February 2010 WASDE Report

Expert perspective on the USDA’s February 2010 WASDE Report from Frank Jenkins of the Jenkins Sugar Group:

The USDA released updated supply and demand data for the US and Mexican sugar complex this morning, decreasing the 2009-10 US ending stocks/use ratio from 10.8 % to 10.0 %. The report saw several adjustments which netted an 85,000 ton reduction in the 2009-10 supply. Once again, no changes were made to the demand side of the ledger.

Frank Jenkins of Jenkins Sugar Group

Looking at 2009-10 supply, the estimate of beet production was increased by 100,000 tonnes to 4.500 million tons. Results for the cane sector were mixed with the Florida crop reduced by 15,000 tons while the Louisiana crop was bumped up by 50,000 tons. The estimate of imports from Mexico was reduced by 220,000 short tons.

Mexican production was reduced by 200,000 metric tonnes (220,000 strv) to 5.10 million tonnes raw value, or 4.766 million metric tonnes “as made” – an estimate that seems to be lagging the adjustments made in Mexico. Mexican exports were reduced to the same extent, leaving 2009-10 ending stocks in Mexico at 518,000 tonnes, a bit more than one month’s consumption.

At the risk of beating a dead statistical horse, we feel that Mexican production is overstated in today’s report by roughly 300,000 strv, Mexican exports to the US are overstated by 150,000 tons and that domestic food use is underestimated by an absolute minimum of 340,000 to 440,000 strv, depending on whether demand is flat or up 1.0 %. As the below Table 11 from the USDA Sweetener Market Data set shows, total US sugar deliveries for human consumption were up 4.7 % in the October-December quarter, with deliveries to the beverage industry up by over 25 %. While we do not assume that the increase in deliveries will hold up at that level, the difference between 4.7 % higher use and the 3.24 % lower in today’s report is a sprawling 831,000 tons – more than 75 % of the total ending stock figure.

The lower ending stocks/use ratio in today’s report is unlikely to wake the USDA from its hibernation and, given the Department’s apparent willingness to rely on Mexico to remedy the US deficit, the Mexican Economy Ministry’s announcement of its intent to import 250,000 tonnes between now and May 20 is likely to have the equivalent effect as the groundhog seeing its shadow – six more weeks of administrative winter. We continue to believe that if no action is taken between now and April 1st the May #16 will rally to 48.00 to 50.00, with a 19.00 premium to the world market a useful metric based on the potential for high-tier imports.

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