The Hagstrom Report

Agriculture News As It Happens


Falling prices, large stocks could impact sugar program talks during farm bill debate

Plummeting sugar prices and large stocks may reshape the debate over the sugar program if Congress resumes consideration of the farm bill this year.

The Senate-passed farm bill did not make any changes in the sugar program, which directs the Agriculture Department to maintain sugar prices at certain levels by restricting imports, and neither did the House Agriculture Committee.

But the House has not taken up the farm bill and industrial-scale candy companies and other sweetener users are hoping that there will be a vote on the House floor on proposals to make it easier to import sugar and thus reduce prices even more.

“U.S. sugar producers desperately need Congress to renew no-cost sugar policy if they are going to have a chance to survive,” said Phillip Hayes, a spokesman for the American Sugar Alliance, which represents the cane and beet growers.

But the Coalition for Sugar Reform, a group of candy companies and other industrial users, is not backing down on its campaign to change the program.

“While the U.S. price of sugar has recently fallen, it's fallen from an all-time record high that produced incredible windfall profits for domestic producers and processors over the past three years,” said Jennifer Cummings of the Fratelli Group, a public relations firm that represents the users’ coalition. Sweetener users, she added, have to pay higher prices than their foreign competitors.

The fall in sugar prices and the realization that there would be large stocks has occurred rather quickly over the last three months.

Raw sugar prices dipped as low as 21.5 cents per pound during October, about 40 percent lower than a year ago, and low prices are predicted for the foreseeable future, ASA said in a recent news release.

But the severity of the situation and the long-term prospects became clear only on Friday when the Agriculture Department released a report showing the high level of stocks on hand that had led to the lower prices.

The report showed that the 2011-2012 ending stocks as of September 30—a measure of end-of-year surplus supplies — rose above 2 million short tons for the first time since the 2000-2001 crop year.

This year’s ending stocks are predicted to be even higher, at 2.2 million tons, the highest since the 1999-2000 crop year.

Stocks as a percent of consumption, the stocks/use ratio, rose to 17.5 percent for the year that ended September 30 and to 18.7 percent for the year that will end Sept. 30, 2013.

“For perspective, 2.2 million tons would be enough leftover sugar to give every American an additional 14 pounds on top of what they already consume,” ASA said in its news release.

ASA Chief Economist Jack Roney told The Hagstrom Report the USDA report was “stunning.”

Hayes said the surplus is due to big crops in the United States and Mexico and unlimited imports from Mexico under the North American Free Trade Agreement.

ASA officials plan to remind Congress that food processors have continually made money.

“The big candy lobby has complained of high sugar prices on Capitol Hill for months despite their own increasing profits,” said ASA Chairman Ryan Weston, a grower lobbyist. “Now they have big profits, cheap sugar, and a rosy outlook for the future, so lawmakers will be much less receptive to their poor-mouthing.”

Hayes noted that despite the rapidly falling cost of sugar, large food makers have not reduced prices for sweetened products in the grocery store.

“They are padding their profits right now,” he said. “Most people are surprised to learn that confectioners actually have higher profit margins than major oil companies and even casinos.”

The growers point out that the sugar program is supposed to operate at no cost to the taxpayers, but the users note that they are forced to pay more money.

“The 2008 farm bill provisions, which severely restricted supply, led to refined sugar prices soaring to previously unheard-of levels, distorted markets, short supplies and incentives for businesses to locate food production offshore,” Cummings said. “That will happen again any year that the domestic sugar crop is down, unless Congress enacts sugar reform.”

But Hayes maintained that the high recent prices were due to world conditions and American consumers’ preference for sugar as opposed to other sweeteners, such as high fructose corn syrup.

Cummings also noted that her group’s proposals are not aimed at abolishing U.S. sugar price supports and import quotas, only moderating them.

“If Congress approves reform proposals, there will still be a government safety net for sugar growers,” she said.

Since Hurricane Katrina reduced U.S. sugar output and caused temporary problems for candy makers and others, the Sweetener Users Association has maintained that it wants to maintain the current level of U.S. sugar production on a geographically-wide basis, but Hayes said that the users’ proposals would force some U.S. sugar growers out of business.

The period of high prices was relatively brief, Hayes said. October’s 21.5-cent low is remarkably similar to raw prices seen in past decades, he said.

Prices averaged 22.2 cents in the 1980s, 22.0 cents in the 1990s, and 21.4 cents in the 2000s. More than half of all U.S. sugar-producing operations closed during that three-decade period, but sugar growers have recently been able to modernize their operations.

Hayes also noted that when the European Union changed its sugar program it went through a period of market chaos because expected imports turned out to be unreliable.