March WASDE Report: Sugar Supply in U.S. Remains Tight

Perspective on the USDA’s March WASDE Report from Pat Henneberry, Senior Vice President and Chief of Commodities Management for Imperial Sugar Company:

The USDA has released the March World Agricultural Supply Demand Estimates (WASDE), which include estimates of the supply and demand of many grains and other commodities produced in the U.S. The estimates for sugar were changed in only minor ways.

Pat Henneberry, Senior Vice President and Chief of Commodities Management for Imperial Sugar Company.

For 2009/2010, the USDA reduced the estimate of raw cane sugar production in Texas from 170,000 tons to 140,000 tons. On the demand side, the USDA reduced the estimate of sugar usage in products containing sugar and polyhydric alcohol by 50,000 tons. All other estimates remain unchanged.

The USDA made more changes in the estimates of the 2009/2010 Mexican sugar balance. It reduced the estimate of the Mexican sugar crop by 200,000 tons to 4.9 million tons raw value, in line with current reports of lower production to date. The estimate of demand was reduced by 300,000 tons and estimated imports were increased by 270,000 tons.

The USDA pointed out that high fructose corn syrup imports in the fourth calendar quarter of 2009 were 208,000 tons versus 297,000 tons of imports for the entire Oct. 2008/Sept. 2009 fiscal year. This considerably loosens the expected Mexican supply/demand situation for sugar in the current year and points out the expectation of continued imports being allowed into Mexico.

“The overall sugar situation remains tight in the U.S., and market participants await USDA action to increase the import quota in April,” said Pat Henneberry, Senior Vice President and Chief of Commodities Management for Imperial Sugar Company.

According to Henneberry, the USDA has said it faced considerable uncertainty in dealing with sugar imports in the current year. Uncertainty over how much sugar will enter the U.S. from Mexico – and large differences in the estimates of demand between the USDA and those in the industry – make it difficult for the USDA to know with certainty how much sugar they need to add to the system. This uncertainty will likely lead to several smaller increases through the remainder of the year rather than a single larger action during the first half.

“We believe such a strategy will lead to continued tightness in the U.S. market for sugar for the balance of the fiscal year,” said Hennebery. “Despite a savage decline in world market prices in the last couple of weeks, that market remains tight and the supply demand tightness seems unlikely to be decreased during this calendar year. The best most analysts expect is keeping the current shortfall constant.”

Henneberry went on to say the supply availability of sugar for the U.S. raw sugar import quota for 2010/2011 beginning this fall will likely be tight, with many countries unlikely to have sugar available until the beginning of their new crops in the November/December timeframe. “This situation has the potential to leave the U.S. short of raw sugar in the beginning of the next fiscal year.”

The 2008/2009 estimates for sugar were left unchanged in this month’s WASDE report.