U.S. Cane-Sugar Processors Seen at Risk of Default on Price Drop

U.S. cane-sugar producers are at higher risk of defaulting on loans issued by the government as a supply glut pushed prices below production costs, a growers’ group said.

“The entire industry is vulnerable to defaults as everybody is facing higher input costs and lower prices because of the oversupply situation, exacerbated by surging imports,” in particular from Mexico, Jack Roney, director of economics and policy analysis at the American Sugar Alliance, said in a telephone interview from Washington.

The non-recourse loans extended by the government’s Commodity Credit Corp. were, on average, 18.75 cents for each pound of cane-sugar produced, and 24.09 cents for each pound of refined sugar made from beets, Roney said. If prices drop below those levels, borrowers can repay their debt by selling to the U.S. Department of Agriculture.

Spot prices for cane sugar averaged 20.72 cents a pound in February, while refined sugar made from beets averaged 28 cents, Roney said. To pay the principal plus the interest, cane processors need to sell their product at an average of about 21 cents and beet processors between 23.3 cents and 25.6 cents, Roney said. “Right now, the beet processors are in better shape,” he said.

Domestic raw-sugar prices slumped 38 percent in the past year to 21.63 cents a pound today on ICE Futures U.S. in New York, amid the biggest glut in more than a decade.

As of mid-January, processors pledged 1.83 million short tons as collateral for $775.3 million of loans, equal to 20 percent of the crop, according to government data obtained by Bloomberg. A little more than half was taken by refined sugar producers, the figures show.

The Wall Street Journal reported earlier that processors that took out the bulk of the loans could be at a higher risk of default. The newspaper also reported that the USDA was considering the purchase of 400,000 tons of sugar to boost prices and avert forfeitures.

The USDA hasn’t decided how to reduce the country’s sugar surplus, Justin DeJong, a spokesman for the agency, said March 13 in an e-mail.