March 13 (Bloomberg) -- The U.S. Department of Agriculture hasn’t decided how to reduce the country’s sugar surplus, Justin DeJong, a spokesman for the agency, said today in an e-mail.
DeJong was responding to a report that the government is considering the purchase of 400,000 tons of sugar to prop up falling domestic prices and to stave off defaults by processors on $862 million in loans taken out under a government price-support program. The potential purchase was reported by the Wall Street Journal.
“We are considering several options” on how to reduce the surplus, DeJong said in the e-mail.
Domestic raw-sugar prices slumped 37 percent in the past year through yesterday to 21.75 cents a pound amid the biggest glut in more than a decade. In the 12 months ending Sept. 30, production will be 9.16 million short tons, the most since 2001, USDA data shows.
That, plus rising imports, have boosted estimated stockpiles to 20 percent of annual consumption, the highest in 12 years, according to the USDA. While the government tries to limit purchases from overseas, its hands are sometimes tied by free-trade agreements, in particular with Mexico.
The government’s Commodity Credit Corporation offers loans that guarantee a minimum price of 20.9 cents for unrefined sugar. If it drops below that level, processors who get the credits can repay their debt by selling to the USDA. Processors have pledged 1.83 million short tons as collateral, equal to about 20 percent of the projected crop. Government purchases may support higher prices.
The possible purchase of 400,000 tons “does go some way to patch up the oversupplied U.S. balance sheet but they will probably need to double that to even things out,” Michael McDougall, a senior vice president at Newedge Group in New York said in an e-mail.
The most sugar ever acquired by the government through the program was 764,000 tons in the year ended Sept. 30, 2001.
“The market is under immense pressure,” Craig Ruffolo, vice president at McKeany-Flavell, a broker in Oakland, California, said in an e-mail.
He cited record beet sugar production, a bumper sugar-cane crop and Mexican imports, “all during a time period when food and beverage companies are seeking to lessen caloric sweetener content in many of their products.”
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