What is in this article?:
- Sugar policy under supply pressure
- Blaming imports
- Unexpected increase in sugar production in Mexico for the 2012 crop has put additional supply pressure on U.S. sugar policy.
End-of-year stocks will increase and that will continue to put downward pressures on market prices. Stocks at the end of FY 2012 (September 30) were estimated by ERS at 2.0 million STRV with an implied stocks-to-use ratio of 17.5 percent, the highest since 2004. Production plus imports in FY 2013 is expected to exceed use and stocks are likely to increase to 2.2 million STRV, a stocks-to-use ratio of 18.7 percent. A more market neutral stocks-to-use ratio is 15 percent, about 440,000 STRV less than now expected.
The international market is not likely to provide support for U.S. prices. According to estimates by the Foreign Agricultural Service of USDA, steady world production in marketing year 2012/13 at 172 million MT after three years of rising output and ending stock of 38 million MT should keep prices in check. Global trade will decline 3 percent because China has increased domestic production.
U.S. sugar producers have promoted the current sugar price support program as one that has been operated at no cost to the government while providing producers a modest price guarantee. The TRQs and Mexican tariff-free trade allow access to about 25 percent of the U.S. market; the U.S. is the third largest importer after the EU and Indonesia. The potential for loan forfeitures comes at a time when the 2012 farm bill is being written and funds are in short supply.
The 2008 farm bill provides for marketing allotments for domestic production and the production of ethanol from excess sugar to avoid defaulting on price support loans. The ethanol program has not been used over the last four years, and any production would directly compete with corn ethanol for limited demand because of the ceiling on blending with gasoline commonly referred to as the ‘blend wall’.
Government managers of a commodity market often have problems with a market in transition from low prices to high prices or, more often, from high prices to low prices. Users get tired of paying high prices and encourage government managers to increase supplies. That usually happens just about when market forces are starting to remedy the situation with increased supplies and/or reduced demand.
The supply problems will likely be blamed on Mexico or imports in general when the real issue is that production and markets are variable and difficult to manage in a top down manner.
Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org).