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Corn-Price Drop Won’t Deter Sugar Buys for Ethanol, Vilsack Says

Corn’s 25 percent drop from a record reached in August won’t affect possible purchases of sugar for use in ethanol as the government tries to stem a sweetener glut, Agriculture Secretary Tom Vilsack said.

A projected record corn harvest won’t influence the U.S. Department of Agriculture as it decides whether to purchase sugar for use in ethanol plants, potentially increasing a glut of the grain while decreasing sugar inventories, Vilsack said yesterday in an interview. The agency is required to manage sugar supplies under federal law, and biofuel use is one tool to prop up prices that are approaching levels at which the government is required to buy up inventories, he said.

“There’s obviously a significant oversupply, and the law requires us to deal with an oversupply,” Vilsack said. “There are consequences if we don’t deal with it that are fiscally more dire than if we do deal with it,” possibly by buying sugar for biofuels plants, he said. Nearly all U.S. ethanol is made from corn.

Prices for domestic sugar dropped 40 percent in the 12 months ended yesterday as stockpiles climbed to their highest in a decade, potentially triggering federal purchases. Corn has plummeted from its Aug. 10 record of $8.49 a bushel as the worst drought since the 1930s gave way to forecasts for the biggest harvest ever this year, which would triple inventories by 2014.

The USDA last month said it’s considering “several options” to support prices, including purchasing excess sweetener, possibly for sale to ethanol plants, or restricting imports to the minimum required by international treaty. Vilsack yesterday said the department continues to weigh its options without committing to any one path.

“You have to be sure that once you pull the trigger, you’re pulling it in a way that’s going to actually do what it’s supposed to do, which is to stabilize things and to minimize the cost to taxpayers,” Vilsack said.

The department would need to buy 534,000 short tons (484,000 metric tons), 5.8 percent of this year’s estimated production, to reduce the surplus to the government’s desired level, according to Frank Jenkins, president of Jenkins Sugar Group in Wilton, Connecticut, the largest broker of U.S. sugar.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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