Rise in World Sugar Prices Does Not Equal Shortage

Due mainly to declines in Indian and Brazilian sugar cane production (the world’s two largest producers), global sugar prices have risen 88 percent this year to a 28-year high of around 26 cents a pound — competitive with American prices, also for the first time in 28 years.

“For the last several decades,” says Pat Henneberry, senior vice president of Commodities Management for Imperial Sugar, “the norm was that quota-holding exporters were much better off sending sugar to the U.S. than world destinations because prices were so much higher here. This year, that’s not the case, and current world prices are competitive with prices prevailing in the U.S. for raw sugar. In fact, for the last several weeks, U.S. prices have been following world prices higher in order to remain competitive and continue to attract raw sugar supplies.”

This competition for supply has created concern among some of the nation’s largest food producers, who, on August 5, posted a letter in The Wall Street Journal, warning that a worldwide shortage of sugar may be a possibility and asking the USDA to consider raising import levels.

However, on August 12, the USDA released new data showing that the country’s sugar warehouses have 1,252,000 tons of surplus sugar looking for buyers. It also upped ending stock estimates for next year—an estimate that sugar industry experts expect to rise further as imports from Mexico start flowing in.

Pat Henneberry

“Thanks to our neighbors to the south, there’s little possibility of a shortage,” asserts Henneberry. “Mexican suppliers are estimated to send 1.45 million tons of sugar from Mexico to the U.S. this year, which singlehandedly solves the shortfall of refined sugar in this country.”

Henneberry says that while large exports of sugar will temporarily turn Mexico into an importer for its own needs through the fall of this year, the financial benefits far outweigh any disadvantages.

“Given that U.S. prices are historically high and that there are no import restrictions on the amount of sugar that Mexico may ship to the U.S., it made economic sense for Mexico to export to us. Currency factors also helped draw sugar to the U.S. market. Last September, the peso stood at 10 to the dollar. In March, it climbed to 15.5 to the dollar. That made it possible for Mexican producers, who finance in pesos, to sell the same dollar price and get 50 percent more pesos for their sugar. This additional income helped bridge the cost of moving the sugar from Mexico to the U.S. and accelerated the flow of sugar into the U.S.”

“To paraphrase Mark Twain,” says Henneberry, “the rumors of a shortage have been greatly exaggerated.”