
75 per cent
90 per cent
- 1,000 metric tons, raw value -
617
857
802
6,735
6,617
6,617
-
-
-
7,352
7,474
7,419
6,073
5,054
4,714
6,073
5,054
4,714
-
-
-
697
1,649
1,986

High-fructose corn syrup consumption
Estandar sugar price (cents/lb)

582
635

771
1,588

720
1,906

20.23

19.36

1/ Scenario assumes that Mexican beverage industry can fully substitute between sugar and HFCS in 2012.
Period 2009-2011 represents a phase-in period of adapting factories for use of HFCS.
Source: ERS long-term sweetener projections model.

a cane cutter in Vera Cruz sneezes, a
beet sugar grower in North Dakota or
a corn grower in Nebraska may wind
up catching a cold and vice versa. Not
surprisingly the U.S.D.A. report focuses both on the U.S. market and on
"Mexican Sugar and HFCS Long-Term
Projections through 2020."
The near-term picture in the United
States shows production increasing
slightly in fiscal 2008. The cane sugar
industry is expected to return to more
normal levels of production by increasing output 7.5%, or 259,000 short tons,
raw value, over last year. Beet sugar
production is expected to decline slightly, primarily because of a decrease in
acreage planted to sugar beets of 4.3%.
The largest area reductions are estimated in the Great Plains (Colorado,
Montana, Nebraska, Wyoming and
western North Dakota) at 18.2% and
in the far west (California, Idaho, Oregon, and Washington) at 10.6%. The
National Agricultural Statistics Service
16 / February 26, 2008

Milling & Baking News

20.37 cents per lb through the first half
of January 2008. This average is at approximately the minimum price to avoid
forfeitures. The low end of the range of
the Midwest refined beet sugar price is
listed by Milling & Baking News at 24.50
cents/lb, the same level since November.
The minimum price to avoid forfeiture
of refined beet sugar in the Midwest is
calculated to be 24.28 cents/lb."
The market has interpreted the signals on total of supply and demand to
bring pricing in the United States perilously close to forfeiture levels. The
impact of free sweetener trade in Mexico is not buffered by the U.S. system
of marketing allotments and loan forfeitures. The Mexican industry seems
to have entered this crop year with adequate stocks. Therefore, despite labor
troubles early in the harvest, supplies
in the near term should be adequate.
Further HFCS from the United States
is expected to be a greater percentage
of the Mexican sweetener supply. The

report states consumption of HFCS
in 2007/2008 is projected at 850,000
tonnes, dry weight, an increase of approximately 150 tons over last year. It
is assumed that the beverage industry consumes about 83%, or 709,000
tonnes of that amount.
HFCS is estimated to make up over
40% of combined sugar and HFCS
sweeteners demanded by the Mexican
beverage industry.
The good news for Mexico is that
both sweetener and soft drink markets
continue to grow. The bad news is they
are not growing fast enough to absorb
the flow of HFCS. Therefore they will
export more sugar to the United States.
In the U.S.D.A. model, "The export flow
achieves equilibrium when the U.S. raw
sugar price and the Mexican estandar
price differ by the cost of transporting
Mexican sugar to the United States and
other marketing expenses."
The U.S.D.A. did three projections
for sugar exports to the United States
and prices in Mexico for the period
from 2012-2020. The primary variable in the three projections was the
percentage replacement of HFCS in
the Mexican beverage industry. The
analysis also assumed the current U.S.
sugar program, not the one included
in the pending farm bill, but does not
account for any U.S. sugar moving to
Mexico. It is likely that blocked stocks,
if any, under the marketing allotment
program would move to Mexico.
Because projected 2007-08 HFCS
supplies to Mexico are projected at
40% of the beverage market, it appears
the 75% range is a more likely scenario
than 30% substitution. The resulting
prices in Mexico of estandar sugar,
which ranges in purity between raw
sugar and refined sugar depending on
producer and is the "standard" sugar
produced and consumed in Mexico,
are flat lined at $19.36 per cwt. This result stems from price support afforded
by the U.S. sugar program.
This price is significantly below the
average prices of the last five years
in Mexico. It is likely some change in
Mexico's sugar program will occur if
this U.S.D.A. scenario plays out. It is
also interesting to note the U.S.D.A.
table shows 1.649 million tonnes of
Mexican sugar exports moving to the
U.S. market - a potential problem? MBN

Peter A. Meyer is president of
PMI Consultants, a Chicagobased consultant to the food
and agribusiness industry.

bakingbusiness.com / world-grain.com

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Milling & Baking News - February 26, 2008

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