U.S. sugar supplies will rise next year even as domestic output falls because of increased imports from Mexico and elsewhere, government data show.
Stockpiles on Sept. 30, 2014, will increase 0.6 percent to 2.28 million short tons (2.07 million metric tons) from a year earlier as imports jump 19 percent to 3.368 million tons, the U.S. Department of Agriculture said today. Production will fall 6.4 percent to 8.630 million short tons, from a revised record this year of 9.22 million tons, the data show.
While the USDA limits imports to protect domestic beet and cane growers, that power has been eroded by a free-trade agreement with Mexico, according to Ron Sterk, an editor at industry trade publication Milling & Baking News and Food Business News. Domestic-sugar futures are down 38 percent in the past year to 20.3 cents a pound on ICE Future U.S. in New York, and yesterday reached the lowest price since April 2009.
“It’s not easy to manage the program from the USDA standpoint when a couple hundred thousands of tons can throw the market in disarray,” Sterk said today at the USDA’s annual outlook forum in Arlington, Virginia. “Maybe we need to ask ourselves, how much sugar does the United States need?”
Sugar is the only major agricultural commodity grown in the U.S. in which the government actively manages imports. Quotas started in the 1930s and survived a challenge in Congress last year. An Iowa State University study in 2011, when prices averaged 38 cents, said that ending the limits would cut consumer costs by $3.5 billion annually.
Record output this year is creating the biggest domestic glut in a decade, reducing costs for Hershey Co. and making it more likely the government will need to stockpile supply to support farmers. Because of the free-trade accord, the government has few options in curbing shipments from Mexico, which the USDA predicts will boost shipments to the U.S. by 15 percent next year to 1.603 million tons, more than any other foreign supplier.
The glut is narrowing the premium for domestic sugar over world prices to 2.24 cents a pound as of yesterday, compared with 11.1 cents on March 30. Raw-sugar futures, the global benchmark, tumbled 27 percent in the past year to 17.9 cents a pound yesterday on the ICE.